Scenario 1: It is June, 2004. Mary sells her house in California and makes $250,000. She wants to multiply her money quickly, so she purchases ten brand new houses in Texas and rents them out. Each house is priced at $120,000, so she puts down $20,000 and finances $100,000 at 6.25% for 30 years. She and her family also decide to move to Texas, so she uses the leftover money ($50,000) as a down payment to purchase a $250,000 homestead house. She has to finance $200,000 at 6.25% for 30 years. she does not have any problems finding a new job in the new state because she is an experienced manager. However, her husband does, so he stays home to take care of their kids. She brings home about $4000 per month.

Calculations for Mary’s real estate investment: The monthly rent per unit is $1200. The mortgage payment for each unit is $615. The property tax is $200 per month per unit. The property management cost is about 10% of the rent or $120 per month. The insurance cost is $65 per month per unit. The total cost per rental unit is $1000 ($615 + $200 + $120 + $65). The positive cash flow per unit per month is $200.

Calculations for Mary’s personal expenses: The homestead mortgage is about $1200 ($200,000 at 6.25% for 30 years). The monthly combined cost of property tax and insurance is about $400. The total cost of other personal expenses including food and utilities is about $1400 per month. Therefore, every month she has about $1000 leftover from her take-home money ($4000 - $1200 - $400 - $1400). Let us assume that her ten rental units are “always” occupied, so she would bring home about $2000 per month ($200 per month per unit x 10 units). Her monthly total take-home is about $3000 ($1000 + $2000).

Scenario 2: It is June, 2004. John, a more conservative investor, has $250,000 in cash. He pays $200,000 for a brand new house to live in and puts the $50,000 leftover money in an online saving account that offers a 3% annually compounded interest. Let us assume that John and Mary are in the exact situation. He works. His wife stays home with their kids. Therefore, John’s monthly total take-home is $2200 ($4000 from his job - $400 cost of property tax and insurance for his house - $1400 cost of food and utilities). I would like to point out that John’s homestead house is cheaper than Mary’s, but to avoid complex calculation I am using the same number, $400, for the cost of property tax and home insurance in both scenarios. John probably pays less for utilities because he owns a smaller house, but I would like to use the same number of $1400. Also, let us assume that John will not touch his $50,000 emergency money in the online account for 30 years. It will become $121,363.

To be a successful investor, one must foresee future risks. Let me reveal several things to you and you will understand my points. What if I tell you that in order to finance the ten rental units at the same time Mary has to use 5-year adjustable rate mortgages. Now, it is 2009. Will she be able to refinance them in the current situation? What if I tell you that currently five of her ten rental units are vacant. Where can she find the money to cover the mortgage payments? What if I tell you that she loses her job in 2009. Of course, she can always find another job, but it will take several months. How can she take care of her family during these months?

I am like John. I believe that wealth is accumulated gradually over a long period of time. To become wealthy, one must understand two concepts: cash flow and the value of time. Although Mary’s monthly total positive cash flow is higher than John’s ($3000 vs $2200), $2000 is produced by her real estate investment, which is not very stable, because it is based on the assumption that all of her ten units must ”always” be occupied. For John, he can invest his $2200 in the stock market, which of course has also gone down in the past couple of years, but his overall financial situation is still more stable than Mary’s in 2009.

Time can be a very difficult concept to understand. However, for me, time is life. One’s time starts when one is born, and it ends when one is dead. During this period of life, one must decide what is most important and what is not. Each person has his or her own perception about life. Therefore, each person assigns a different value to his or her time. Some believe that eventually they will die anyway, so why not live for the present. Others love to plan for the future even though they know that death is inevitable because they enjoy the feeling of being in control of life. There is nothing wrong with living for the moment. And, it is not always right to have a plan for everything in life because sometimes it is fun to just go with the flow. In other words, one must be fully aware of one’s past, present and future. What does it have to do with making money? When one understands and loves life, one will have an endless source of energy to pursue one’s financial goal. Gradually, as one becomes financially richer, one will understand that money is not the winning prize, but the quality of life is. I know that not all rich people are happy, but I also know that rich people do not have to worry about housing, healthcare, food and clothes. Because they have fewer worries, they spend the extra “time” seeking new ways to make more money. On the other hand, the poor spend their “time” working at minimum wage at fast food restaurants to cover their basic needs. I am not going to waste my time to explain why there is inequality in this world. However, I would like to point out that to win the American game one must understand the value of one’s time. One must have the desire to be wealthy because wealth will give one more “time”, not just money, to be with one’s family.