Why It's Easier to Create Wealth Than Earn it

Suppose you’ve worked your way into a fairly lucrative career earning $100K per year. A salary like this is well above the median amount that most people earn so you should be on your way to financial independence in no time! Not so fast. I’m going to break down why chasing a large salary is not the way to build wealth and show you what a better option is.

To earn that $100k salary, you most likely gave up 4 years of your life and took on a large amount of debt to obtain a college degree in order to set yourself like this. Now, besides the fact that you must constantly work on the 40+ hours/week treadmill in exchange for your paycheck, the government takes almost half of all you earn leaving you with a mere $60K. Let’s take a look at where this $60,000/year or $5,000 per month income goes.

• 1.Student Loans - $500/mo.
• 2.Mortgage - $1500/mo.
• 3.Car Loan - $500/mo.
• 4.Fuel & Oil Changes - $300/mo.
• 5.Food - $500/mo.
• 6.Insurance - $500/mo.
• 7.Utilities - $200/mo.
• 8.Cell Phones - $200/mo.
• 9.Misc. Expenses - $300/mo.

Total Monthly Expenses - $4500/mo.

This leaves $500/mo. of disposable income to do with as you please. If you are disciplined, this will go into savings or an investment account. Investing all $500/mo. or $6,000/year at an average rate of return of 7% in stocks or mutual funds will take 10 years to accumulate $100,000! Ten years of grinding out long days at the office trading your precious time for dollars.

Let me tell you there is a better way! Here is an example of a real estate deal that I did that netted me over $150,000 in 6 months. I found a run down four unit apartment listed for $250,000 that was built in the early nineteen hundreds and needed a lot of work. The property was actually two side by side two story duplexes that were on individual lots. The place was pretty scary from the outside with overgrown trees and shrubs, weathered paint, cracked concrete paths and stained smelly carpet. The location was awesome though and was right in the heart of downtown surrounded by new construction and revitalization. The exterior scarred a lot of people away but I knew the place was underpriced and only needed about $15,000 to clean up. I search the MLS every day and have a good pulse on my local market so when I saw this new listing I knew I had to make an offer right away!

I found out that the owners were planning to trade the property via 1031 exchange into a larger building and needed to be sure the sale would go through and close fast. I wanted to purchase the place with a 25% down investor loan but I knew the sellers would most likely pass on an offer that was contingent on financing since they had to be sure the deal would close within their 1031 exchange time constraint. With the current shape of the property, I also wasn’t sure the property would qualify for a conventional loan so I found a private lender to fund the deal which allowed me to make a very appealing cash offer. Talking with the sellers, I found out that time and ability to close fast were more important than a high offer so that’s the route I took. I wasn’t worried about the current lease agreements because they were all month to month and found out that the rents had not been raised in over ten years. This explained why the units were so worn down – the existing tenants knew what a good deal they had. I saw opportunity increase revenue.

I made a full cash offer and had the place under contract the same day. I had all my ducts in a row and had a relationship with a private money lender in place before this deal hit the market because I educate myself about real estate investing on sites like www.biggerpockets.com and www.thatpassivecash.com. It’s a good thing I made such a quick offer because the agent told me the next day she had 30+ calls and other investors asking if they could put offers in.

After getting the property under contract I ordered up a property inspection. Nothing major came out of the inspection that needed to be addressed except for the underground plumbing which was in really bad shape and had roots growing through the underground pipes. This didn’t deter me though and I went through with the deal.

As soon as I closed on the property, I sent new lease agreements to the tenants to notify them that they had 60 days to sign the new leases at the higher monthly rent or move out. The new leases doubled everyone’s rent which was still under market from what they would rent for once the places was fixed up. Only one out of the existing four tenants signed the new lease but that was fine by me. This gave me the opportunity to fix up the units as soon as the old tenants moved out. In the meantime, I was busy on the exterior, hauling out the overgrown landscaping, breaking out the badly cracked concrete, painting the exterior and building a new fence around the back of the property. This made a huge improvement to the curb appeal and brought the property back to life! On the inside of the units I repainted all the walls, installed new carpet, bathroom fixtures, kitchen appliances, window coverings.

After all the improvements I was able to refinance the property with a 30-year loan which allowed me to pay back my private lender. While listing the units for rent on craigslist an investor called my property manager who also happens to be my agent, and offered to purchase my property for $400,000 three months after I had acquired and repositioned it.

This is what I mean when I say it’s easier to create wealth through identifying and creating opportunities rather than save for years and years. What took me roughly four months of work, netted me over $100,000. Ten plus years of socking money away in a 401K or four months of creative work – take life into your hands and design the life you want.