Do you understand what a wealth accelerator is?
Maybe you should: because that’s the way the rich keep getting richer.
You’ve probably heard the expression money begets money. Maybe you've even wondered why it's easier for people who already have plenty of money to make more of it.
Or maybe you’ve wondered why making your second or third million is much easier than it is to make your first million dollars?
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Here’s why. Strategic property investors who have built a true property investment business, grow their wealth faster by using a number of what I call ‘wealth accelerators’ that leverage their returns.
Let's take a look at what they are:
1. Other people’s money
The first wealth accelerator smart investors use is one that you’re likely to be very familiar with…that’s using other people’s money.
One of the biggest differences between how the rich and average Australian go about building wealth is how they invest…not their own money, but how they leverage and use other people's money.
You see, the average Australian rarely uses leverage in a strategic way because they're afraid of taking on debt, believing they first need to pay off their home before they start investing.
If they do build any wealth, they seem to do it mostly by scrimping and saving and using anything that’s left over at the end of the month, slowly building up their nest egg.
On the other hand, the wealthy have mastered the art of using money they don't have to build their wealth.
They used borrowed money to magnify their investment activities and enjoy accelerated returns by borrowing and leveraging against assets they own and use this to acquire even more assets.
They are more financially fluent, and since the have a more sophisticated understanding of how to use debt, they’re able to take their wealth to the next level.
2. Other people’s time
Successful property investors make the most of their time by leveraging other people's time.
While many beginning investors waste time, energy and effort trying to do everything themselves, successful investors put their time to its highest and best use.
Some beginning investors believe they’re saving money by doing their own research, spending weekends house hunting and competing with agents undertaking property negotiation.
However their lack of experience usually means they get a secondary result and pay a huge learning fee to the market by paying too much for their property or buying the wrong property and missing out on significant future capital growth.
Other beginning investors try and collect their rents themselves and undertake maintenance themselves of the investment properties themselves while successful investors outsource these tasks to property managers and instead use their time to learn more, to develop relationships and to find more deals.
3. Legally take advantage of tax laws
Now this is a big wealth accelerator for successful investors.
Believe it or not, the tax laws were written to benefit business owners, meaning if you run your property investments like a business you're able to accelerate your wealth creation by taking advantage of these laws.
Essentially, as an employee, your cash flow is a bit like this…. You earn money, you pay tax, you spend what's left over.
However, as a business owner the pattern is quite different. You earn money, you can spend it on legitimate expenses associated with ring your business and earning income, and then you pay tax on what's left over.
This is virtually the opposite of how employees get taxed and can make a significant difference to your cash flow because you can spend your money on legitimate business expenses before paying tax instead of the government taking its share before you receive yours.
When you become aware of the tax laws and deductions available to business owners, you can maximise your income and legally minimise your tax.
4. Correct ownership structures
Another wealth accelerator used by the rich is their ownership structures.
If you choose the right ownership structures for your investments you can accelerate your wealth.
Sophisticated investors own nothing in their own name, or very little in their own names, but control everything in structures such as companies and trusts.
The correct ownership structures also give the rich a form of asset protection and can be used for estate planning to pass on their wealth to future generations.
5. They use their network
Successful investors realise they don't have to be an expert in every field if they develop a good network around themselves, including a smart finance broker, good solicitor, a property savvy accountant and a knowledgeable property investment strategist.
I’ve often said: “If you are the smartest person in your team, you're in trouble!”
Successful investors also have mentors and belong to mastermind groups of like-minded people who encourage each other, who help each other and who push each other forward.
Having a great network around you enables you to leverage off other people's expertise.
Your network of relationships is critical to growing your wealth, not just for what they know themselves, but often for the people they know who could help you.
In fact it’s not who you know that matters. It's who, who you know knows that matters. And I'm not stuttering!
6. Their mindset: It’s all in the head
Another leverage point that makes the rich richer is the way they think - their mindset.
They just think differently to the average person.
The not so rich have a different reality to the wealthy.
To put it simply, your reality is what you think is real, which means your perception is your reality.
I’ve found the poor say things like, I can't afford that; I can't do that; I already know that; Oh that's wrong; I tried that once and it didn't work so I'm not going to do it again; that's impossible.
The fact is, what stops many people from becoming successful isn't what they don't know.
It’s what they think they know, which actually isn't so.
So if you want to truly become wealthy, you're going to need to open your mind to a whole range of new ideas.
You're going to need to develop new skills and to take on a greater set of possibilities better than your current abilities.
It's just too hard to become wealthy from the perception, or I guess a reality because your thoughts and perceptions become reality, based on lack and limitations.
7. They own the right assets
When you look at the various rich lists you’ll find that most wealthy Australians have either made their money through property or if they’ve made it through other business ventures they invested the bulk of their money in real estate.
Of course many of Australia's rich have accumulated their wealth through businesses or in the share market, but most have found that investing in property has accelerated their wealth because it allows them to use all the leverage points I have just mentioned to fast track their wealth creation.
Choosing the right property, owning it in the right structures, financing it correctly so that you can use more of other people's money, using the tax laws wisely to pay minimum tax and understanding the law to protect your assets, vastly accelerates your wealth creation.
Here's another interesting thing about these wealth accelerator…
Combining two more of them doesn't just speed up the growth of your property investment business incrementally. It helps grow it by quantum leaps.
So now you understand the wealth acceleration secrets of the rich.
While to the average Australian it just seems like the rich keep getting richer, the fact is they do.
But they do so because they understand how to use these seven wealth accelerators.
Now that I've explained them to you, why don't you put them to good use?
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.