Sam Lee is a marketing manager and property consultant at JML Property. JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
This week, we continue exploring how Bruce Lee’s “Be like water, my friend” philosophy applies to capital and real estate.
The below shift in paradigm has the potential to dramatically accelerate personal wealth accumulation:
Access to capital > ownership of capital
While it can seem counterintuitive at first, this is a principle that separates the wealthy from the middle and lower classes. A simple example will illustrate.
Picture a cash millionaire and a broke man with $0 to his name. For whatever reason, the millionaire can only spend his own money, but the broke man has unlimited credit, allowing him to borrow as much money as he likes, whenever he likes. Of course, he has to pay market interest and agree to pay the sum back within an agreed period.
Who is better off?
At first glance, the cash millionaire seems to have one-up on the broke man. After all, he his net worth is a whopping 1 million dollars higher than the broke man’s.
But the tables turn when they start investing in cash flowing real estate. The millionaire can buy 1 million dollars’ worth of real estate, which is obviously a significant amount. The broke man, however, can buy as much real estate as he wants provided that the assets provide a positive rate of return sufficient to pay his debts back (exactly how to do this safely is another article for another time). With access to basically all of the pools of capital in the world, he could even become a billionaire within a few years depending on how many good real estate deals he can find for himself.
As you can see, the key is to gain access to outside pools of capital and link it to a productive asset. After the capital has done it’s work, you can simply return it back to the original source along with some of the extra returns that it has generated.
When a young couple gets help from their parents to buy their first home, they are technically tapping into an outside pool of capital. However, since the residence is not an investment that produces returns, the assumption in most cases is that the amount borrowed will not be paid back to the parents, at least in the near future.
But what if that money was put into an income generating investment instead?
I hope that this article has given you a new perspective on capital. It is not simply the pieces of paper or coins that you keep in your wallet, or bars of gold in some bank vault. Capital is like water and can take any shape it wants. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip, and it can crash. It’s always looking for the next asset to flow to.
Do you have access to it, and know a place for it to go?