There Are Two Ways to Build Wealth: Here’s the Route I Would Recommend

There Are Two Ways to Build Wealth: Here’s the Route I Would Recommend

3 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender.

Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

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I see it all over the place now: the great debate on whether to pay down debt or to use more leverage.

It’s a great question, but it means different things to different people based on their backgrounds, philosophies and life experiences. It also changes for people at different times in their life.

For example, when I was young, inexperienced and undisciplined, I was afraid of debt. I had no concept of good or bad debt, and I also had never been taught leverage very well.

Good Debt vs. Bad Debt

When I was young and poor, I thought all debt was bad and that if you had any, you should work your tail off trying to get rid of it. Later on in life when I had become a real estate agent and planner, I realized that there was good debt, such as mortgages, student loans or business loans, and there was bad debt, things like credit cards, most car loans and loans for things like furniture or payday loans.

Good debt utilizes leverage to build income, wealth and sometimes cash flow, whereas bad debt just costs you money on something that is usually declining in value.

Related: 3 Reasons to Use a Self-Directed Retirement Account to Build Wealth

“Football Game of Life”

By “Football Game of Life,” I’m refering to one’s working years (ages 25 to 65). When you’re 25 years old, you’re all excited about the future. By 45 years old, you’re similar to where I am in life, oftentimes thinking, why haven’t I accomplished more? By 65, many folks are playing catch-up. The one reason that I think this happens is because people are afraid of using leverage or they just don’t know how to. I was this way.

I was literally always working 2 to 3 jobs, and my wife also worked while I watched the kids in the evenings. I just thought we both needed to work more to save more money to invest, and then we’d be rich. Leverage wasn’t even in the equation or on my radar.

But when I went in the real state, I started investing using other people’s money, private money and even the banks’ money, and soon I had built a small empire of real estate. I didn’t even realize until years later what was happening, and it was the power of leverage. It was also the power of tax breaks. This is the reward the government gives us for providing jobs or housing for others in society.

So, How Do People Become Wealthy?

There are really only two ways — once you remove luck from the situation. If you don’t inherit money, marry money or win the lottery, you usually become wealthy by becoming a high income earner, or you become wealthy through the acquisition of assets… or some combination of all the above.

Income Approach

This is pretty straightforward for most people to visualize. You just earn a lot of money at your job, right? There is more to it, though.

The problem for many is retirement and concerns of keeping the same lifestyle after the earning years stop.

The second problem is taxes, as earned income is by far taxed the highest (ask anyone in California). The trick for these folks is to convert as much income as they can into cash flowing or appreciating assets during their working years. But this is easier said than done, especially since the more you make, the more you need to replace.

Asset Approach

Now, the asset approach is more about using leverage (usually meaning money or people) to accumulate assets and cash flow that enables one to control their most important asset, which is time.

After all, isn’t financial freedom really about having the freedom of time?

When I first started buying investment properties, after using up all my money on the first couple rentals, I used credit cards (in other words, the bank’s money) to acquire and fix up properties to rent. After fixing up these handyman units, I’d move in a tenant and then refinance and pay off the credit cards. Rinse and repeat.

Related: What Does It REALLY Take to Build Wealth in Real Estate? The Answer May Surprise You…

Later on as I grew my portfolio, I just started using private investor capital (similar to hard money) and even refinanced into some commercial loans. Eventually, after the market grew and my equity increased, I was able to access that equity via lines of credit. I used those lines to invest in my own hard money deals to other rehabbers.

As for my note business, I just started raising private capital to build the business just like I had done to invest in some large commercial real estate projects. Looking back, it was just a natural progression.

So, if you’re not marrying or inheriting a small fortune, maybe your best bet is to shift your focus to using leverage.

Do you have any unique strategies for leveraging money, people or time?

Let me know with a comment!