Why do I work?
Have you ever asked yourself the question: “Why do I work?”
I can easily answer this question for myself but I cannot answer it for you. I work so that I can provide for my family, have a better tomorrow, and when the time comes that I can no longer perform the duties that I am performing today I can still take care of myself as well as my family, yet maintaining the same quality of life. That is the reason why I work. So again I ask you: “Why do you work?”
During a lifetime, as you are getting more mature, it becomes evident that you start thinking about the future (yours and your family, and especially your children’s). This encourages you to start saving. But as you are doing so, you get to a point where you ask yourself what is the best way for me to optimize my saving?
You and I, are fortunate enough to be known as High-Income Earners or sometimes known as Accredited Investor. A High Income Earner is someone who makes on average $200K or more for the past two years and plans to make the same amount in the coming years. Once you reach that level you are usually part of the highest tax bracket in this country (USA). That also means not only will you be taxed between 35 to 40% of Federal Tax, but every year after filing your income taxes you are bound to pay more taxes. That is if you have no ways to claim extra deductions to reduce your tax burden.
I remember my CPA once told me that the reason I owe so much in taxes was that I did not own any real estate. At the time I did not understand what he meant, I understood the words but I did not grasp the concept behind his words. As I started educating myself financially, I frequently heard Tom Wheelwright (a well-renowned CPA) say: “the tax code used by the IRS is a set of incentives that the government wants you to use to do what they cannot or do not want to do”. In doing so, the government will shape your behavior in spending and saving.
If you think about it as you are getting older, you are maturing and gaining more experience, you tend to be better at your job and make more money as well. As such, you tend to save more, invest more in order to multiply your savings. In other words you want to have your money work for you, optimize your saving. That is when retirement plans such as 401(K), 529, IRAs start making sense because they are retirement money that you save with Pre-Tax dollars, which you invest in order to save for your retirement: government-controlled behavior.
These are great tools to save for your later years, but there are a couple of problems with this:
1- you do not have control over the money that you are putting into these accounts
2- The value of your money today is worth more than it will be worth in the future (what you will be able to buy with any amount of money today you will need a lot more in the future to buy the same things). This is known as consumer inflation!
In other words, you are losing money by simply doing the passive saving. Again you will ask, what is the best way for me to optimize my saving?
TANGIBLE vs INTANGIBLE WEALTH
As you are getting more mature you tend to create more intangible wealth because again you tend to follow the mainstream behavior set for you by the government, your financial adviser, or even your CPA, as I just explained in the previous paragraph.
Wealth creation can be either tangible or intangible, the more tangible the less risk there is and the less tangible the more risk there is. It’s like an upside-down pyramid. There is a finite amount of tangible wealth and an infinite amount of intangible wealth. Moving from tangible to intangible you can classify your assets into three tiers primary, secondary, and tertiary.
1*) Primary- the basic tangible wealth is finite, it is the earth (real estate), the trees (timber), commodities (gold, silver, oil). These are all tangible wealth and the more you own the wealthier you are.
2*) Secondary- The creation of a company that can develop and refine these primary tangible assets into usable assets such as a Goldmine, oil refineries, timber farm so forth, and so on.
3*) Tertiary- Then from these secondary assets may also arise paper assets, which is intangible: stocks from these companies, ETFs and Bonds created by very intelligent paper creating people for the stock market.
This is the difference between Main Street and Wall Street. These geniuses’ paper creations combined with our lack of financial education have us accept and gravitate towards the riskiest of all wealth creation, “paper asset”. Though we work hard for our money we are always convinced that investing in the stock market is the best way to create wealth (invest in your 401(K), IRA, 529 plans).
I am of the mindset that believes tangible wealth is the best wealth creation and today I would be talking to you about one type of tangible assets: REAL ESTATE.
Real estate is the sort of wealth creation that has existed since the beginning of time. It is the easiest way to create wealth if you know how to do it right. Most times people just use real estate to store their savings or their wealth, but did you know that real estate could also be used as your retirement income and generational wealth? AND by the way, real estate is the only asset I know of that the government/bank is lending you money to procure. And this is not all, real estate as per the IRS incentives is one of the best wealth creations in this country and one of the behaviors that the government incentivizes you to do when you do it right. What do I mean by that? It is in the government’s best interest to have lodging for everyone, having people without housing is not good for the federal government agencies because of the increase in crime rates, insecurities, and social impact. Thus when you follow the laws of investing in real estate and you do it well, the government rewards you. How you may ask?
Real estate is the only asset that you will be buying or is the only investment when you are procuring that the government/bank will let you borrow more money to buy the asset/investment than you actually have. For you to buy a single-family house you are only required to have 20% of the value of that property to buy it. The bank/government will let you borrow the other 80%, this is the definition of LEVERAGE. By using leverage you can buy as many investment properties as your money and your credit can afford. But after you are done buying these properties, the benefits of it all you control even the benefits on the money you borrowed from the bank/government.
Once I start understanding this reality, once I start understanding the concept that my CPA told me of paying too much taxes because I do not have enough real estate or any real estate whatsoever, once I understood that the rest was history.
I started taking classes to educate myself financially as well as educating myself in real estate to understand exactly the do’s and don’t’s of real estate as an investment vehicle. Once I was able to understand that, it was important for me to make the first step. To do that I used a strategy called arbitrage to buy my first property. My first property was a four-unit apartment building and because it was my first real estate property I was able to use the federal government program called FHA to my advantage. With an FHA loan, I was able to only put 3.5% down and borrow 96.5% of the value of that property.
This property after renting it to four different tenants who were in need of a good, clean, and affordable place to call home, had cash flow. The definition of cash flow is what stays in my pocket/bank account after I pay everything necessary to maintain the property; such as the mortgage, water and sewer, common area electricity, landscaping, and any maintenance necessary. After all expenses, the leftover of that monthly income is called “CASH FLOW”
All of a sudden by doing what the government told me to do or incentivize me to do, I started making money on my investment on DAY ONE. Then, by using leverage I was mostly making money on the bank/government’s money, thus I was able to take action.
However this did not come without its headache, but to me, that was part of the learning process. As soon as I was able to understand and appreciate my first transaction I wanted to do a second one and eight months later, I did my second transaction. This time I bought a five-unit property, except that this time I could not take advantage of the FHA program, therefore I had to put more money down, 25% of the value of the property while borrowing 75% of the bank/government money. I started receiving cash flow money from the second property on a monthly basis as well on day one. After acquiring my second property I started getting more offers from sellers and a month later after buying the second property I bought my third property. This one was a three-unit building and needed more work than the previous two before I could rent it out. Because it needed work I did buy it at a substantially lower price (discount), I used arbitrage to buy and fix it then re-financed it and pocket the profit.
Now two years after taking action I can say to you that I am making about $10,000 in cash flow every month. I am simply trying to show you that when you think about your future and how you want your retirement to look like, take the time to educate yourself so that you can take action. If your current CPA is not teaching you the proper way the government wants to incentivize you and shape your behavior towards bettering retirement income you need to think twice.
By using the incentives that the government tells me to use to properly invest in real estate I can see how for the longest time real estate has been the best wealth maker in the world.
Now I am sure one of the first questions that came into your mind, given what I have mentioned earlier or that you should come up with on your own is that: if I am a high-income earner making more than $200K a year and paying 35-40% in tax shouldn’t that $10,000 monthly become supplemental income and therefore be subjected to the same 35-40% tax?
In this instance, I would not mind paying tax on money that I am making without any extra effort besides the needed effort to start. I would not mind! Comparing to how infuriating I am when paying 40% tax off my sweat money, my waking up early in the cold to go to work money. On the contrary, it is not this way. This money, or supplemental income if you want to call it that, which I am making using my real estate investment, I pay ZERO tax on it by doing exactly what the government tells me to do. This is the whole point of this paper, I am making money with no extra effort, using leverage and yet not being taxed on it because I do what the government tells me to do.
THE STOCK MARKET
Now back to the stock market the riskiest intangible wealth creation. You actually have to put 100% of your own money to invest in the stock market, the government does not help you in any way, you do not have any leverage and on top of that you are taking most of the risk because you do not have any control over ups and downs of the stock market as they occur. Moreover, you would have to give the money to someone (a money manager) to invest for you and most of the time I am sure you do not even ask where your money is being invested and even when your money would be invested in the best companies, the best stocks, you do not control what happens next.
At the beginning of the COVID pandemic the stock market went into a nosedive, the people who know how to truly invest, the professionals, they made a lot of money but us who actually have Jobs, a career, a profession who are busy thinking about what we should do next we lost money. And one thing I want you to remember when you invest in the stock market, in order for you to make money someone has to lose money, money does not get created it simply changes hands in the stock market. Second, I want you to think about how much money you’ve lost during the time it takes for the market to rebound while your money remained invested in the stock market (The #1 advice given to you when investing in the stock market: Do Not panic).
Lastly, any gains made in the stock market is called “Capital Gains”, thus is subject to tax from the IRS no matter how long you leave it in the stock market to be reinvested.
Now let us revisit the fact that the government is helping me with my investment by letting me borrow money at a very low-interest rate, Credit-ism is a term that is coined by a famous economist named Richard Duncan. Creditism is an economic system driven by credit creation and consumption, in contrast to Capitalism, which was driven by investment and savings. Creditism replaced Capitalism when money ceased to be backed by gold nearly five decades ago. Thus, In the 21st-century if you know how to use credit to your advantage you will always come ahead and as a high-income earner the door is usually wide open for you, though that does not mean you should walk through it without knowing what you are doing. But if you know what you are doing and if you crossed all the T’s and dotted all the I’s you will be creating long-term wealth. Why? Simply because of inflation most loans with today’s money will be paid with tomorrow’s dollars, dollars that you will need a lot more of to buy the same value you are procuring today. You are buying today’s debt with tomorrow‘s dollars thus if you know how to use Credit properly to your advantage you are creating wealth and especially if you are investing in tangible asset.
I’ve read many times:
“IF YOU WANT TO GO FAST DO IT ALONE IF YOU WANT TO GO FAR DO IT TOGETHER” (African proverb)
And this is what I wanted to convey to you today I can continue to do it alone I will continue to multiply my wealth but I would feel a lot more satisfied if I can show YOU how to prepare for your future, how to prepare for your later years, how to maintain your quality of life, and how to create tangible wealth for the generation to come.
Until next time!
By JACKY FILS, MD, Real Estate Entrepreneur
About Jacky Fils:
Who am I? I am a Real Estate Investor & Entrepreneur who happens to be a physician. I have chosen this path after understanding very well the in’s & out’s of above-average return on investment (ROI), backed by a solid asset, Real Estate. I have been actively investing in real estate in the western Massachusetts area for a number of years. My mission is to provide quality housing for quality tenants, while at the same time providing an above-average return on investment (R.O.I) for our investor partners. It is truly a win-win-win way of investing!
Jacky offers his investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact Jacky.
For more information about Jacky and his investment program,
please call 857-800-1237 or visit https://jackyfils.com/