There is a profound difference between being rich and being wealthy, and there are differences—plural—with regard to part-time real estate investing. And it is not merely a semantic difference.
So let me ask you: Do you want to be rich or do you want to be wealthy?
Well, I’ll tell you that I want to be both. I probably would have answered that question very differently prior to my experience as a part-time real estate investor and now full-time real estate investor with a HomeVestors franchise in Dallas. That’s what I want to talk about today.
This was one of many, many lessons I learned as a real estate investor and when I say that, I am referring to my recognition or understanding that there truly is a difference between being rich and being wealthy. These two concepts are often confused or seen as synonymous, but they really are very, very different. I‘ll share with you the three lessons that helped me come to this understanding and which, I believe, better positioned me for success and reward, not just in real estate investing, but in life in general.
Lesson 1: You can be very rich, yet never become wealthy.
We all know people who spend their money as fast as they earn it. They may make a very nice income, a very enviable income, but they spend it as fast as they earn it. In fact, we may even know people who spend their money even faster than they earn it, which is a very dangerous road to go down.
Lesson 2: You can become rich first, and wealthy second.
That is probably the sequence or the order in which it happens for most successful real estate investors. You become rich first and wealthy second. That is part of the relationship between the two concepts. It corresponds with what we’ve all heard so many times—that you “get rich quick.” Well, yeah, you can, though I don’t know if it’s sustainable or not in all cases. This also corresponds with what we hear about building wealth—attaining, achieving or accumulating wealth. That comes a little later, or second. It takes time, patience, discipline, diligence. Riches come first—sometimes quick for the lucky ones—and wealth comes second. It has to be built and accumulated.
Lesson 3: Riches can hold you hostage, while wealth can set you free.
This was a big lesson for me. Once again, you probably know somebody who makes a real nice income, but you can also probably look at that individual and go, “Gosh he’s got to work just to maintain the lifestyle.” He makes a wonderful lot of money, he is very rich, he has a lot of money coming in, but he is on a treadmill, and he can’t get off that treadmill, because those riches are fueling a lifestyle that has to be fed and there is no way to stop it. If he stops working, the money stops, the lifestyle stops. Therefore, he is held hostage by his riches or his income. That contrasts with the concept that wealth gives you freedom or sets you free. Hopefully, we all know or have an example in our life of someone who “never has to work again.” There is the difference—that is a wealthy person verses a rich person. He’s got assets and he’s got wealth that he has accumulated that works for him so he doesn’t have to, and that in turn becomes his income. He’s not held hostage by it; he is literally set free because his money works for him and pays him.
So let’s dive into these three key learnings, and I’ll expand a little more, and dive into real estate investing and how it can help you as a part-time investor or even a full-time investor as you map out your path as a real estate investor.
So back to lesson number one: you can be very rich, yet not be wealthy. You remember in my example, that’s where you make a lot of money, but you actually have none. I saw this a lot in my corporate life.
As regular followers of my blog and podcast know, I was a part-time investor with a full-time career unrelated to real estate. In that full-time career I was exposed to many, many people within our company, and many of them were very successful executives, and many of them were very high income earners. But over time, we all were able to identify those individuals within the organization who made a lot of money, who had great salaries and great bonuses, but you could tell that they were very rich and yet they were not wealthy.
They worked endless hours, almost in a constant state of panic and desperation, because that income had created riches that had created a lifestyle that became dependent on that income, and if that income were to ever stop, so would that lifestyle come crashing down.
That’s the devastation you see with so many people in America today, when they do lose their jobs, they were enjoying a lifestyle as a result of the income, but when the income goes away, so does the lifestyle. It’s very devastating and very sad in those instances, because they didn’t have the wealth to sustain themselves in the absence of that job or that income.
Now let’s tie it back to real estate, and watch out, all of you part-time real estate investors. In our world, I see it just like I saw it in my corporate life. You must be careful that if all you are going to do is wholesaling, or fix-and-flips, keep in mind that it generates great income or great riches, but if that is all you’re doing in your real estate business, you can never stop doing those things. That’s because the minute you stop flipping houses or the minute you stop wholesaling houses, that’s the minute that the income stops coming in.
But the beauty of real estate is that you can diversify what you do as an investor. Buy some rental properties so that you can keep income coming in. I’m not saying don’t fix-and-flip and don’t wholesale, but I’m saying be cautious and don’t put all your eggs in that one basket, because you can be like that corporate executive with that big fat paycheck whose lifestyle comes to a crashing halt when the paycheck stops.
The second point was that you become rich first, wealthy second. Your action—the work that you put in each and every day—produces your riches. Let’s say you, as a real estate investor, are wholesaling or and fixing and flipping houses, day in and day out, working hard. Sure, you could become rich first doing that, but as I mentioned before, if the income goes away, you will find yourself in quite a predicament. What’s important for you as an investor to remember is to take the fruits of some of that laboring and convert it into wealth, however you choose. My real estate investing business, as I alluded to earlier, is to wholesale and to fix-and-flip. And part of the fruits of that labor or the profits that I earn, I put into rental properties to build wealth so that ultimately I will be able to get off the treadmill or stop wholesaling or stop fixing and flipping properties and still live a comfortable life.
And now the third lesson: riches can hold you hostage, but wealth can set you free. We talked about how you can have a great income regardless of what you are doing—real estate investing, or working for someone else, or owning your own business—but you can be held captive by your lifestyle. You must be very careful that you don’t find yourself in a position where you’re pedaling that bike as fast as you can to keep the income and riches coming in, but the minute you stop pedaling, you fall down. Wealth sets you free, and wealth is what will allow you to coast on that bicycle. Maybe not immediately, but a little farther down the road in your life, you’ll be able to coast. So put wealth-building practices in place now—which for a real estate investor, that’s buy-and-hold real estate or rental properties, that generate that passive income, that allow you to get off the treadmill at some point in the future. That wealth that you are building is what will allow you to coast on that bicycle, and that will ultimately pay you.
A great way to measure this and keep in front of you and keep it a priority for you as a part-time real estate investor is to be sure to look at your profit-and-loss statement on a regular basis and manage it closely. That will be a key indicator of the profits you’re making in your business. But more importantly and something that I learned to appreciate more as an investor, is never take your eye off your balance sheet either. Your P&L is a measure of your riches or your income, but your balance sheet measures your wealth. Stay focused on that equity line, and make sure you are growing your wealth or growing your equity in your business, which is coming from those rental properties, most likely.
So in conclusion, I am not here to discourage you at all from wholesaling, or fixing and flipping, or to encourage you necessarily to go into buy-and-hold for rental estate. They are all wonderful ways to build riches or build wealth, whatever your goals are, and whatever your definition of riches and wealth are. My key point here though is, you do want to accumulate riches and wealth, and real estate is an excellent way to do it. Just make sure you are taking advantage of all the different avenues that real estate offers you to amass both riches and wealth.
As I said, I do wholesaling, and I do fix-and-flips, and they generate the income, or the riches, what I call my active investing. I use that income to pay my bills and to support my lifestyle. In addition though, I do a lot of buy-and-hold, or rental property investing.
Instead of generating riches, this portion of my business generates the wealth. Instead of being active investing, this is more passive investing. It doesn’t take as much of my time and energy, and it doesn’t generate massive amounts of income in the short term, but it does generate massive amounts of wealth in the long term.
Instead of using this avenue of real estate to pay my bills, such as I do with my active investing and wholesaling and fix and flip, I use this avenue to pay me. The rental properties pay me in a passive investing mode over time.
It’s wonderful to be rich, but it’s even better to be wealthy, and I stress that real estate investing can help you achieve both.
Listen to Kevin’s podcast here:
0 Comments