What is Wealth (and How Can You Acquire it)? The Answer is Simple.

What is Wealth (and How Can You Acquire it)? The Answer is Simple.

7 min read
Paul Moore

Paul Moore is the managing partner of Wellings Capital, a private equity real estate firm.

Experience

After college, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They scaled and sold the company to a publicly traded firm five years later.

After reaching financial independence at the age of 33 and a brief “retirement,” Paul began investing in real estate in 2000 to protect and grow his own wealth. He completed over 85 real estate investments and exits, appeared on HGTV’s House Hunters, rehabbed and managed dozens of rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful commercial developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project in 2010, convinced him of the power of commercial real estate.

Press

Paul was a finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and has a forthcoming book on self-storage investing. Paul also co-hosts a wealth-building podcast called How to Lose Money and he’s been a featured guest on 150+ podcasts, including episode #285 of the BiggerPockets Podcast.

Education

Paul earned a B.S. in Petroleum Engineering from Marietta College (Magna Cum Laude 1986) and an M.B.A. from The Ohio State University (Magna Cum Laude 1988). Paul is a licensed real estate broker in the state of Virginia.

Follow

WellingsCapital.com
Email [email protected]
LinkedIn
Twitter @PaulMooreInvest
How to Lose Money podcast

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It’s been sought after and clamored for throughout recorded history. People are killed for it everyday, and some say it’s the motive for every war.

Wealth.

Though virtually everyone seeks it, I wonder how many have stopped to consider what it really is.

You may have joined the BiggerPockets community to find your own path to this often elusive goal. But have you taken the time to first define what wealth actually is?

This is really a simple article, and honestly, I could have summed it up in one paragraph. Maybe even in a sentence.

I’ll get to that one sentence in a moment, but first, let me tell you where I’m not going in this particular post.

Those of you who know me know that I am first and foremost a spiritual person. My faith drives everything I do. My family, my goals, my business, income, and giving are all defined by otherworldly priorities. (I’ve written on this topic before.)

I could make a case that true wealth is giving back. Like Ebenezer Scrooge learned on that fateful Christmas eve, most of us know that enriching the community and loving others will bring us the most fulfillment in this life.

I have chosen a path of investing my time, talent, and treasures to change the world for the better. I consider that a wealthy life.

But that’s not my point here.

I want to discuss the nature of true wealth in the material sense. And I believe that having this form of material wealth will provide you more options to attain wealth in the eternal sense. Options that sometimes elude those whose days and nights are consumed by merely making ends meet.

wealthy-habits

What is Not True Wealth?

Whether we admit it or not, I think we are all susceptible to believing that those with fancy homes and expensive cars have attained true wealth. It’s easy to mistake the material trappings for true wealth, and while these may be an indicator of wealth, these symbols in themselves are not wealth. And we all know people who have faked it in an effort to look the part.

I recall the time I bought a late model Mercedes when I was in a particularly lean financial season. I was catering to those with wealth in my work role, and I reasoned that I needed to look the part.

I pulled into a private event (I was a speaker) with dozens of high net worth investors and assumed I’d fit right in. I was surprised to see that the average car on the lot was a Toyota. There were a few Volvos and BMWs, but more Chevys and Fords. (Was I at the wrong place?)

I noted the same thing in the parking garage at Google headquarters in Mountain View California recently.

Many (admittedly not all) who have attained true wealth have nothing to prove in the realm of showy material possessions.

And many BiggerPockets readers are aware that a pricey car and other tokens of wealth are often not assets anyway. They are depreciating liabilities.

Actually, in many cases, they are assets—of someone else: the local banker. They provide a profitable income stream for him, and so you become the means to increase his or her wealth. (How does that make you feel?)

Related: Millennials Are Poised to Be the Wealthiest Generation Yet: Here’s Why

So, What is True Wealth?

Like I said, this could have been a very short post. I can summarize this in one sentence. Even better, one short equation. For you, learning this equation may be more valuable than understanding E=mc2. Here goes:

Wealth = Assets That Produce Income

If you don’t read any of my other rambling below, I hope you will recall this simple equation. And I hope you think about its implications for your business and investing.

If you do wish to read on, I’ll develop a few more thoughts about my thesis.

Attaining assets that produce income means owning things that other people are willing to (actually must) trade a portion of their labor and income to obtain.

Timber is needed for housing and a thousand other things required by society. My son, Jonathon, has acquired land that will produce timber for the rest of his life. He owns assets that will produce income.

Other useful items are commercial buildings, rentable single family homes, mineral rights, and cropland. These are assets that can often produce income without full time effort on the part of their owner. These are assets that people must utilize in order to eat, live, work, and get around.

The more income-producing assets you have, the wealthier you are. And the more assets you have that are insulated from downside risk, the better.

I enjoy reading Robert Helms and Russell Gray, aka The Real Estate Guys. Here’s a relevant excerpt from one of their recent posts:

Intoxicated investors look at their balance sheet and celebrate their net worth … perhaps even borrowing heavily to spend on consumption.

In fact, this is EXACTLY what the government and banks WANT you to do.

Sober investors look at their balance sheet as merely a tool for building their CASH FLOW statement.  Spending comes out of the productivity of the asset … not it’s equity.

This is no small differentiation … because what you do with equity defines you as an investor.

The investor who buys low, sells high, skims some spending money, then pushes the stack back in and rolls the dice again, needs to keep playing the game … or the cash flow stops.

You can be a full-time investor, but you’re still on the treadmill.

The investor who buys low, then uses equity gains to acquire streams of positive cash flow will eventually become free from the need to personally produce to eat.

Robert Kiyosaki calls this “out of the rat race” … and it’s an enviable place to be.

The world is awash in paper (balance sheet) equity right now … in stocks, real estate, and now cryptos.  None of them are bad.  Equity is awesome!

But the market giveth equity … and the market taketh equity away.

We think it’s smart to take equity off the table before Mean Mr. Market takes it first … and then use your new equity to acquire productivity … cash flow.

It’s even better when you can pair equity with cheap long-term debt, so you can own MORE units of real value (properties) and income (tenants).

Of course, the right real estate is an ideal vehicle to acquire an income producing asset with cheap long term debt. If prices decline, the income provides a basis of value and control. And if prices take off, your bigger collection of assets will create even more equity faster.

how-to-value-multifamily-property

8 Characteristics of Desirable Assets that Produce Income?

  1. Produces stable, predictable cash flow.
  2. Resistant to market cycles.
  3. Tax-advantaged.
  4. Able to be safely leveraged.
  5. In perpetual demand and not dethroned by the latest technological innovation, the mood on Wall Street, or a war in the Middle East.
  6. Doesn’t decline in value (may not skyrocket, but at least keeps up with inflation).
  7. Low hassle. Generates income largely on its own.
  8. Can be passed along to next generation.

How Does This Apply to Real Estate Investing?

I’ve done a variety of things as an entrepreneur. In the real estate realm, I’ve operated as a residential real estate agent, a builder, a residential and commercial developer, a house flipper, a waterfront lot flipper, and the co-founder of a multifamily syndication firm.

While I believe that any of these paths (and many others) can be a route to wealth, I see a particularly strong fit in the attainment and operation of commercial multifamily assets.

A number of years ago, I stood at a crossroads in my real estate career. I wasn’t sure what to do next. I reviewed what I had done and realized that:

  • When I was a residential real estate agent, I was always dependent on the next deal.
  • When I flipped homes, I was always dependent on the next deal.
  • When I flipped waterfront lots, I was dependent on the popularity of a waterfront resort. No one had to have a lake home. (You can imagine how that worked out in 2008.) And I was always dependent on the next deal.
  • When I was a builder, my profit and sanity were dependent on finding and managing a very unreliable crew of guys whose priorities were not in their craft. (I’m saying that very nicely.) And I was dependent on the next deal.
  • When I developed and sold-off a subdivision and a ground-up multifamily facility, I was rolling the dice on land, permits, construction, the local economy, and a variety of other factors. And I still needed the next deal.

I’ve chosen the path of acquiring commercial grade multifamily properties because they really are assets that produce income. I view large scale apartments as the perfect investment because they fulfill most of the criteria I am looking for in an asset that generates income.

So, by my definition—in this article at least—commercial apartment owners are the holders of true wealth. Multifamily assets are:

  1. Producers of stable, predictable cash flow.
  2. Resistant to market cycles.
  3. Tax-advantaged.
  4. Able to be safely leveraged.
  5. In perpetual demand, and not dethroned by the latest technological innovation, the mood on Wall Street, or a war in the Middle East.
  6. Resistant to declines in value (may not skyrocket, but at least keeps up with inflation).
  7. Low hassle. Generate income largely on their own. (I freely admit this is my weakest point on this list, but a great property manager makes its management easier than many other assets.)
  8. Can be passed along to next generation.


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

How Can You Attain True Wealth?

You are in the right place to find out. There is no other resource on the planet like BiggerPockets! This amazing site has thousands of posts, forums, comments, and resources that will point you down the path toward attaining wealth. Whether you choose to take the commercial multifamily path or any other, you can find out all you need from the people, posts, and resources at BiggerPockets.

So what do you think? Do you agree with my conclusions about the nature of wealth? And what paths have you found to attain it?

Let’s talk! Comment below.

People are killed for it, and some say it’s the motive for every war. Wealth. Though everyone seeks it, I wonder how many have considered what it really is.