Ruffling feathers: money is NOT "made"

[Michael Plaks]

One of our prevalent society myths is that we "make" money. Nope. Money already exists, and the only one who makes it is the government with its overloaded printing machines. The rest of us move money around.

If we bother to trace it, there's always a cycle. I'm a real estate tax accountant. My money comes from you, the BRRR investor. Your money comes from your tenant, a truck driver. His money comes from his employer, the trucking company. The trucking company's money comes from Walmart. And their money comes from me.

The amount of circulating money is the same. But in the process some end up keeping more of it, and others end up the opposite.

So the trick is to position yourself in this cycle so the money flowing in exceeds the money flowing out. To accomplish it, some people leverage their natural talents (LeBron James and Taylor Swift), others leverage their brain (Elon Musk, arguably), some use their looks (you know who you are), yet others ride their status or connections (check the news). Most of us, in the absence of anything previously mentioned, just sell our time and labor. Myself included.

When choosing your business plan, especially in real estate, consider:

- who will your money be coming from, and are you comfortable with it, including the ethical aspect?

- where you will have to channel your money to (as an accountant, I must remind you: taxes are a huge part of this equation)

- is the spread between the two attractive?

- what do you have to leverage in order to position yourself there (yes, looks included)?

- what's the return on your time and labor required?

Let me close with two common examples of miscalculating the above. First one: a landlord during an economic downturn. Your money is coming from tenants. If they are not paying you, you need to kick them out. Where they will go and how they are going to feed their family is not your problem. Whether they lost their job or got a medical issue or something else. How are you feeling about it? If it makes you pause, maybe landlording is not for you. 

Second example: flipping. Yes, you finally finished the cursed rehab, despite all the contractor nightmares, sold it and paid back your lenders. Miraculously, you still ended up with a $40k profit. This is less than $30k after taxes. So you spent 6 months of your life to make $30k. Your W2 job that you quit for this career was paying you more, with less stress and way more predictability. And it was indoors. And you did not have to pay for marketing, education and accounting. And you did not have to drive 30,000 miles back and forth. 

Choose your path carefully.