Are You Building Wealth or Income?

Today is a solocast episode and  I will be sharing what I've learned and what might be of value to you in the topic of creating wealth and not just income. I will also cover how I transitioned from being a corporate worker to a successful real estate investor.

Tune in to learn more valuable information from this episode!

Subscribe, Listen to our episodes and leave us a review:

Apple: https://podcasts.apple.com/us/podcast/real-estate-investing-for-freedom/id1570870735

Spotify: https://open.spotify.com/show/2d3nMp137jfw6MDyPPsY3j

Google: https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS8xNzkxNDk0LnJzcw==

Connect with the Host, Dalyn Hazell:

Facebook: https://www.facebook.com/dalyn.hazell/

Instagram: https://www.instagram.com/dhazell24/

Email: dalyndhazell@gmail.com

Transcript

Introduction  0:00  

This is the real estate investing for Freedom podcast, where we bring on the experts to teach you the golden nuggets of real estate investing. So you can escape the rat race and start living life on your terms. Now, here's your host, Dalyn Hazell.

Dalyn Hazell  0:23  

Hey, what's up everybody, and welcome back to another episode of the podcast, this one's gonna be quite a bit different. This is just me talking. It's a solo cast. So there's no guest, and there's no interview. It's just me sharing what I've learned and what might be of value to you on the topic of creating wealth and not just income. So we'll dive right in, I don't have a specific structure to this. I'm just talking. So when I realized that I didn't like my job in corporate accounting, I was hustling for income, I told myself, what can I do to generate income, that's not tied to my time, that's not tied to this job that I really don't enjoy. And when I thought about it there, you know, there are multiple paths to go, I started dropshipping, which is like selling products on Amazon, I looked into starting my own accounting firm, and a lot of that can work. But it wasn't right for me. So then I got into, of course, as you guys know, wholesaling and finding off-market deals, and wholesaling and flipping. And then as I got to do that, I realized, like, this works for me, you know, this, this generates a lot of income. And I was really happy with that. I still am. However, I want to challenge you today, with a thought, are you building just income, or are you building wealth, because it's tax season right now? So everyone's doing their taxes and figuring out how much they made last year. And the truth of the matter is, the government wants us to build wealth versus having a high income. And I saw that clearly at my corporate accounting job, you know, these real estate investors, they were not paying hardly any tax at all, because they're doing what the government wants them to do, hire employees, revitalize neighborhoods, invest in communities. And if you're just building an income, just a high income for the sake of the income, then that's not going to be effective, as effective as if you are focusing on wealth and income. So let me break this down a little bit. So as you guys might know, ordinary income earned from a job or self-employment is some of the highest tax income that you can earn. For example, if you show up at a job, you're going to be taxed half of the Social Security, which is about seven, seven, and a half percent right now. And then your employer covers the other seven and a half. And that makes up your Social Security, Medicare, and also called FICA. So FICA is 15.3% of your total income, so Well, half of it goes to come from the employer, and half of it comes from you the employee, then on top of that, you're going to have federal income taxes, which could be you know, as little as nothing if you don't make a lot of money, or it could be 1020, up to you know, 39%. And that's in addition to your FICA taxes. Now, when you're self-employed is even more brutal, because you're shouldering the whole amount of the self-employment taxes. So the whole 15.3% you're the employer and the employee, so you're covering that whole amount. So you're, every 15.3 cents out of the first dollar you earn is going to this forced savings account, which has Social Security and Medicare, and whether we like it or not, that's just the way it is in America, we have this we have FICA taxes to pay, then you have your income taxes, and I didn't even mention state income taxes. So if you're in a state like Missouri, where I'm at, where you also have, you know, a six or 7%, state income tax, that even adds on so let's say you're the average self-employed person, maybe you maybe you're a mechanic, and you have your own auto body shop, so you're going to pay 15.3%, then you're going to pay let's say, you know, 15 to 20% of federal income tax, then you're going to pay about 6%. In-state income tax. I mean, that shakes out to around 40% of your income. If you're a really successful business owner, you can be paying up to 50% of your income, sometimes 60% in income taxes, and that's not even covering like sales taxes you pay once you know once you take home that money, let's say you go to the grocery store, you're paying sales taxes, you know, you have all these hidden taxes and your cell phone bill. I mean, taxes are just a way of life. But the point of this episode is are you building income or wealth so if you're going for just income, you're going to find that you're going to pay a whole lot of money in taxes just like I described. How're let's flip the script a little. But let's say you are building wealth, let's say you're trying to build wealth. So we all have to start somewhere. We have to the point that shows that teach you how to turn your active income into your passive income, so you don't have to work so much. Now, when you are building wealth, let's say you buy a rental property, you know, that's what I have expertise in. So you work work work, and you have enough active income to put down a 20% down payment on a rental property. So you do that, obviously, it's a cash outlay at first, but you're in the process of building wealth, because let's say that rental property is worth $100,000 when you bought it, and then the next year, it goes up to $105,000. Now that $5,000, you just quote made, is not taxed, that's wealth. That's appreciation, that's not taxable. When you sell it is taxable. But we're just sticking to the basics right now. That is wealth, you see that play out if you put it into your 401k or the stock market. That is the wealth you're building. However, you know, when you sell, of course, the only way, in my opinion, the only way to make money in the stock market is when you know you sell. You know, I know that it gets more complicated than that, of course, and you guys can probably correct me on that. But that's why I love rental properties because I never have to sell in order to make money. I get the rent from the cash flow from the tenants. And so that's particularly why I wanted to start with rental properties as I'm building a lot of wealth, and I'm not taxed on any of that appreciation. And then furthermore, when you're building wealth, say through no properties, then the rental income is not subject to FICA taxes, you don't pay any self-employment taxes, or Medicare on rental income, because it's passive income. And it's the passive income per the laws of the IRS. I'm not just saying that because that's a nice word. It's actually written in the tax law, the tax code that that is passive income. So every dollar you earn from rent income is like earning $1.15 of active income right off the top because you don't have to pay that 15% of social security medicare. Now Furthermore, it gets even better because you can write off your mortgage interest, your depreciation, any repairs you make to that property. So I'm doing my tax return for this year. And I've noticed that I mean, some of my properties show a profit on paper because maybe I didn't have money.

Dalyn Hazell   7:40  

Maybe I have low-interest rate loans, I don't get to write off a lot of interest, or I didn't make a lot of repairs. But most of my properties actually show a loss on paper. And that's fabulous for somebody in my shoes because that means I can write off that paper loss against my active income from wholesaling and flipping. And we all know that it's only a loss on paper because I depreciated it, I depreciated it, which is an IRS tax code that allows me to write off a portion of the purchase price, over 27 and a half years. And it's an expense, it's a noncash expense. So I know I'm getting quite into the weeds. I kind of geek out on this stuff, guys, so bear with me. But the point I'm trying to drive home is in this process. I'm trying to build wealth, and not just income. And I'm not just tooting my own horn, I think that's what you should do, too. Because when you're building wealth, you'll notice it's slower going. But it's so much easier to make money because there will come a time. I have a number in mind, where I will not have to look for that next deal. I won't have to hustle, I won't have to strive for that next flip or that next deal. Because I have the wealth I have the rental income backing it up. So I know for a lot of you guys, maybe you're just getting started. Maybe you think that maybe you think of the idea of making $5,000 on a wholesale as your wholesale fee. That would be like the best thing in the world. But what I can tell you is that once you've made that and you've made, you've made much more than that inactive income, you realize how much tax you have to pay. And I believe that the greatest detractor of wealth is tax. You know the quickest way to ruin your wealth-building ability is to pay a buttload of taxes. So what we have to do, as real estate investors is mitigated that by rentals or investing in alternative assets where you can offset some of this high income because I certainly don't want to get to the point where I'm paying 50% in tax, I always want to figure out how to get my tax burden as low as possible. And that's not me trying to cheat the government. That's me trying to do what the government wants me to do, and not get punished as an employee or self-employed person. So I don't know, guys, I hope you guys enjoyed this. What are you building income or wealth? I keep asking that question because it's so important if you're just going for the income and the the lifestyle and, and in the cars in the house and you're just trying to build up a high income, I think you're gonna find that you're on the hamster wheel, they call it the six or seven figure hamster wheel. And I agree it's better than not making much money at a job you don't like. I agree that it's better than that. But for the long term, I'm just at a point where I want to build wealth and I don't want to have to strive for that next deal or create that new product. I want to work when I want to, and not when I have to. And so hopefully this has been a challenge for you guys. I hope that you also like this format. It's a new one but I just want to have something on my mind that I need to share. I think it's important to get that out. And these will be short and sweet like this in just 10 minutes or less. Just sharing what I've learned and insights I can provide. So feel free to reach out and tell me I'm wrong on something if you know I misspoke. But you can find me @DHazell 24 on Instagram, or my email address is dalynDhazel@gmail.com. You can find that in the show notes. But anyway guys, hope you have a great day and enjoy this little solo cast. Take it easy.

Outro  11:29  

Thank you for listening to the real estate investing for Freedom podcast. If you enjoyed the show, please subscribe and leave us a review and tune in next week for the next episode.