The Quickest Path To Wealth
The Quickest Path
Dear readers, I’ve been holding out on you. I have the secret. The secret to building wealth. Those of us with high net worth have been banking on it for years. We don’t talk about it in public. We rarely mention it in our origin stories. But there is one sure way to make a lot of money. It takes little skill, knowledge, or even thought. The quickest path to wealth, it turns out, is being wealthy already. That’s right, money begets more money.
For several reasons, high net worth individuals have several advantages when it comes to the money-making game. Even though it is easy to chalk it up to knowledge and skill, opportunities abound for those who already have fat bank accounts.
It’s patently unfair. Why should the rich get all the advantages?
There is no simple answer to this question, but if you are feeling frustrated by this conundrum, you are not alone.
Let’s first look at some illustrative examples, and then I will give you my best approximation of what can be done remedy this situation.
Cash is King
I love investing in real estate. Unlike Wall Street, the real estate market is highly inefficient. In other words, there are great deals lurking around every corner. To capitalize on these deals requires a certain amount of skill and luck.
You have to be able to asses the quality of a property, understand the market, and be able to calculate the cost and profit involved with renting or flipping. All of these skills can be learned with a bit of time and experience.
No matter how smart you have become, it’s all for naught if you can’t close the deal. Time after time, I have watched a prime property slip through my fingers into the hands of another more savvy investor.
Although you can’t always be the winner, going into any bidding war with a full cash offer not only gets you considerable attention, but also gives you some leverage to negotiate. In an uncontested offer, coming in with cash allows you to low-ball the price.
Banks trying to offload foreclosed properties are often quite happy to reduce the price to jettison a mortgage contingency clause.
The quickest path to wealth, is to go in all cash.
Money Begets Money
Until recently, I had no idea what an accredited investor was. According to Investopedia:
An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience
There are all sorts of criteria, but generally the expectation is that the investor has a family household income of $200k-$300K per year or net worth of at least a million dollars. Some investments even require a net worth of over five million.
Why is being an accredited investor the quickest path to wealth? Unlike the general public, these lucky ducks qualify to invest in hedge funds, private equity deals, venture capital funds, and other private placements. While these investments are certainly more risky, they also carry the possibility of much greater returns.
When Opportunity Knocks
Have you ever found yourself staring at a for sale sign, or a stock quote, or a potential purchase and thought:
If only I had a $100K sitting around!
Well, the wealthy do. They have disposable assets and the liquidity to jump on a good opportunity when it arises. Remember, money is made when markets are inefficient. Market inefficiency is often short-lived as other investors recognize the great deal that you are salivating over. Those with quick access to cash will have a distinct advantage.
So Am I Screwed?
Although the quickest path to wealth is gold-plated, it is not the only one. The best way to add fuel to your FIRE journey is to go back to the basics. Especially when you are young.
- Maximize W2 Income
- Save like a madman
- Invest
- Cut down on spending
- Front-load the sacrifice
Before you know it, your net worth will be climbing. And then you will the baller with the big pockets.
Ready to use your wealth to create even more.
I advise caution in accredited investor deals. Some will turn out well but not all.
I agree. Due diligence is very important. Some of these syndication deals, however, are lucrative.
Hedge funds and their kin aren’t secret ways to wealth, they are just scams that take advantage of vanity to separate wealthy from their wealth. They use the same craving for exclusivity that the credit card industry uses with gold, then platinum, then black cards. When the manager makes money, he collects 20% or more. When he loses, oh well, so sad. The reason that you need to be a qualified investor is that the regulators figure the wealthy can afford to be stupid.
I agree. I included hedge funds for a fuller lust. However, some of the syndication deals and other investments only available to the accredited investor are worthwhile.
I think this is how my niece sees me. After growing up with no money, now I am there. With cash in hand. Waiting to pounce!
What will you pounce on?
Getting to the first million is the toughest and takes the longest time. After that, if you invest wisely, your money starts working for you faster and harder than you could ever save. I call it escape velocity. Syndication deals can be very lucrative if you pick the right sponsor operator. There’s always risk. Just have to DiverseFI 😉
Yes, I am getting flack for mentioning the accredited investor issue but I think there is some good, especially with syndication
I have had more loss ventures than gain ventures when I was required to be an accredited investor. Those deals are a high risk/reward situation. Be sure it is only your play money you use for these.
I keep some cash available for an opportunity that might come up. I call it my opportunity fund. I never know when a good deal will pass over my desk, but when it does, I’m ready.
Dr. Cory S. Fawcett
Prescription for Financial Success
I hear ya! I think some syndications and crowdfunding deals can be good as will be discussed in my sponsored post tomorrow.
I’ve been hearing a lot lately about opportunity funds.
I heard all you have to do is place tiny little adds in the classified sections of magazines and news papers, and the money just rolls in. One cat on TV said he was making $50K per week from his tiny little apartment! I also heard you can just trade like Chuck, that guy’s making $50K/mo! Options trade like those bald bozos with the pony tails on CNBC. Kramer! Kramer got a book says BUY BUY BUY that’s the ticket!! Of course winning the Lotto is popular as well. Speaking of qualified investors how ’bout that Madoff? The “used to be rich” call him the Jewish Bond. Gotta admit the guy had a nice boat.
I’ll be super interested in your take on crowdfunding. I find it amazingly risky but maybe I’m just paranoid. You live in say FL, give your money to a funder in say Cali, who buys a property in NV. Deal goes south. Who do you sue? Where do you sue? Is suing in multiple jurisdictions feasible? Cost effective? lemme see I have $250K invested and it’s going to cost $500k and 5 years for a settlement.
The funder needs a tax writeoff he owns 100 buildings but decides to use your building as the writeoff. Suddenly your building needs a total makeover and goes off line. He hires his brother in law to do the makeover so the cash flow stays all in the family. On paper 99 of the 100 buildings are successful so it looks like not that bad of an investment. I’m probably leaving money on the table but I just haven’t convinced myself this isn’t another form of Timeshares and you don’t even get the free lunch.
It’s funny you mention crowdfunding! Equity Multiple is a sponsor of mine and they have a sponsored post tomorrow. We’ll see what you think!
I B waitin” 🙂
My Mom always told me “It takes money to make money”. She’s wise…
Smart lady!
Sadly its much easier to make money if you have money – but it’s not all doom and gloom for the rest of us as you state.
As for the accredited investor type stuff, I’d be interested to see where they fall on the risk vs reward scale.
High risk. High reward. As with my guest sponsor in today’s post, some syndication/crowdfunding deals I think are slightly lower risk and are less correlated with the market.