September 22, 2014 by Liberty
Wouldn’t we all love to know that secret formula to wealth that everyone is claiming to sell you. Well… I can’t provide you an exact formula but I can point you in the right direction that most people don’t notice. Becoming financially abundant requires a ton of different factors but there is one thing that virtually every person that becomes rich learns to profit off of.
You can become rich off absolutely any business using this factor but there are certainly preferential businesses to be in.
There is an old cliché that suggests real estate is the greatest way to get rich. Before telling you the right direction, let’s look at that idea of real estate being a great way to get rich quickly.
Real Estate Investing
Okay… I’ve got an investment for you. Here are the important factors to consider… You have to spend hundreds of thousands of dollars on it. The return on your investment is pretty small usually and you’ll need to wait a decade or so to pull some of that profit out. You need to trust people to keep that investment in good condition (or pay when they screw it up.) The costs are highly unpredictable too. Well… That doesn’t sound like a great investment. It just sounds like any other business.
Using real estate to become financially abundant is no different than any other business you want to enter. There are some major problems with it but… despite that, there is still this belief that real estate is the secret to getting rich. Looking at just those factors, it’s definitely nothing special but if you’ve studied real estate even a little bit in your life, you know I’m overlooking some important factors.
Well… First of all, real estate is the only investment (typically) you can buy with only a small fraction of the actual cost. Instead of spending $200,000 on an investment property, you can get away with spending only $40,000 (or less.) That leaves you collecting the return of a $200,000 investment at a cash cost of less than a quarter of it. On top of that, you have decades to pay that loan off using that return on your investment. That makes real estate a very powerful investment but real estate really isn’t the defining factor here.
To understand why, you need to look at the history of mortgages. Spending only 20% on a mortgage isn’t a real estate factor. It’s a government factor. The free market (or closer to free market) mortgages of the late 1800’s often required buyers pay for at least 50% of purchase price with less than a decade to pay the rest. Since the 1930’s the US government has been creating policy after policy encouraging more leveraged real estate.
(Of course, leverage goes both ways. Big wins and big losses.)
That isn’t the only area that real estate relies on government though. Bankruptcy encourages people to use excessive leverage (Why not go for it? You can only lose back to zero.) Limited liability corporations protect the owners for liability concerns (and often criminal charges. A fine is way nicer than a prison sentence.) Depreciation can make paper losses for tax purposes but profits for the owner. Capital gains tax is a much better deal than income taxes. The list can go on and on.
The greatest way to get rich in America is not using real estate, it’s using government.
Keep in mind, I’m not talking about just plain old successful. Hard work and good decisions are probably the best way to become successful and rich by some standards. I’m talking about owning yachts you forget you own kind of rich. That requires more than just hard work and good decisions. That almost always requires luck or government support.
The free market has a way of limiting the profits of any particular innovator. When a new product hits the market, the creator can charge whatever he or she wants (whether people buy it is a whole different story.) Over time though, profitable products (or potentially profitable products) will be copied, manufactured cheaper, and sold cheaper. The original creator has 2 choices. They could take the money they made and be happy about it or they could try to compete with the copier by making it better, cheaper, or different in some way. Either way, the profits are cut down.
(Naturally though, no one likes to see their profits cut down like that. That’s where government can step in with patents, trademarks, and copyrights.)
Using the government you can profit significantly more than using the free market.
This profit can come from virtually any direction.
Even the poorest people can learn to manipulate (legally) the welfare system to maximize their personal gain. You might consider this: Instead of saving up that extra money that would disqualify you from food stamps, spend it all on a uncounted asset like a home. Then you can collect more benefits while still securing yourself in some way.
Most people aren’t comfortable at this level.
The average person could use real estate investing as a way to profit off of the state. Of course, if you make some mistakes you could screw yourself but if you tread carefully, there are profits to be made.
If you happen to have enough money, you can use lobbyists to do your bidding. Of course, this is the most profitable method of all when done right. Instead of following the trend of government, you get to prepare in advance and push government there.
I know… This can be a painful set of factors to think about but it really doesn’t have to be.
You may not want to use politics to become filthy rich. Even if, morally, you don’t see too much wrong with it. (You’re just as much a victim to the state as anyone else. You’re just pointing the guns aways from you and that means they’re going towards other people. Quite the self defense argument to me.) I personally wouldn’t do it but that’s more because I find the thought of dealing with bureaucrats revolting.
Even avoiding these political factors, you can become highly successful in America. Despite the common belief, you are not trapped in one financial position for life. There are tons of opportunities available to pull yourself in the direction of financial comfort. Don’t let the people willing to kill for their own benefit keep you from learning to live your own life comfortably. The guilt isn’t on you.
Do you want to learn how to live more free today (instead of waiting for that new magical set of laws to pass?) Then be sure to follow this blog.