If You Want To Be Wealthy, Don't Buy A House - Build A Business

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The key take-away: focus on owning income-producing assets, not a primary residence.

One truism of investing is to follow the lead of those who are building wealth. This chart reveals the foundation of the wealth of the top 1% and the next 9%; business equity, i.e. ownership of enterprises. Compare the assets boxed in red:

The wealthiest households' primary wealth is businesses and shares in businesses. The bottom 90% depend on the family residence as a store of wealth, and on debt as a means of funding asset purchases and consumption.

Primary residences were once a reliable store of wealth--a store that was accessible to working families who were willing to pinch pennies and save up a down payment.

But now that housing has been financialized and globalized, it is prone to boom and bust cycles like every other risk-on financialized asset. Unfortunately, recent history shows that many middle-class households bought homes at the top and rode the post-bubble burst down.

Those fortunate enough to own homes in bubble-prone regions may benefit from speculating in housing, but playing this speculative game requires cashing out at the top of the bubble--something few have the knack for.

Building a profitable business isn't easy. That's why many of the wealthy let entrepreneurs take the risk of starting businesses and then buy the business for a premium once it has proven to be profitable.

But many entrepreneurs refuse to sell out, preferring to hold their businesses as a family asset that can be passed on to the next generation.

It's also worth noting that the wealthiest 10% own over 90% of the securities and stocks, 84% of trusts (essentially tax havens) and almost 80% of non-home real estate (i.e. second homes and income-generating properties).

Primary residences represent a mere 10% of the wealthiest 1%'s assets.

The key take-away: focus on owning income-producing assets, not a primary residence. The second key take-away:

Don't finance your assets with debt; finance your income-producing assets with savings and sweat equity, not borrowed money.

It is not accidental that the wealthiest 1% hold very modest levels of debt.

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Sir SpeaksALot's picture

cant wait to see comex gold paper crash :)

nuclearsquid's picture

Build a business!  So Ayn Rand-ian.

Small business are getting crushed, and big businesses are a pocket-padding, circle-jerk of parisitism, preying on OPM.  Just looked at a business pitch (software company out of Israel).    They want 5M to build a product.  The placement agent is getting 20%, a board seat, a management position at a huge salary, and the existing management team (which as far as I can tell, have built jack shit so far - this graft is all about the fundraising) are all getting salaries too.  So the 5M will almost all go to salaries, and at the end of the money, they will most likely have to do another round to hire their buddy salespeople to sell whatever the hell it is to build ($20M at a valuation 4 times higher, probably).

Funny thing is, no matter how shitty it sounds, it will probably get done.

 

philo24's picture

Financial Securities 55%+40%+6% = 101%

flyingpigg's picture

Probably rounding, e.g 55.4 + 40.4 + 5.9 = 100.7 %

mkkby's picture

Article is bullshit.  Of course the rich own their homes.  But they can only have 1 principal residence, so it's not a huge part of their wealth.

The 99.9% also can only have one princ residence, and obviously it is a larger portion of their wealth.

Suggesting the wealthy don't own a home, and instead have businesses is just plain silly.  It's just the math.

CH Smith has nothing novel or interesting to say.

PT's picture

You mean that some guy who is worth $50 billion wouldn't use all that dosh to build a $49 billion dollar mansion?  (... and spend the remaining billion to buy a reeeeeaallllllyyy fancy car?)  I'm so surprised.  Whoever could have known?

open-range's picture
open-range (not verified) Sir SpeaksALot Feb 11, 2016 4:07 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

pilager's picture

Open range

Going to start a business producing testies to hunt trolling posters like you. GP wil raise so much even the the smallest little ones will sprout to dragon size boulders. Once some these nice classy folks see a dragon balling that appreciate those dragon boulders bulging out your eye sockets and find out OB care doesnt cover, they'd pay double, triple quadruple to see it again again and again.... The commission paid to ones that locate you.... Make a producing asset = wealth.

STOP POSTNG YOU DRAGON BALLED LOSER!!!

kinison

pilager's picture

Open range

Going to start a business producing testies to hunt trolling posters like you. GP wil raise so much even the the smallest little ones will sprout to dragon size boulders. Once some these nice classy folks see a dragon balling that appreciate those dragon boulders bulging out your eye sockets and find out OB care doesnt cover, they'd pay double, triple quadruple to see it again again and again.... The commission paid to ones that locate you.... Make a producing asset = wealth.

STOP POSTNG YOU DRAGON BALLED LOSER!!!

kinison

GooseShtepping Moron's picture

In other words, the same sort of prudence and common sense that has worked for thousands of years.

The majority of people are not wealthy due to their own cupidity and lack of foresight, which in our day and age is greatly abetted by exploitive banking and advertising industries.

Kirk2NCC1701's picture

Not that I disagree, but fact is that Exploitative/Emmanuel*/Parasitic Industries have always done better than any other.

Ex. 1: Feudal Nobility, Clerics, Bankers, and Slave-wage businesses.

It matters naught if these Exploiters used Gold or Fiat as money, the fact remains that they've prospered under any and all regimes.  Which goes back to the P.T. Barnum truthy quote:  "There's a Sucker born every day".

For these reasons, and the fact that Banks have a mere 1% infant mortality rate (compared to sky high rates for regular Startups), that it still makes them the most rational (if despicable) form of profit-seeking business.  That's why whenever someone asks me what I'd do if I "won The Big One" in the lottery (>$100,000,000), I always say: "I'd open a Bank."

I'd loan Money out of thin air, and lend it at good rates with an FRB ratio of 20:1.  Which turns $50,000,000 into $1,000,000,000 of loans and mortgages.  That translates into tens of Millions of Interest per year.

Fuck Milk!  "Got Math?"

 

* "God is with us"

ThroxxOfVron's picture

"For these reasons, and the fact that Banks have a mere 1% infant mortality rate (compared to sky high rates for regular Startups), that it still makes them the most rational (if despicable) form of profit-seeking business.  That's why whenever someone asks me what I'd do if I "won The Big One" in the lottery (>$100,000,000), I always say: "I'd open a Bank."

I'd loan Money out of thin air, and lend it at good rates with an FRB ratio of 20:1.  Which turns $50,000,000 into $1,000,000,000 of loans and mortgages.  That translates into tens of Millions of Interest per year. "

 

+1

Usury on counterfeit 'money' lending and gun-toting .gov/bureaucrat/mobster skimming are great business models.

 

IF interst rates have been ZIRP for years why are the citizens that have always paid their bills being wildly gouged with 16% Credit Card rates?

WTF is ZIRP for the People??

venturen's picture

so owning stuff most likely developed by your ancestors is the way to wealth...who knew

ThroxxOfVron's picture

Blow off all the phoney paper valuations and most of the top 10% are going to be relagated back to the second or third quintile in a heartbeat.

Since 666 equites had a clean triple.  

Anything remotely approaching traditionally accepted accounting standards have been ignored for nearly 8 years.

The FED soaked up hundreds of billions in zeroed securities and defaulted kaput corporates and mortgages, etc....

FULLY TWO THIRDS ALL PAPER WEALTH IS A .GOV/C.B. INDUCED ACCOUNTING MIRAGE. 

-MAYBE MORE.

-MAYBE MUCH MUCH MORE.

Most of 'the Rich' are actually nothing of the sort.  

Much of this purported wealth is phony and in some cases these people are actually not wealthy even in the middle class sense of the work: but secretly bankrupt and living on nothing but corruption and counterfeiting schemes and uncalled loans from friends..

Squid Viscous's picture

build a business? seriously? in this environment?

pass me the fucking bong i need another huge hit...

xtop23's picture

Agreed. That makes me laugh. Big box retailers are the only enterprises that can keep up with taxes, regulation, and the endless roadblocks put into place by government. 

They have utterly decimated the small entrepreneur. 

Squid Viscous's picture

my mistake for trying, about 5 and a half years into it, just about to pull the plug

 

what is this asshole talking about...

 

"savings and sweat equity" LOL!!!!

xtop23's picture

That sucks pal. Same story with my brother in law's business. The parasitic nature of government is finally slaying the host. I think after all these years of expecting the collapse....... this may actually be the real deal.

 

It is what it is.

 

It's hard to pity the ignorant masses ..... they made their bed. I'd rather go into this thing with my eyes open.

Squid Viscous's picture

thanks, not my primary biz but still... it sucks out there, unless your Charles Huge Smith Johnson writing articles from your ivory tower

yellensNIRPles's picture

Ditto. My primary business is okay for now, but my secondary is being absolutely crushed by the very government that needs its taxes to thrive. It's so counterintuitive that I cannot put it into words. The government has literally created a situation where the best thing to do now is just become part of the free shit army and line up for your handouts. Fucking sad.

froze25's picture

Not to mention connections to overseas slave labor factories.

Id fight Gandhi's picture

There's growth in lower class serving or blue collar based businesses that people feel theyre too good for.

 

Take your middle or upper class brain, look for opportunities in the uncomfortable waters of trades and services that seem déclassé. Don't waste your time with web 3.0 social app bullshit.

 

meterman's picture

TO: Gandhi

Finally - A thinking person who can analyze the market. You, sir or madam, will do well, possibly even become wealthy while the rest of the losers posting to this thread sit wringing their hands and soaking their sorrowful little brains in booze. 

White Mountains's picture

Two problems with building a business

#1 it's an easy target for punitive tax rates - my small business is hit with a 40% tax rate!  MASSIVE drain on my resources by the parasites.

#2 difficult to scale.  Once you reach a certain point you will need employees in order to grow. The entire employee situation is exceedingly problematic.  It has gotten so bad that employees are probably the biggest danger any business faces - ie lawsuits by a disgruntled employee can be like hitting the lottery for millions of dollars for them.  Not to mention retention, theft, etc employees are often doing.  I know because I've had plenty of employees before BUT NEVER AGAIN will I hire anyone!

Also, most people haven't a clue what it takes to build a successful business.  It's not sitting on a beach sipping whiskey all day.  It's risking everything and working 60 to 80 hours per week.  Most businesses end up failing.  Give it a try if you think business owners have it made.

I get no paid vacations, no paid sick time, no pension, pay all my own health insurance, and my social security tax is DOUBLE what a worker pays because I have to pay it all myself.

For most people they are better off going on the public dole, pretending to be disabled (millions are doing just that), and enjoying life watching TV, going fishing, camping etc with all the free time in the world as their checks magically show up every month paid for by guys like me.

Hell, Bernie Sanders is making his entire political career based on helping the parasites take even more money from the businesses and hard working people.  He's doing well, too!

My advice to the up and coming generation is to forgo business or working hard on a career.  The best thing you can do is become the Greatest Parasite, which will give you plenty of free time to enjoy lifes pleasures.  After all, there is nothing more valuable than time -  living as a parasite off the hard work of others gives you all the time in the world to persue your interests.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William Finn's picture

I agree...had a really successful business but my partner literally stole it (secretly cut a deal with our largest customer and bailed).  My last task was winding it down and firing everyone.

Since then I started another one, but what I have found in the fifteen years between starting businesses is that there are no customers anymore.  Either you sell to the super rich or you sell at breakeven/loss because the middle market has been destroyed.

jaxville's picture

 I started my business (full time, leased office) 13 years ago.  I have never been able to hold a job prior to that for much more than a couple years.  There were hurdles to be overcome and I am sure that some gov't employees are dreaming up a new challenge as I write this.

  For the first six years I did it on my own and I never worked so hard in my life.  My friends thought I was a kook for opening a precious metal exchange and I could not find a partner so I was severely under capitalized.  In hindsight not having a partner is probably the biggest factor in my success.

  The point I am trying to make is in spite of the challenges I found something that eluded me my whole life.  That is happiness.  I can whine about many things but my only regret was not having the balls to do it twenty years earlier.

MaxMax's picture

Owning your own business is great if you can figure out what you are good at and can find people that value your goods and services.  Most new businesses don't make it though.  Most aren't thought out very well either. 

I am on my third career working for myself after working for others for the first 20 somethine years.  Over 15 years ago, I started my own business building stuff in my basement and selling it on the internet.  I figured low risk - no rent, no employees and the website cost $20/month.  Today, it is a full time job and own (no debt) my own building; but it has been a lot of work, and there are no guarantees on what I will earn from week to week.

Red tape is getting worse and worse.  I finally got a generator installed on the roof of my building.  It took two *years* of architectual, structural, electrical, plumbing, mechanical, zoning, fire, utility approvals even though my part was basically done after 4 months.

Anyhow, if you are going to try something on your own, think about it all lot before you do anything.  If you can find a way to try it with the least risk, go that route.  Concentrate on making a good product and making money before worrying about the other stuff.

vq1's picture

ugh this is hard for me. I definitely wont argue with anything in this post. 

However, building a business is alot of hard work. I have friends and families that run their own businesses. Some are going well. Some are not. And if I were to tell you what they are you may not guess correctly which are struggling and which are profiting. 

I dont mind working for someone else. I dont enjoy being told what to do and I dont like being at risk to be laid off at any time, for any reason. I dont like my work being owned by someone else. However I like not giving a flying fuck when bad business decisions are made. I leave work and go home and I dont worry about anything again until the next day. I rely on my skills not politics and I have clients that know me by name and would work with me no matter who I worked for because they trust me and know the quality of my work. 

I dont own a home right now but I would like to. Actually, not the home so much as the land. to cultivate for the goal of subsistence. 

Just my 2 cents. I dont like having to admit all that but it is the truth. 

Id fight Gandhi's picture

Another word about holding onto successful businesses in a family. Next gen usually grows it, but by the grandkids they don't care, lived entitled and if they step in they run it into the ground. happens over and over. 2nd gen should sell off the successful business.

 

froze25's picture

If you don't force them to work in it at every level from the mailroom/warehouse up they will not appreciate it.

vq1's picture

yea it would be nice to inherent a family business wouldn't it. 

but im not jealous, I was raised well and learned enough to make it on my own. And my family does a good job of building our collective wealth. Maybe slowly, but nonetheless. 

Batman11's picture

How to look at the data and come to all the wrong conclusions.

The inherent trickle up of Capitalism:

a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.

The system is designed to ensure the rich take from the poor.

Adam Smith:

“The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

Like most classical economists he differentiated between “earned” and “unearned” wealth and noted how the wealthy maintained themselves in ease and luxury via “unearned”, rentier income from their land and capital.

 

froze25's picture

That land they inherited was earned sometime in the past most likely from an ancestor taking a huge risk (probably through conquest) but one way or another it was "earned". I would say its BS regulations that keep people from putting their land and or resources to work for them. Lack of motivation, drive and education or willingness to self educate may be factors as well. If you want it, you have to take it. No one will do it for you. Hence the "empowered individual" is enemy number 1.

Batman11's picture

William the Conqueror covetously eyed the wealth of the nation across the channel and went to war to steal its land, property and wealth.

The ancestors of the UK's Aristocracy were psychopthic, feudal war lords that were constantly looking to steal each other’s land, property and wealth and as a result were constantly going to war with each other.

European history is a succession of nobility fighting each other in wars and stealing each other’s stuff.

War is how the elites steal other peoples stuff.

Not much difference to gang turf wars today.

Most old money fortunes in the UK were acquired through crimes against humanity like slavery, colonialism or exploiting the people of their own country in appalling conditions in the factories of the 19th Century.

 

 

lasvegaspersona's picture

yeah, yeah...Marx was wrong about that too. FOFOA nailed it however. The groups in conflict are the debtors and the savers...

http://fofoa.blogspot.com/2010/07/debtors-and-savers.html

enlighten yourself...view the future..it will be here soon...

Ghordius's picture

+1 lasvegaspersona, excellent FOFOA article to the matter  /stuart

Spungo's picture

Next ZH will tell me to lease cars instead of buying them. Who comes up with these dumb ideas? The only things worth renting are things that fly, float, or fuck.

Raymond K Hessel's picture

Exactly. This top-down analytical regression to the mean bullshit gets underlying causes all wrong.

It's about cash flow, your goals, your responsibilities, your particular situation. Everybody's got something. You can't just say "Hear ye, hear ye, Stop owning your home. Rent it out!" 

Dumb. 

thisguyoverhere's picture

What The %uck is up with this article?  Don't buy a house? 

Options?

Yes we should all rent with the insecurity and yearly rent rise that comes with that.  Couple that with the MASSIVE utlity bills in apartments. Case in point, I had a two bedroom aprtment in Houston , it was cheap $900 a month, but my utilities were high.  One time my girlfriend and I went on a cruise, I shut the f'n breakers off.  My next bill was $400!

I now live in a mountain state surrounded by great people, great weather and IN A HOUSE, for the same price each month.  An acre of land too! A clean mountain fed river 10 mins from my home!

Live with friends?  Live with mom?

How about family formation a$$hole?  How are you going to keep demographics going? You are going to keep importing $hit cultures with $hit for brains?

 

 

rpboxster's picture

Agreed.  I never bought a house as an investment, but only as a residence.  

greatbeard's picture

>> I never bought a house as an investment,

Every house I ever bought was considered and investment and I did well with every one of them.  Pretty much everything I buy of substance, tractors/mowers/RVs/boats/etc I look to make a profit on them and usually do. I spent my life running a small business.  It was fun and it paid the bills.  I retired early on my real estate investments.  I buy and sell "stuff" to keep active and give myself some much needed pocket money.  It's not for everyone but it's worked just fine for me.  But I do tend to live, and be satisfied with, a very simple life. 

Right now it's time to jump on the motorcycle and take a ride.  I need  a break from renovating my Airstream. 

SirBarksAlot's picture

I think what the author was saying was that your biggest investment should not be the home you live in. 

It's what Robert Kiyosaki says, as well.

Have a home, but don't get tricked into buying the most house your budget can afford.  Buy a duplex and rent out half or a small group of apartments and live in one.  Buy a small house with small payments, etc.

True Blue's picture

Kind of a misleading article; I mean to say, if you have ten million dollars, yeah your million dollar 'primary residence' is only 10% -which makes you such an apt investor compared to some poor schlump in the $100,000 house that takes 50% of their income.

It would also seem that a lot of the 'assets' listed are paper assets that tend to evaporate when people realize it is over-valued, over-hyped junk and the market crashes. Sure, it is a brilliant thing to own if you are 'too big to fail' and know that your losses are backstopped by the 'misguided' tax donkeys who pathetically 'invested' in a roof to put over their family's head instead of the Casino.

As for a small business? Only an ivory tower dunderpate with no grounding in reality, and who never started a business venture in their entire life would have the gall to even try to suggest such a thing in this regulatory climate and keep a straight face.

VWAndy's picture

 Tptb will be going after the little fish hardest of all. If need be they will go store to store taking everything even the light bulbs. Then the society just turns to dust.

cheech_wizard's picture

Right, because I should pay someone else rent... (Here's a thought, I rent out a room or two in my primary residence)

Standard Disclaimer: Another article destined for the dustbin of history.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Feb 11, 2016 2:07 PM

Wait I thought debt was the road to riches.  That's why the bank is always trying to get me a mortgage or credit card and getting that college degree with $200,000 of debt is so important.  You mean the rich aren't drowning up to their eyeballs in debt?  I'm not sure if I can trust this chart...

Atticus Finch's picture

A couple of observations. A friend of mine once said that those he knew who went into business and the business failed never came back, EVER!

Also, I was never mentored in anything and I would assume that most people fall into that category. I grew up where people bought houses. I'm talking a hard wired point of view since birth. Although the the article might be true on its face there are absolute mine fields facing a populous who started out with nothing. Unless one is born into a family running a successful business, most do not gain the hard wiring to run a business.

Sure you can get into the ultra wealthy class, and you can also lose your soul.