02/15/2021
Follow these steps closely. Maybe you've seen me post this, maybe not. But I'll post it again for you.
Lesson 1: why do rich get richer and the poor get poorer?
It all has to do with how money is spent. Poor people spend their money and it's gone. They never get any money in return for what they spent.
The middle class spends their money on FINANCIAL LIABILITIES (write that down in your notes).
Rich people buy FINANCIAL ASSETS (write that down in your notes).
Lesson 1.5:
A: What is an asset?
B: And what is a liability?
1.5 A: An asset is something that you buy that generates cash flow into your pocket. Contrary to popular thinking, a house is NOT an asset unless it's rental property. Same with a car unless you rent it out.
1.5 B: A Financial liability is something that you buy that not only doesn't put money in your pocket, but actually costs you money just to own it. A house, regardless of there is a mortgage or if its owned outright, is a financial liability unless you use it as rental property, in which case it becomes an asset.
Lesson 2: Good debt vs bad debt
Now that you've got the conceptof assets and liabilities, you're ready to move on to understanding different types of debt. It follows the same concept as assets and liabilities. One is a loan you take out that generates cash flow into your pocket, and the other one takes money out of your pocket.
Lesson 2.5 A: The difference between money and currency, and why savings accounts are for poor people.
Lesson 2.5 B: OPM. Using debt as money.
2.5 A: The difference between money and currency is the fact that money has intrinsic value for simply bring what it is, such as gold, sliver, platinum, etc. Currency has no value. It represents value but is actually worth the opposite of value. It's debt.
The word currency comes from the word current, which means movement like a river or electricity. The reason it's called by this name is because currency only has value when it's moving. It therefore is useless when parked in a savings or retirement account, when it's being printed faster than your savings account can accrue interest on it. Currency is best used for investing in income generating assets.
2.5 B: Other people's money. How to use debt as money.
When the U.S. dollar was taken off the gold standard, money became debt and debt became money, so a new system for building wealth was born. How do we use debt to build wealth?
Building wealth using debt involves utilizing a little knowledge of the tax code system.
Let's say, I take out a loan for $9 million and I buy a hotel. If I use the cash flow from that hotel to pay down my debt, that's called amortization, and it's tax free.
With that, the asset that just bought is now showing that it has value because it's generating cash flow, so the property value is going to go up. This is called appreciation.
Appreciation is where your money actually starts coming in, because you have rate increases, etc.
Now to write off the taxes from the appreciation of your property, the government gives you a tax incentive because you're investing in infrastructure and creating jobs and places for people to stay. This is called Depreciation.
Depreciation sounds like a negative, but it's not. It's actually a business expense that never comes out of your pocket, but you can write it off in your taxes. Viola! Tax free real estate income.
Lesson 3: Borrowing outside the FICO system.
3A: What is the FICO system?
3B: What is Asset based lending?
3A: The FICO System is a system based on a borrowers reputation for paying back money they owe. It is severely limited and is not sufficient for accessing funds for more serious asset acquisition.
3B: There are 2 types of asset based lending: Hard Money and Private Money. Hard money is by nature more risky, so the interest will be higher. Private Money is money borrowed from a private lender that has a lower interest and higher limit.
Both types are based upon the asset you find and use said asset as the collateral for the loan they offer.
