Has it ever seemed to you that our culture confuses high living with wealth? You are right. Wealth is not the same as high income. That simple understanding explains why thousands of high income families are not rich and why thousands of families with ordinary means are wealthy. The article considers a dozen things that millionaires and income property investors have in common. I suggest three reasons why real estate investors are more likely to be millionaires than families with equal or greater incomes.

Two professors, Thomas Stanley and Bill Danko have studied wealthy people in America for about twenty years. In 1996 they published The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. Recently one of my wealthy clients suggested it. After a few enjoyable hours with the book, scores of things make sense. We, as income property investors, do almost everything right to become wealthy.

The Millionaire Next Door is a book about families whose household net worth exceeds a million dollars. Net worth is the value of assets minus the debts. Millionaire households are about 3.5% of the families in America. Consider a dozen things that millionaires have in common with the members of the San Diego County Apartment Association. (1)

• They live well below their means. They tend to live in solid, but not glamorous neighborhoods. They drive well, but usually not imported luxury.
• Financial independence is more important than displaying high social status.
• Most save at least 15% of their income. They plan investments and budget their expenses.
• They allocate time, energy and money efficiently to becoming wealthy. Building wealth and minimizing taxes are standard practice, not vague hopes.
• Most earned their fortune in one generation. Of the few who inherited money, it came only after they had become financially independent.
• Discipline, persistence, independence and courage are core values.
• They are effective in targeting market opportunities.
• They understand the value of a dollar. They shop carefully. Sears credit cards are far more frequent than Nordstrom or American Express cards.
• They tend to be owners of small businesses, self employed or professionals.
• Teachers, professors, Russians, Hungarians and Scots are disproportionately represented in both groups.
• Almost all are married, usually for more than twenty years, or widowed. The wives are a lot more conservative than the husbands.
• They did not receive “economic out patient care” from their parents and they do not provide it for their adult children.

About a decade ago the Apartment Association surveyed our members. Many people were astounded at the financial capacity of our membership. The younger people in particular were amazed. Those of us with at least some gray hair or a Midwest heritage were less surprised.
Many Americans confuse high living and wealth. Millionaires understand that high living is a huge obstacle to obtaining wealth. “It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning and most of all, self discipline.” (Page 1)
Three Reasons Apartment Owners are Likely Millionaires
This article suggests three explanations why income property owners are far more likely to become investors than families with the same income.
First, we need to live below our income to accumulate enough money for the down payment on the first property. These days most families have trouble saving enough for the down payment on a house. Saving for income property does not even occur to most people. Savings takes discipline, persistence and vision. Most families lack financial discipline. Our clients, tenants, are prime examples. If everyone saved, there would be almost no apartment industry.
Second, income property owners tend to be more goal oriented. We are more clearly focused on success, as we define it. We all know families with equal or greater income but lower net worth.
Apartment owners and millionaires are “Frugal, Frugal, Frugal.” Those with money understand its importance better than those with debts. Call it deferred gratification or “wear it out, don’t throw it out,” but households with wealth are slow to spend cash. Waste and extravagance are hated not indulged.
When I was a banker, one of my policies was to spend money to increase income, not to increase expense. Many high income families buy the bigger house in the fancier neighborhood and the luxury car … before they earn the fortune. Supporting the fancy lifestyle keeps those families from attaining the wealth which is otherwise possible.
Third, wealth is best built in low tax ways. A popular myth is that a huge income is required to become a millionaire. Income obviously helps, but the studies have shown that careful stewardship over decades is vital.
The wealthy pay a far lower percentage of their income and more important, a far, far lower percentage of their wealth in taxes. Income property owners understand is how to minimize taxes; that is a huge advantage. The high income family has high taxes. We know that income property shelters ordinary income, which means less taxes each year. Less taxes mean more financial choices. Government subsidizes wealth building in real estate because wealthy landlords are a stabilizing and civilizing influence in society.
When the value of a property or a stock goes up, that boosts wealth, but it does not cost the owner higher taxes. If the income goes up, taxes go up. The wealthy have structured their lives so that most of their wealth come from an increase in the investments, not from the taxable income.
The research shows that wealthy people build wealth in ways that have lower tax consequences. Millionaires are more likely to hire smart advisors and brokers who show them the legal ways to avoid and defer taxes.
Conclusion: Get Rich Slowly
Slow and steady wins the race. Aesop’s fable about the rabbit and the turtle holds truth today. Glamour and flash lose to persistent progress.
If you are a reader, you will enjoy this book. It is easy to read, well researched and has a host of case studies about real people. Almost all of the case studies of high net worth families could have come from SDCAA members. The book is worth a few hours of your time. Several people have said that the volume is circulating within families.
The research confirms the common sense ideas we grew up with still work … quietly, powerfully, surely. When I bought a business from my parents, there was a saying on the front wall, “Common sense is not so common.” Use your common sense to make this year one of the best for your family, as you focus on your success.
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(1) This article asserts similarities between millionaires and SDCAA members. The SDCAA survey covered many, but not all the same items as Stanley and Danko. Some, like the core values or percentage of teachers and national heritage, are my best guesses based on meeting hundreds of apartment owners, not based on SDCAA survey. SDCAA might find it interesting to compare our membership more specifically with the findings of Stanley and Danko.
Author: Terry Moore, CCIM