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

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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.

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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!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several 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, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


    • Dave Van Horn

      Hi Sam,

      Sure thing:

      When I started out, I didn’t have a good private money network, but I did have good credit and 2 or 3 credit cards. At the time, they didn’t have cash advance fees like they do today and they would would provide you with credit card checks.

      When I wanted to buy a property, I would write a check out to myself, deposit it in a bank account and then obtain a certified check to pay for the house. So I’d pay cash for the house, fix the property up with another credit card (using credit card checks), then find a tenant and refinance to pay off all of the credit cards. Sometimes I would pay off the credit cards and still have some refinance money leftover (tax free because it was a loan) which I could then use to reinvest. So I basically got the house for free, had tax free cash in my pocket, and the tenant would essentially pay back the refinance loan while I would still be making positive cashflow.

      As I accumulated these properties over the years, and they raised in value, I could get equity loans on the homes. I would then use the loans for a rehab or better yet, I’d lend out the equity lines as hard money to other investors.

      The model I started doesn’t work very well today with credit card company charging cash advance fees, making it cheaper to use private money. The idea of leverage still holds true though and certainly can be used in a variety of other ways.


      • Katie Rogers

        How did you ever write yourself a credit card check big enough to buy a property? How is it possible to have credit limits that big. Even making twice the median income and having a FICO over 800 won’t give me a big enough limit to buy a property.

        • Alan Mackenthun

          Ask them to raise your credit limit and then ask them again. If you’re using it and paying it back, they’ll keep raising it. But they don’t often raise the limits if you don’t ask.

        • Dave Van Horn

          Hi Katie,

          On the very first property I used checks from two different credit cards. It’s also important to mention that I purchased that first property for only $13,000.

          And I second Alan’s response. If you keep paying back your card, they will up your limit. Before I stopped pursuing higher limits on my credit cards and started utilizing Lines of Credit, I actually got my limit up to around $400,000. So it certainly can happen, just keep your score high, pay on time, and don’t forget to ask them for a raise.


  1. Felix Torres on

    Great article, thank you for sharing your personal experience. Would you mind elaborating a little more on how to use credit cards to purchase a property? I tried using two credit cards with $15,000 credit limit each but the title company told me they were not able to swipe them and purchase a house. I needed to go to the bank and get the money out there. But that is considered cash advance and the cards would only give me $5,000 each with high interest rates. Thanks Felix

  2. Bayard P.

    Hi Dave,

    Great read. When you used a private lender and than refinanced with the bank. How was that arranged was it a secured note with a title of deed or lien on the property? Does the commercial bank care if it sees the private lender as the deed/lien holder on the property? Or did you arrange it another way like an unsecured note?

    • Dave Van Horn

      Hi Bayard,

      Thanks for reaching out.

      I was always did a secured lien on the property. There are some banks that will give you a hard time with this process, especially if it is a private mortgage created by an individual as opposed to an established hard money lending company because of fraudulent inflated private mortgages created in the past. But I know it still can be done, in fact just a few weeks ago, I had a private loan on a friend’s property and he refinanced with a commercial loan and paid me off (in some instances it’s easier with a commercial loan than a residential).

      It’s important to keep in mind that every bank is different, just because one bank turns you down doesn’t mean the next one will.


      • Bayard P.

        Thanks Dave,

        That was a major issue concerning me as my lawyer did bring it up regarding the secured note. I hope to do the same thing pay off the individual private lender once approved for commercial refinancing. Thanks for taking the time to respond.

  3. John Thedford

    Well, I am already married and she isn’t rich. I don’t buy lottery tickets. Guess that leaves me option #3:)
    Now that you are well established, I am curious if you have a preference as to what method you like best? Buy and holds with tax advantages, HML which can give great returns without having to fix A/C units and plumbing issues, or buying notes. I do already hold some SFR and do some HML on a smaller scale, but haven’t tacked the note buying aspect. In general, in todays market, which provides the best ROI? My guess would be buying discounted notes. Am I correct? Thanks!

    • Dave Van Horn

      Hi John,

      For me, I believe busying discounted notes are the best ROI without the maintenance or tenant issues. I still own properties and plan to own them while I still have earned income, because the depreciation and unlimited passive losses (because I’m a Realtor) offset that earned income. I also still have HML’s and like them because the safety they provide, the high returns when attaching points, they’re shorter term (and can be recycled quickly, potentially multiplying you’re yield).

      In recent years, I’ve shifted more into discounted notes because the returns are much higher, they’re much more scalable than the other two options (I can own/manage notes all over the country with very little work), and they’re still very liquid. So I like investing all three options at the same time and using each for their specific advantages. So it all depends how you want your money to work for you and where your investment capital comes from. For example I use only my IRA money (to avoid taxes) and HELOCs to purchase notes because notes are high yield and so liquid (but still backed by Real Estate), as opposed to when I’m investing in hard property where I’ll only leverage private money or the bank’s money because I think it’s safer than using my own personal capital.


    • Dave Van Horn

      Hi Alan,

      In my IRA, I buy both performing (or re-performing) 1sts and 2nds that are already placed with a licensed servicer.

      Besides it being too much work and paperwork inside the retirement account, the main reason I don’t purchase non-performing notes in my IRA is because I feel that as the account owner, I could be viewed in the eyes of the IRS as violating the terms of the account for being too active. Doing so could cause me a disqualification of my tax free status on the entire account.


  4. morris lucas

    Hi Dave…you mentioned Notes being more “liquid”. How is this possible, as the note is tied to Real Estate, which would have to be sold or foreclosed on to get your capital back? I think i don’t understand the premise, it seems as though there is very little liquidity in using that strategy, can you explain?


  5. Dave,

    Great read. Very insightful post. I think many of us assume the income approach is enough but the reality is usually much different. And somewhat disheartening. We invest years into a college education so we can earn more and succeed in life, only to discover that it is simply not enough.

    Thanks for your article.

    Laura Beth

  6. Bradley Cordell

    I’m still thinking this through….. but I think “good” debt vs bad debt should be re-named to “risky” debt vs bad debt. I’m not sure if there is such a thing as good debt. Just because leverage has the potential to work out and to be a good thing does not make it good. What happens if you over leverage or the deal goes wrong and you can’t get out? In that case, there’s no such thing as good debt. Of course, a good investor can handle “risky” debt.

  7. Lauren w.

    Hi Dave,

    I read your articles several times but I don’t think I fully understand the principles behind the notes. I don’t want to waste your time and asking a million questions. Is there a book or a website where I can educate myself on the notes so I can at least understand your post?

    Appreciate any guidance you can provide.


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