If you are following this blog, you should know by now that capturing a $30K equity on a single family property in the Dallas, Fort Worth, Denton area is fairly straightforward, if you are working with the right people and are open to learning. A $30K equity capture means that at the day of purchase-closing you have increased your wealth by $30K.
So often I am asked this question. If you can do that and do that all day, why are you giving it to me? This stems from the fact that when I help you, my client, purchase a single family investment property, my cash gain out of that transaction – as I am a licensed broker in the state of Texas – is say 3%. So if we buy a $100K property, I make $3K. If I bought the property for myself, I made $30K. So this question is very normal.
The answer is simple. It’s the difference between cash flow and wealth. The $30K I would have made is equity capture, wealth, unrealized gain. The only way to utilize that for my daily needs – called consumption, is to liquidate the asset, i.e., sell it. That I hate to do. Yes, hate, perhaps with a capital H. In fact, every single wealthy individual I know shares this feeling. They hate to liquidate their assets for consumption purposes, especially if they built that wealth themselves (as opposed to inheriting it).
So, what’s the definition of consumption. It’s the cost of living. Food, shelter, clothing anything that’s a non-investment. The wealthy prefer that cash for consumption purposes comes from operating a business or passively as dividends from their investment. These are methods that don’t destroy or eat away at the asset itself. The business that produces the income for consumption is an asset that’s in no way diminished by the cash it produces; the real estate that produces passive cash flow (rent minus expenses) is in no way depreciated by the cash it produces. These are the streams of cash that the wealthy like to spend (for consumption).
To become wealthy, I believe it is absolutely necessary to start thinking like one. Never liquidate your assets for consumption sake. Do not eat the goose that lays the golden egg. Read “The Richest Man in Babylon”. What I’m saying here is not new, not rocket science. It’s ancient. It’s biblical.
I also see this mindset where the methods of the wealthy, especially the ones who teach are questioned by skeptics. I know there are a lot of bogus conferences and seminars out there but there are some very good ones. Don’t paint them all with a big bad brush. Several wealthy people conduct seminars and classes – not only for altruistic purposes – but they have some thing genuine they can teach and also benefit from, get cash flow. Remember, they hate to consume their wealth. They prefer to teach you how to do it and be compensated from it. That’s a win-win. I wish more would just be up front and say how they benefit from you right off the bat. That cultivates trust.