I like how you defined heath, education, and intelligence as the raw materials, but they don't directly give you the return that will make you wealthy. You need to apply those skills in some way to make income generating assets, and that is the tricky part.
For most people, including Robert Kiyosaki, income producing assets basically means buying and renting out property. I disagree with doing that on so many levels and also think it's a terrible investment in todays over inflated market.
Another option is to save and make investments, but interest rates are currently so low that it's almost impossible to get escape velocity through low risk investments.
That leaves us with entrepreneurship. That is why we are here and it is probably our best chance, but is never risk free and not a path that the average person will use to build wealth.
This said, building wealth rather than accumulating savings is hard even if you are lucky enough to have all of the necessary ingredients and the right mindset.
Your pillars of health, education and intelligence are important. I'm glad that I have them because whilst I do, I hopefully won't go hungry. They are a safety net. However, I don't think that those alone are a path to building wealth.
You are right; I've worked out the "accumulating savings" part reasonably well, but the "building wealth" is still eluding me.
Stock market index funds seemed to be a good answer in the past. By owning them, you share in the economic growth and income of your country (or another country or set of countries) as a whole. Although, the spectre of Japanese-style stagflation for most of the West makes this less appealing at the moment (although even with the flat growth of the past 13 years, there are still dividend returns.)
Property is popular because everyone has to live somewhere, the old "buy land, they don't make it any more" proverb, and the funemplyoment nature of buying, improving, renting, and selling property.
I think a lot of people misunderstand what a pain in the ass buying and renting property can be. Unless one is wealthy enough to own multiple properties and have a full-time management company doing all of his work for him, he's going to be taking a fairly hands-on role. Most tennants are flaky. Our perceptions of such might be colored by the fact that -- I assume -- a lot of us here are white-collar professionals making respectable incomes, or who could quickly arrange a steady enough job if needed. Most people aren't like that. Those people are your likely tennants, again, unless you're wealthy enough to afford higher-end rental property.
Then there's the legal minefield. Being a developer or landlord makes one person very rich very quickly, and that person is your lawyer. Especially in the Bay Area. People here pretty much threaten lawsuits if they made eye contact with a teenager on the sidewalk, or if their cat's not eating its food, or if they don't care for the weather on any given day.
Source: I own a small apartment building in LA and sit on my HOA board in SF. I am the definition of a small-time real estate owner in the uncanny valley: not poor enough to not give a shit, but not nearly rich enough to do so, either.
I'm not a full-time landlord; it's more of a nights-and-weekends thing. But it sucks up a not-very-fun proportion of my nights and weekends, and every now and then, it eats into my workday as well. I would recommend landlording to people born into significant wealth, who can buy multiple properties and let a management company deal with the headaches. I would not recommend it as an upward path for those who aren't prepared to make real estate a full-time job, and who can't afford to jump a few rungs up the ladder at the outset.
have you checked out BiggerPockets [1]? I'm just getting started in some small-time REI/landlording and that site's been a great inspiration. One great resource is podcast #37 [2] where they interview a guy who does real estate over there in CA pretty successfully. He talks a lot about wholesaling (which I don't care about) but he also explains how he built an automated system around his rentals; he doesn't use an external property manager, but he also almost never directly interacts with his tenants.
I imagine any of us here, being techie entrepreneurial-minded people, could build a system like that pretty easily. Create a website to market your rentals/show vacancies, post them to craigslist when necessary, find a general contractor to fill work orders and hire a V.A. to take calls and submit those work orders. I'm probably missing some things, but that's the basic framework for my plans.
Based on your post it appears you're not profiting at all from your assets - presumably then you're currently selling up?
Is this more "first world problems" and in fact you're making a reasonable return given your investment of time and money?
I've several friends who're small time landlords - ie own a second residence they let out - they all make a tidy profit and none of them appear to have been exposed any more than a regular home-buyer to fluctuations in the housing market. It all comes across a bit like complaining that your Cristal is warm and your maid keeps coming in late.
"Based on your post it appears you're not profiting at all from your assets"
Not true. I'm making decent cash flow and a net profit.
"Is this more "first world problems" and in fact you're making a reasonable return given your investment of time and money?"
Of course it's a "first-world problem." I think you're misinterpreting me as somehow complaining about how bad I have it. That's not the case. I'm in a very fortunate position that I can even be doing this.
The point of my post was specifically to respond to the previous poster's comment about how investing in real estate seems like "funemployment." It's not fun, and it's hard work. It can be lucrative, but it's not a set-it-and-forget-it type of job. And it's not easily scalable unless one is prepared to do it full time (in which case, if they're good at it, it can be quite lucrative).
How did your friends get the second residence? Do they have a mortgage on the rental property? That makes things much harder to break even.
For a lot of people, the only rental property they can afford is in lower income neighborhoods, and the return on investment is often much better there too. But the headaches are also much greater.
> Do they have a mortgage on the rental property? That makes things much harder to break even.
You have it backwards. Borrowing money at 4.5% is way cheaper than using your own money. There is opportunity cost to tying up your own money in the real estate. Real estate loans allow you to leverage your 15-20% down. It was really bad when they let you leverage using 3.5% down.
OTOH, those 4.5% mortgage rates are for property you live in, not for rental properties. You can play games by moving around constantly, but that starts to not be just a passive investment.
Also, I wasn't really thinking that people used their cash to buy a second property. (Unless you are buying very low cost houses in low-income areas.) More like an inherited house or such.
You might be right as I have an owner-occupied 2-Family house, but i was told that i was only dinged 0.5% on the rate for the rental unit.
> Also, I wasn't really thinking that people used their cash to buy a second property...More like an inherited house or such.
But in that case you have to think of your return as based on the opportunity cost of not selling the house and investing the cash in something else. If you aren't making money beyond what a loan would be, then it probably isn't a worthwhile investment to hold onto. (I'm over simplifying because there are tax benefits and you might gamble on appreciation).
Man I'm in the same boat, I'm renting a house and it can be such a pain in the ass sometimes. It's a good anxiety enhancer for me ;-)
Loads of work to make the property a good rental and then it's also loads of work to get the good tenants (especally in the beginning).
Now that they are settled I have more leeway but I know that more work is coming next.
As you said I would also recommend rentals to people that can either dedicate big chunks of time to it or to get it managed by someone else (by the risk of losing quite a big deal).
I don't know if I would do this again, sometimes I think I should have put the money in stocks and be done with it.
I think health is a wealth asset of it's own, because if you lack it you'll trade your wealth to get it back if possible. It also gives you the ability to turn your education and intelligence into more tangible wealth, which I will grant you isn't straightforward. But that doesn't mean they aren't assets.
A house is like education in a way - it seems to have intrinsic value, you know what YOU paid for it, but the outcomes that can come from trying to sell it vary DRAMATICALLY depending on the how good you are at selling it (and the current market conditions). So it is with my bachelor's from UVa - there have been times where it has gotten me basically minimum wage work and times where it's gotten me $1000/hr jobs, all based on how clever I was about it.
>but interest rates are currently so low that it's almost impossible to get escape velocity through low risk investments.
This period is not unique in this regard. Interest rate is always risk-related. There may been times of higher absolute rates on things like savings accounts, but the real returns and opportunity costs were similar.
What I'm saying is, there are plenty of investment opportunities; the stock market just rose almost 30% in 2013.
What do you suggest is better than rental real-estate as a income-producing asset to invest in? Entrepreneurship is great and all but the risk is frighteningly high
The risk is only not-high for people who have a decent safety net to fall back on (spouse, parents, or savings) and/or low obligations (i.e. your children won't go hungry if your startup busts)
That's not to disagree with your overall point--yes, you won't LITERALLY DIE--but relatively few people have the luxury to keep swinging and missing in the hopes of getting a hit.
dividend stocks seem great if you use dollar-cost averaging, DRIP investing, and you do the research necessary; they also seem like they take a very long time to build up a sizeable portfolio.
I really like Rob Walling's description of what he does with software businesses [1] though, and my plan is to do something like that.
For most people, including Robert Kiyosaki, income producing assets basically means buying and renting out property. I disagree with doing that on so many levels and also think it's a terrible investment in todays over inflated market.
Another option is to save and make investments, but interest rates are currently so low that it's almost impossible to get escape velocity through low risk investments.
That leaves us with entrepreneurship. That is why we are here and it is probably our best chance, but is never risk free and not a path that the average person will use to build wealth.
This said, building wealth rather than accumulating savings is hard even if you are lucky enough to have all of the necessary ingredients and the right mindset.
Your pillars of health, education and intelligence are important. I'm glad that I have them because whilst I do, I hopefully won't go hungry. They are a safety net. However, I don't think that those alone are a path to building wealth.