Real Estate News & Commentary

America’s Middle Class is in Bad Financial Shape: Here’s How Real Estate Can Help

Expertise: Commercial Real Estate, Personal Finance, Real Estate Marketing, Business Management, Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
230 Articles Written
middle-class-financial-issues

The middle class in America is in bad financial shape. Without a great plan and the right financial tools, most are going to never enjoy the lifestyle they dream of or be able to provide their kids with the life and opportunities they hoped to.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Think about this. Much of America is fighting back against the idea of a $15 per hour minimum wage. Yet even at double that $30,000 a year income, most families will be hard pressed to afford an average apartment in many U.S. cities. Even some earning $250,000 a year are finding they can barely make ends meet between mortgage, healthcare, and taxes.

The above just covers the tip of the iceberg in trying to survive. What about retirement? The latest figures show that not even many of the top 10% savers and investors have enough in IRAs or 401Ks to retire well or with confidence. The bottom half really have no savings at all. In fact, fellow BiggerPockets contributor Scott Trench states that 62% of Americans have less than $1,000 in savings!

Expenses

Is it Possible to Break Out of the Rat Race?

This isn’t really a rant about becoming “rich” or a part of the uber-wealthy 1%. Being content with whatever you have is good. But the middle class is disappearing, and we are facing a 1% and 99% situation. The 99% are quickly finding they are being squeezed like the Matrix.

Related: 7 Core Tenets of Investing Successful Wealth-Builders Know to Be True

Those at the top enjoy being able to live and explore the world, to try new things and create change in things they are passionate about, and to empower their kids to their full potential. Those are things worth fighting for in order to get ahead.

So how do you break out of the rat race and change these dynamics?

It’s hard. Consider that just to pay all of your taxes, you will probably work at least five months this year. The remaining months’ income can cover your bills. And if there is anything left over, you might get a few venti sized Frappuccinos or the great privilege to buy some of the overpriced products being advertised on TV.

You can work hard. You can work three jobs, put in 100 hours a week, or even try to start your own business. More often than not, the cards are so stacked against you that you won’t gain any real and lasting traction.

Stop Spinning Your Wheels — And Start Investing

The real key to changing this dynamic is to stop trying to work your way out of the hole. You must be able to generate income and wealth without it being tied to the amount you can physically work. At the same time, you also need to change the dynamics of the amount you are taxed in relation to how much you earn. That means working to acquire assets that will work for you, instead of you working for money. This is (and should be) urgent for everyone. You never know how long you’ll be able to keep on working.

tax-savings

Related: Americans: If You Can’t Build Wealth Today, You Should Be Scared. Here’s Why.

There are very few options that can accomplish these objectives like real estate can. Real estate investing offers lots of extra tax breaks, can produce income while you sleep, and typically rises in value with inflation so that your nest egg isn’t depleted over time.

Look around, do the math on your options, and you’ll likely find real estate investing is one of your select few options for getting ahead. This can require learning new things, taking new actions, and stepping out of your comfort zone. But isn’t it worth it for the ability to spend quality time with those you love, to get to really live, and to give your kids the best chance possible?

How do you think the average American can improve their financial position? Are you using real estate to escape the rat race?

Let me know your thoughts with a comment.

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
Read more
    David Roberts from Brownstown, Michigan
    Replied over 4 years ago
    Real estate is one of the few options that I know of, maybe the only one, that you can acquire the asset and cash all your money out and still have it pay you a dividend. I don’t know that anything else can do that…that is truly enough reason to get involved.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Totally agree David. Have you utilized the refi option to pull all your cash out in a property in your career?
    Brad Lohnes Investor from Cambridge, Waikato
    Replied over 4 years ago
    Yes, this is a great aspect of real estate and a core part of our strategy. So far, we own 2 SFRs “for free”. Hoping to “free up” my capital in a third later this year…depending on many variables. But, while the mechanics are slightly different, you can actually follow the same principles with any asset class that tends to appreciate in value. With stocks, for example, you can buy when a company is “on sale” – i.e. undervalued. wait until the value goes up, and sell off enough stocks to cover your initial investment. The remaining stocks are “free”. If those stocks pay dividends…presto! 🙂 I’m no stock picking guru, but I love the principles behind this. To me, this is the “secret” of becoming wealthy. At least, I’m betting on it. 🙂
    Mike S. Investor from Colonial Heights, Virginia
    Replied over 4 years ago
    This article totally resonates with me. Due to the 2008 crash and a divorce at the same time my 401k went right into the gutter. A couple years later I started buying some SFR’s. Things are coming together. When I hit my goal I am going to work on the snowball or maybe sell off some and look into some larger multifamily. I feel REI is the best way to financial freedom for the main reason that it is controlled by you. ..
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Glad to see things are looking up for you Mike. What market are you purchasing your SFH’s?
    Kevin
    Replied over 4 years ago
    As a landlord and lender, I work with builders, property management and the trades. By far, the most often heard comment is they need tradesmen, reliable tradesmen, honest employees that have a work ethic. Start there. A good plumber is invaluable, learn a trade. Then use the contacts from the trade to understand and leverage for getting into REI. With respect to the 1%, as you pointed out, I some cities, 250k is scratching by, this is close to the one percent. The top one percent are not the jet set yaught owners living mansions. Wealth is measured by yourself, not otners. The more you need to live the less wealthy you will be regardless of how much you have. Read Mr. Money Mustache, the mad fientist and early retirement. Real estate is a great vehicle for increasing wealth and becoming financially independent, increasing your knowledge of the process from the bottom up is a great way to learn more about it.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Thank you for the comment Kevin it is greatly appreciated. I checked out Mr. Money Mustache looks fairly interesting. What peaked your interests to that blog?
    Kevin
    Replied over 4 years ago
    Sterling, Thanks for taking the time to comment on the responses. Appreciate that. I’ve always been the thrifty type, part of my “wealth”. When I started looking for ways to retire early. Mr. Money Mustache (MMM) was one of the guys that I found that hit a cord. He has an incredibly powerful graph that everyone needs to examine and understand. Googling “The shockingly simple math behind early retirement” will guide ya. Basically, the higher the savings rate, the less ya spend and the faster you are Financially Independent. I’m not as extreme as MMM, we both are ex-tech workers, raised by thrifty parents, only buy stuff we can afford, use credit cards as a tool to get points/money back and never pay interest on them. So I very much relate to his theories.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    No, thank you Kevin for taking the time to read my thoughts. Are you currently investing in real estate as well outside of your saving? If so what market?
    Jade S. Investor from Evans, Georgia
    Replied over 4 years ago
    I’ve continued to see many around me who qualify as middle class that bemoan not being able to save beyond a paltry 401k contribution and, at best, a couple of hundred to a few thousand dollars in savings. Yet, their mindset is one of consumption, or “pay someone else first”. New cars…new iPhones every refresh cycle…racking up “bad” debt. Good financial discipline is hard to establish in our consumption driven society. But at the end of the day, anything less may leave you hoping you will not outlive your money, and that frankly is suboptimal.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Great points Jade. What would you recommend these people you are referring to do instead of being consumers?
    Jade S. Investor from Evans, Georgia
    Replied over 4 years ago
    I believe in the “pay yourself first” model. I did the high credit card balance thing myself when I was first starting my career after grad school with purchases of many unnecessary items. By the time I was in my early-30s, I focused on asset accumulation and elimination of debt. The folks I speak of more recently are in their 40s and 50s, and still taking on excessive spending habits! Being a consumer is one thing…at the expense of your future…another animal entirely.
    Michael Nicholson from Seneca, South Carolina
    Replied about 4 years ago
    That sounds like the boat that I am in…currently going through grad school, high credit card debts etc. Just got recently turned onto real estate and the world of being a business owner and working towards those goals. Also, like you said that you did, I am starting to change my habits to pay myself first and be a better steward with my finances.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    Being aware is key Michael. Glad you have taken notice of your current situation and making necessary steps to better yourself. I wish you the best of luck in your venture.
    Alex
    Replied over 4 years ago
    Sterling, this is a great article you’ve written, it really touched my heart. Thank you for writing it.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Thank you for the kind words Alex. Glad you found value in the content.
    Jefson Louis Specialist from Tampa
    Replied over 4 years ago
    It’s easy to say get out the rat race and invest on real estate but it’s hard to jump out that wheel. What you do if you don’t have the fund to start to on real estate investing. what you do when you think your knowledge for real estate is there but it’s not?
    Jack Knochel Investor from Huntersville, North Carolina
    Replied over 4 years ago
    Jefson, NETWORK NETWORK NETWORK! Talk with the folks at the REIA that you know, know whats going on and ask them to help you if you find a deal to wholesale and offer to split profits. And study here on BP and ask for help out here and you’ll be good to go.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    I agree with Jack. Leverage what others have & create win-win partnerships. Someone may not have the time to find deals, but have the capital to purchase them. That is a perfect position where you can create value. Hustle & find deals then split the profits. Have to get yourself out there. Hope that makes sense.
    Jack Knochel Investor from Huntersville, North Carolina
    Replied over 4 years ago
    Good stuff Sterling! I will be posting this article on my FB pages. I had this type of talk with my 23 year old niece this past weekend. Everyone makes fun of how economical(they say cheap) I am, but I don’t need the latest tv(finally got a flat screen 2 years ago), phone(finally retired the blackberry and got an iPhone this year) cars, fancy houses, etc… I had an uncle tell me when I was 24 to save AT LEAST what the company matches in the 401k, save and then structure your lifestyle around that, and because he explained that to me, I am in a better spot then if I would of done it my way. Right now every month I have 6 checks coming in from loans we make out of our ira’s and 4 rental checks(a 5th after the rehab on the new rental is complete this week), they come in whether I get up in the morning or not, its a nice thing. I still have the 9 to 5, none of those checks are huge and can’t support us yet, be we are well on our way to being wealthy, not rich.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Thank you for the kind words & glad you found value in the content. It takes time to build wealth. Good to see you are on the right path. Best wishes!
    Michael Lee Investor from Coppell, TX
    Replied over 4 years ago
    You are so right about how long you can work. I had a stroke in late 2010 and I owned my own business. I have not been able to walk ever since then and I was turned down by the Social Security System for any help because I chose not to pay myself. Even though I filed tax returns I was not worth anything because I did not pay myself. I was and still am lucky that my wife, who is a computer programmer that has been saving money for about 25 years and so I am not under a lot of pressure. I am not giving up even though I am 59 years old. Luckily I studied business and real estate when I went to college and I have been studying real estate for about 8 months and I still have a brain left even though I also had a brain annurism and head surgery over 5 years ago. Thank you for listening to me, I really appreciate you and what you have done.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Michael you are greatly appreciated. Never give up & it is great to hear your story of perseverance. Best of wishes
    Timothy Friars
    Replied over 4 years ago
    “More often than not, the cards are so stacked against you that you won’t gain any real and lasting traction” Couldn’t disagree more. Come on, now…
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    What is it that you disagree on, Tim? I would like to hear your point of view on the matter.
    Russell Bogan Investor from Jonesboro, Georgia
    Replied over 4 years ago
    Great article! That line about “stepping out of your comfort zone” hit home. I have become annoyed with being comfortable and being happy cause I have a J.O.B.! Closing on 2nd property on 31st n it’s time to amp it up. Thanks
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    Awesome news Russell! Keep up the hustle!
    Kyle Hipp Investor from Appleton, Wisconsin
    Replied over 4 years ago
    while the middle class has shrunk over the last 40 years the majority of those have moved up to the upper class not down. As a millennial, I believe my generation is growing up with its unique challenges but also have access to the greatest potential than any other generation before. We grew up having information literally at our fingertips. There are lots of jobs out there if you have the ability to learn, willingness to work and and develop and retain skills.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    Completely agree with your point on millennials and the easy access to information. Do you feel more people experience analysis paralysis with the abundance of information at their fingertips, Kyle? Thus this leading to overall inactivity.
    Peter Mckernan Residential Real Estate Agent from Newport Beach, California
    Replied over 4 years ago
    Hey Sterling, This topic is such a hot topic that it seems to come up regularly through the media, social media, and blog posts like your post. I agree that real estate can help in tremendous aspects, as in tax breaks, investment shelters, and even the long term wealth building as appreciation and cashflow can help out. The only thing that I respectfully do not agree with is the victim mentality that a person cannot get ahead. In these days, yes it may seem hard to get ahead financially with certain people, and how they cannot, “make ends meet.” There are many different situations for every single person; however, believing that the cards are stacked against a person either going into life because that is what their parents taught them, or starting to believe that because they are stuck at a job only making $30,000 a year is limited beliefs. The limited beliefs and lack of self-awareness is hindering the population, which in turn causes a domino effect because that limited believe is projected onto other people in the same social circles. Real estate investing does give people a upper hand for many different reasons, but the ability to invest only comes from those who really believe they can get into that position by eliminating those exact limiting beliefs that have gotten them to a negative state to begin with, and has caused them not to believe in the ability to win!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    Completely agree with you Peter. Self- awareness goes a long way in the world we live in. Have you made the plunge into the real estate industry?
    Kevin Fox
    Replied over 4 years ago
    Excellent advice. If you aren’t happy with your current financial situation, you are the only one who can do something about it. Take action and start your journey of REI
    Kevin Fox
    Replied over 4 years ago
    Excellent advice. If you aren’t happy with your current financial situation, you are the only one who can do something about it. Take action and start your journey of REI
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 4 years ago
    Well said Kevin! Thank you for the input and your attention.