For the self employed: The difference of owning a business , versus owning a job.
Who is your boss? I mean, really. If you took a year off, would you still make income?
If the answer is no, then someone else is controlling your income than you. In other words, you ain’t the boss. Now, that may not necessarily mean you don’t have a great job, or make good money. It just means some people make money without having to be in a day to day job. What is it they know that you don’t? Well, let’s talk about primary and secondary wealth.
The creation of secondary wealth
Secondary wealth is known as production wealth. Simply stated this is wealth that is created out of the capacity to create more primary wealth. When investing I always want to strive to produce wealth, to have the capacity to create or manufacture cash flow or equity growth.
When you have investments that continue to pay you day after day, month after month you are producing wealth. Some people invest and simply create a job for themselves that pay them once. Is this really even investing? Not in my book, it does not create wealth. Like the person who buys, fix and flips. They get paid just once.
You can learn a lot by looking at farmers.
Farmers are perhaps some of the savviest business people we have today; they are hardworking, diligent people who want to make money just as Investors do. Like investors there are two types of farmers.
There are chicken farmers who raise chickens from little chic’s, they fatten them up then bring them to slaughter for a one time return of profits. Similarly, there are real estate investors who buy houses, plump them up (fix and rehab) them they bring them to slaughter. They sell it for a one time return on profit.
While this analogy sounds crude it is what many investors do every day. Like the farmer who invests in chicks and carries the cost of plumping up their investments, they carry the risk of their investments actually staying healthy and plumping up in a healthy and prosperous fashion as intended. The investors who subscribes to this model carries the same type of risks, they have cost incurred in raising this property from an unhealthy, worn down property and nurse it to health in hopes of making a profit. This is much like a job which requires risk and lots of attention to detail.
The Farmer who profits from eggs.
On the other hand you have farmers who raise chickens in a much more humane way, to gain residual income from them. They love their chickens; they take great care of them and respect them for their hard work. Each of these chickens is little employees to the chicken farmer. Each day is a repeat of yesterday. The chicken lays eggs; the farmer sells the eggs and continues to profit from their efforts.
Secondary wealth building versus buying job.
So as an investor are being fed once or long term? When you buy a property to fix and flip you are like the chicken farmer who raises chickens to fatten them up for slaughter, you only get paid once Often investors will do a buy, fix and flip as a means to create a chunk of cash in order to create a down payment to then buy a property to hold and use as a long term income producing property.
When you buy a property to rent you are like the chicken farmer who raises chickens to gather the eggs every day and sell the eggs for a profit and then the next day repeats the process.
The differences are quite honestly the difference between buying a job for a one time paycheck versus building long term residual income. The latter is considered secondary wealth.
Secondary, or production wealth, along primary wealth (direct ownership of a tangible, physical goods or resource) is what the top 1% invest in. This long term wealth is what investors want to invest in for sustainability.