Financial Education through Real Estate Investing — Complete your Wheel of Wealth for a Smooth Financial Journey (Part 1/2)

Sorry, and not sorry for the intended pun!

Since we started in personal budgeting and went through 3 weeks of ‘mindset’ focusing on finding emotional anchors (or ‘defining our purpose in life’), this is the fittest next step to take:?understanding the Wheel of Wealth. Many so-called real estate investors (mostly property collectors, or people who only have taken training on buying 1 or 2 types of properties, or people who simply were never exposed to financial education) DO NOT achieve the results they thought they would despite the extra time, effort and money spent.

The Wheel of Wealth (or the circle of wealth — somehow, I have the opening song of The Lion King playing in my head now) is a brilliant way to recognize where the holes are to patch if we want a smooth financial journey in life. You may wonder: what exactly is it? Here’s a quick illustration for you.

It’s comprised of 3 income buckets: earned, passive and portfolio.

If you’d like, you can also call earned income “active income”. This is where the most commonly known saying of “time is money” comes from. The phrase is simply to depict the “trading hours for dollars” routines for many who have not been properly financially educated otherwise. Exhibit A — single source of earned income from a job. Or, as I’ve had the misfortune to witness before: 3 jobs.

Just like earned income, you can also call portfolio income “equity income” or even “capital income”. However, this is the income bucket that can get tricky. For many, if it grows, it’s like the piggy bank that you don’t want to open until you absolutely have to break it. And, when you do, there is this thing called the ‘capital gain tax’ that will take a good chunk of it out. Contrarily, for some, it’s literally the piggy bank you cannot open — ie. home equity from a principle residence that has gone up in value by so much, yet you don’t have the sufficient qualification to utilize any of it. The most common seen portfolio income streams include: home equity that has grown over time, stock portfolio, retirement funds, savings and other investment vehicles (perhaps previous metals like gold and silver or some new-age options like NFTs).

Now, I’m not an accountant. But, I will tell you — there tends to be some grey areas differentiating earned vs portfolio incomes at times. It does largely depend on who (or better yet, what legal entity) is conducting the investment activity and transactions. With that said, in case you’re already wow’d by this concept and want to credit me for introducing you to something new or just a different perspective, don’t! I didn’t come up with the 3 income buckets — our beloved tax authorities did. It’s simply the big umbrella terms of how the governments decide to tax the hard earned dollars we make. This is why we offer?Asset & Income Protection?as part of the Mentorship Programs at?Trust Your Talent Academy . At the end of the day, “it’s not how much you earn, but rather, how much you keep that matters.”

Lastly, most real estate investors’ favourite income bucket: passive income. Some view it almost interchangeably as residual income. For now, I’m going to say they are NOT the same. Also, at the risk of sounding like a boring best man’s speech, passive income is simply defined as “income that requires minimal effort to earn and maintain”. Alright, I’m just joking.

For educated investors, passive income actually requires massive effort upfront to earn and minimal effort to maintain. Why? Simply because educated investors learn to deploy different strategies when looking at a real estate investment opportunity. That means a typical process of:

1. Validating the viability of a potential opportunity (does it fit our financial goal to begin with — remember the last few articles?)
2. Conducting proper due diligence (gathering and verifying all available information)
3. Analyzing the numbers — from worst to best case scenarios and everything in between

The main difference here is that educated investors take calculated risks in every deal.

(Quick side note: what separates a deal from an opportunity is the 3-step process I just mentioned above. Don’t ever let ANYBODY sell you on a deal when it’s really just a listing (aka. an opportunity to buy). Educated investors have clear goals and business plans to achieve. Blindly acquiring properties is for the amateurs. That is also the ultimate difference of how educated investors can achieve the same results as the amateurs in a much shorter timeframe. Plus, we haven’t even started on the acquisition process yet!)

Back to the main topic: the Wheel of Wealth. An average person typically would somehow fill the earned and, if diligent, the portfolio buckets. This is what it looks like:

• The earned income bucket comes from a paycheque that’s delegated to paying bills. Part of the bills can include either mandatory or voluntary contribution to building a portfolio income.
• The portfolio income then includes savings, government pension plans, private retirement funds, etc.

What is missing here?!

Passive income. Unless you’re the voice of Darth Vader or Mufasa, this is probably not an income source that a regular Joe (or Jane) has. Wait a minute…I thought we said that they are not the same. In this case, I actually do think they are given the definition I gave earlier. Regardless, I personally believe that effort and expenses are spent somewhere and on someone so that Mr. Earl-Jones can continue to collect these income streams.

The point is: many of us go through life with a giant gap in our ‘wheel’ of wealth and we wonder why it’s so tough to catch a break or get ahead despite how hard we work our butts off!

Fortunately (and I hope you’ll see it as I did 12+ years ago), through real estate investing strategies, we all have equal opportunity to patch up our own wheels. (By the way, another side note: I personally do not believe that there’s a “one-size-fits-all” solution when it comes to each person’s quest to financial success. This is the main reason why I wanted to create a financial education academy that covers as many strategies applicable to our market places as possible.)

We will now look at a list of hard strategies:

1. Distressed Properties & Flip (physical buy and sell of a property)
2. Wholesale & Assignment (paper buy and sell of a property)
3. Lease Options (physical or paper buy and sell of a property)
4. Short-Term Rentals: vacation, executive, student and rooming houses
5. Private Lending & Creative Financing
6. Income Properties: single family
7. Income Properties: multi-unit residential
8. Income Properties: commercial, mixed use and industrial
9. Infills and Land Development

Here’s a list of soft strategies:

1. Asset & Income Protection
2. Business Fundamentals: business planning & goal setting, bookkeeping, systemization, networking, etc.
3. Portfolio Management: tenant management & management of the physical asset
4. Raising Capital
5. Creative Financing: small to large scale partnerships

Maybe you’re looking at this and feeling excited. Or, maybe you’re looking at this and feeling exhausted and scared. I know I fell into the first group there. In the beginning of 2010, I had just lost ALL of my savings. Working for an average 80 hours a week, that was incredibly devastating. (Now, you might wondering: didn’t he also mention something about losing $1M overnight in 2016? Yes, you’re absolutely right about that!) This might be a good time to share 2 things here with you all:

1. In 2009, I had pulled out all my money from all my deadbeat investments — savings account, private retirement funds (RRSP if you’re Canadian, 401K if you’re American, Superannuation if you’re Australian, and ‘individual defined contribution’ if you’re Japanese), and company stock options. All of them plummeted in value — some quickly and some gradually. Despite the ‘matching program’ my employer had at the time, nothing beats a downward market with forces beyond anyone of us — other than my CEO. When the company declared an annual loss of $360M, he gave himself a $8M bonus that same fiscal year while all middle management had their bonuses cancelled. (It’s a fact now I share, the energy is no longer there in case you’re wondering.) Long story short, like many people, after GFC (global financial crisis), I took out all my money from all the traditional investments that my parents and society told me were good, and into a real estate development deal. Well, as fate would have it, the developer took everyone’s money and ran. From that, witnessed 70 year-olds crying and yelling in a law firm boardroom: “That was my entire life’s work, how am I going to live? How am I going to put food on the table? I might as well go jump off a bridge!!!” Without a doubt, that had to be one of the top 3 most heartbreaking moments in my life so far. I realized then that, if I didn’t know what I was doing with my money, this could happen to me — 20, maybe 30, years down the road, too, after I’ve busted my hump working long hours for decades. I decided to take my financial future into my own hands and learn. That’s why, when I learned how many ‘strategies’ there are for professional investors, I lit up like a Christmas tree and the pain of losing my savings all of a sudden became very small. I realized that I gambled. I realized what I did was “letting the blind leading the blind”. Most importantly, I took full responsibility of my loss and said “this ends here”. On that note, this is why I often joke to my classes: what you’re learning from me really is a collective ‘what not to do’ so that you don’t lose the money like I did. Real estate investing is great and lucrative when you know what you’re doing. The other side of the coin also stands: if you don’t know what you’re doing, it can be detrimental to your financial future. Like any asset class, really.
2. In 2016, a partner company had a lot of internal issues that they were not transparent about. In short, they filed for bankruptcy without even a heads-up and we were left picking up the pieces. By the time it was all said and done, we were just over $1M in the hole. This is fun story — will share in more details later on. The real lesson I want to share is this: I’ve been reading and following many successful entrepreneurs for many years — both living and historic. One of the things that always intrigued me that they all seem to have in common is something like this: “I know if I lost it all tomorrow, I’d be able to make it all back…and then some.” Not until this incident happened to me, I had a hard time believing it.?Trust Your Talent Academy?is exactly born out of this confidence and experience. I realized that my financial education (and the one that I so passionately and desperately want to share with the world) is the foundation that NOBODY will ever be able to take away from me. Businesses may come and go. Properties may peril. The economy can shift and the world can shut down (wait, all of these happened and still happen on a daily basis!). Even the most clever thief cannot steal what’s in the 6 inches between my ears.

Above all strategies, many people (myself included) have found tremendous value in having mentors holding my hands through not just my first deal, but my journey in real estate investing. As I’d like to say, I don’t know everything and I’m ok with admitting that. At the same time, I’m willing to share everything I know.

In the next article, I will share with you how you can start leveraging each strategy by categorizing them into the 3 income buckets. If you’re too impatient to wait, here are 2 ways you can fast track your learning:

1. Attend the?free Bootcamp Trust Your Talent Academy ?is putting on in June (June 11 or June 12), or
2. Speak to a Strategy Coach now ?to start getting some tailored suggestions.

Last but not least, here’s?a quick video? to also give you a jump start!

See you next time!

Ps. Thank you for your suggestion. To stay connected, you can:

• Follow me on Instagram using @theTimTsai
• Follow me on Facebook @theTimTsai and @theOnlyTimTsai
• Email me with feedback & questions directly at [email protected]

(Written at the Fairmont Chicago, Millennium Park.)