The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 60- Income vs Wealth: Financial Strategies for Entrepreneurs with Krisstina Wise
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Curious about the difference between income and wealth, and how to transform one into the other? Join us as Krisstina Wise, founder of Wealthy Wealthy, shares her transformative journey from earning a considerable income to encountering financial disaster. Krisstina 's story unveils the shortcomings of traditional financial education and underscores the necessity of running a personal profit and loss statement for household profitability. Learn the secrets of growing both income and wealth throughout your career to achieve ultimate financial freedom.
Entrepreneurs face unique challenges in balancing business growth with personal wealth accumulation. This episode delves into effective money management strategies, stressing a profit-first mentality and the importance of setting aside a consistent percentage of revenue for profit. Krisstina highlights how neglecting profitability in favor of top-line revenue can be detrimental and shares insights on budgeting for taxes and profits, particularly for real estate investors. These strategies are designed to provide clarity and sustainability in business growth and wealth building.
Real estate investment offers both short-term income and long-term wealth-building opportunities. Krisstina discusses the merits of a measured and conservative approach, the pitfalls of over-leverage, and the necessity of maintaining liquidity. By adopting a "get rich slow" mentality, you can navigate market unpredictability and regulatory changes with confidence. Krisstina also emphasizes the importance of understanding your financial numbers and delegating tedious tasks to professionals, ensuring you stay focused on strategic growth.
To hear more from Krisstina check out her site at: https://wealthywellthy.life/ and go to her Youtube channel:@kristinawise https://www.youtube.com/@krisstinawise
So all right guys, welcome to the show. We always enjoy talking to people about what to do with your money, and that's always going to be interwoven with your tax strategy and wealth building ideas, obviously, so I'm excited to have someone who has instructed and implemented very well on this topic. I'm here with Christina Wise. Christina, why don't you introduce yourself in 60 seconds or less and let's get into it?
Speaker 2:All right. Yeah, christina Wise and I am the founder of Wealthy Wealthy and we're a financial education coaching company, so we teach entrepreneurs how to maximize their inflow, their income, but then how to convert that income into long-term lasting net worth and wealth that ultimately turns into passive income. So I like to really teach the difference between income and wealth. So I think that's a lot of what we're going to talk about today.
Speaker 1:So tell us what is the difference between income and wealth?
Speaker 2:Well, perfect, I love that, Just to get us started. What is the difference between income and wealth? Well, perfect, I love that, just to get us started. I love the question, since I'm in the money business, funny enough, I'll give some background. But I know you're a CPA and I went to accounting school and I got an accounting degree and I was sitting for my CPA and I was working for a big six accounting firm at the time just straight out of college and a couple of things like right off the bat number one, I learned that for me personally, I didn't want to be in corporate accounting and so I that that that led me on more of an entrepreneurial journey. But the second thing and I think more importantly, is I went to college to learn money and learn finance and I got a double major. I was a finance major and got a finance degree, and then I went on and took that extra year for accounting and got an accounting degree and I got those degrees because I wanted a business degree and I wanted to focus on money. I was just really interested in money at the time and I got those degrees.
Speaker 2:So now let's fast forward about a decade and I wind up in a situation where I'd made a lot of money but I was completely broke, where I was just one step from filing bankruptcy. I had over six figures of debt and I had tax liens and my personal financial situation was a nightmare Single mom couldn't pay bills. I mean, I literally didn't have money to put a deposit to turn on electricity at the time. And it was just this head scratcher because I thought how the hell did I basically, you know, had a CPA behind my name. I just, you know, didn't finish taking the exam. I'd studied for it and had all this education and was making a really high, multi-figure, six-figure income. And I wound up completely broke and I couldn't figure it out, because I studied money and then soon learned that what's taught from more of a corporate point of view when it comes to money and finance does not translate to personal finance. And that got me to this place of wondering why I made so much money. But I was completely broke and that's where I discovered that, because income and wealth are two radically different distinctions, yet they get conflated all the time.
Speaker 2:So to answer your question is income is the money we make and it's money that's incoming, that is, either active income, meaning we work for it, or passive income, meaning it comes in from non-working income. But income, as you know being a CPA is, it's reflecting on something called a profit and loss statement and that can be in business finance. So if we're entrepreneurs, we understand a profit and loss and we're really trying to maximize that profit. But I also teach a concept of a personal profit and loss that you run a profit and loss for personal finance so that you can see is your household profitable? And if your household is profitable which is the goal of household finance, unbeknownst to most of us it's the same goal as business is. We need to be profitable as a business. That's the goal.
Speaker 2:So the consistency here is profit and that again, that's represented in the form. It's on a profit and loss, but really that's the form, it turns into income because that profit is what we pay ourselves as entrepreneurs. Now that is a business. Now our profit in our household, that's money that's sitting there, but the idea is that we turn that money that was a portion of our income, and we create wealth out of it. Wealth is reflected on a balance sheet and in business finance wealth is any form of asset, basically some type of you know, economic, has economic value to the business and that sits on our business balance sheet. And we need to look at our business balance sheets too, because we want owner's equity and we want to build enterprise value of the company, which would be we don't call it net worth for a business, but it's like the business net worth per se. But then in personal finance and the reason why I'm saying this is because they're equivalent If we think the same I think kind of in business terms for business, for personal finance, is that we want our personal balance sheet that reflects our personal net worth and our goal over a 40-year working career is we want to maximize our income and make as much money as we can, but we will always want to take a portion of that income and turn into wealth, and wealth is asset value.
Speaker 2:Wealth is something that sits on the balance sheet, that has value, that either creates passive cash flow from the interest or, like rental income maybe a rental profit from real estate, for example, or interest income that might be in the form of dividends and more traditional type investments investments.
Speaker 2:But ultimately, over our working career, we want to grow our income and we want to simultaneously grow our wealth. So it's just understanding. These two things are different and as we grow our wealth over a 40-year career, at some point we want that wealth that replaces our working income, so that we don't have to work anymore, and that's called financial freedom. Some people call it retirement whatever words you want to give it, but that's the difference. The simple way to think about it is they're reflected on two different financial statements, but two we don't want to just focus on income at the expense of not thinking about wealth, and I call that high income rich, as I work with so many high income earners, but they're still paycheck to paycheck. They still have to work next month to pay last month's bills, and that's what I call the money trap.
Speaker 1:The gold or the you know, the golden handcuffs, and especially if you're looking to have a second stream of income, and sometimes, if there's risk involved if you're, if there's not enough cushion and not enough room to take risks, then you're going to kind of be stuck on this treadmill of doing the same thing and just not a whole lot of movement in your finances. So so, so, and I think that now let's. So, when you think about this, are you talking about full-time entrepreneurs? This is a big issue, I imagine, with all Americans. I mean, our country has a history of buying things they can't afford, but you know the misperceptions here in how people are going to be spending more than they need. When you look at this, do you see this as? Do you help people attack this as entrepreneurs or W2 folks, or a little bit of both, or part-time entrepreneurs? What kind of people do we see overcoming this?
Speaker 2:Yeah, so I mean everything that I'm talking about is fundamental, I mean it's applicable. It's just money fundamentals, the money basics, and it's the way money operates. And if we don't understand how money operates, money's always going to control us versus the other way around. And basically it's like we value ourselves or we get valued based on how much money we make, based on how we display how much money we make, by the cars we drive and by the houses we we live in, and by the neighborhoods and by the types of vacations and and so on and so forth. So really, our value is based on income and, like I said, in that display of income, because wealth is more private.
Speaker 2:And I'd like to talk about the difference between riches and wealth and again, it's the difference between income and wealth is the same difference between riches and wealth. And we can look rich and we can feel rich when we have a very high income. Why? Because that high income affords us a rich lifestyle the emblems on the clothing, the bags, the cars, the shoes, so on and so forth. But that doesn't mean we're wealthy, and that's when we go into wealth.
Speaker 2:Wealth is private and it's not obvious. So I might have $10 million in net worth, for example. But if I drive a Honda, the outside perception is like oh, if she drives a Honda and lives in a middle-class neighborhood, then that's the association or that's the assumption. So wealth isn't obvious. Wealth because you can't see my financial statements, you can't see my bank statements, you can't see how many assets I have because it's not displayed anywhere. So that's where it gets really confusing.
Speaker 2:So, to answer your question is that I primarily work with entrepreneurs because I am an entrepreneur, and the reason why is because entrepreneurs tend to have variable income. We have high months and we have lower months. We have higher months and lower months. And so, managing your money very few people manage their money or manage their money well. But it's more important that for as entrepreneurs, to manage their money, because there is no fixed amount and so you have to manage your income and your expenses, and your expenses relative to your income, to make sure that you are growing wealth. And it's harder, and that's why I like to focus on entrepreneurs, and entrepreneurs are so focused on income. They're not paying attention to wealth, they're just focused on building their business, and usually they invest too much money into their business at the sake of building personal wealth. But yes, it's applicable to W-2 earners as well.
Speaker 1:Yeah, so, yeah, absolutely, and, and I feel it too sometimes, with all the volatility in our business and certain months being more lucrative than others, it's hard to think to yourself okay, how much money am I actually making this year? What is my actual profit? Looking like so to an entrepreneur who's just getting started right, who's just getting started right. So what are some first key actions they can do to start thinking about? You know, budgeting for investing and wealth and making sense of all their numbers to identify, you know what are some things they can look at to start making some decisions on. Okay, this is what we're going to set aside to invest. This is going to be what we have liquid for covering payroll. What were some of the first steps that they can start thinking about?
Speaker 2:Yeah, there's a few different things. First of all, start fundamentally and more mindset. And, like I said, the first thing that I really like to emphasize is that, whether you're a W-2 or entrepreneur, but in this case entrepreneurship and the reason why I like entrepreneurship too, is because we do have a lot more control over our income and our earnings as opposed to being a W-2. So that's why I like entrepreneurship when it comes to our creativity, our hard work and our knowledge as we become better business owners and marketers and the different things that business ownership requires. And there is no real ceiling to that income. So I love that because, again, if we want to make more money, we can make more money by becoming better at business. So, but on the entrepreneurship side, the first, the mindset and the understanding is, I like entrepreneurs just to take away, if they're just starting or no matter where they are in their business is, like I said, is this realization that, yes, I need to grow my business and I want to build that business to a certain size or level, but also I need to build my wealth and that's what I like to take away. So, again, we're building these things simultaneously.
Speaker 2:But to get started, I like to talk about what I just call a profit first mentality. It's nothing. It's nothing new. We've heard profit first for a long time. But whether you're just starting or you know, if you, if you're just starting to start with a just starting to start with a profit-first mindset means that I'm always going to be focused on profit.
Speaker 2:And what entrepreneurs focus on is sales, creativity, building the funnels, making more top-line revenue, selling more units, how do I grow the business? And they're not paying attention to the cost of that or how much they're capitalizing into the business and what they're doing, and so many times new startups they'll go years without any real profit and they're robbing themselves. So that's the first thing is just to know, like, whether I start at $50,000 a year revenue, I'm still going to keep a 10, 20% profit. Whether I'm a six, you know, if I get to six figures, I'm still going to do a 20% profit. When I'm seven figures, I'm still going to focus on that 20% profit. But it's really just changing. The focus as we get into my job as a business owner is to create profitability, because that's where I pay myself, as opposed to just paying attention to revenue.
Speaker 1:Yeah, we have several people in our communities focusing highly on the profit first methodologies and setting aside money for taxes and stuff. For us serving real estate investors. It's tricky because sometimes these guys they don't know whether or not they're going to close on a rental property before the end of the year and if they do, then that may impact their taxes by amounts in the hundreds of thousands. So it's a little tricky, but I think you know there still is a way to do it. And, in particular, just you know, if you want to over budget for your taxes, if you're uncertain if certain things are going to go through, at least make sure that you set aside a certain amount for profit and taxes and all your other expenditures. But we've seen a lot of people who've done profit first and because of that they've seen their businesses skyrocket, because it gave them so much more clarity on what they were doing with their money, and not only their business and income, but also what we're talking about here is their wealth.
Speaker 2:Yeah, and you know real estate, I'm a real estate investor, so real estate investing is no different and again it's it's just thinking in these different containers or boxes, thinking in these different containers or boxes. So when it comes to if we're a real estate investor, sometimes that can get confused with that's wealth. But as a real estate investor, that's our business. Our business is like I'm a real estate investing business, so how I make income is through this business. And so first is getting clear on what is my business and how does the business make money. And so there's two ways basically to make money as a real estate investor is the one is focused on income, big chunk of income, so annual income, and especially when a real estate investor is first getting started. So how do you make an annual income of $100,000, for example, as you're getting started as a real estate investor? Well, the way to do that is you're going to have to flip houses, because you're going to take the margin between what you paid for it and the money you put into it, and then what you sell, and then that's going to be a big chunk of business. And so we don't get paid until we sell something, but when we sell something and that house sells, then we're putting money into our business account and we're paying all those bills. And the reason why profit first is really important as a real estate investor who's flipping, basically is that you need to have money there because we don't know how long that next cycle is going to be before we're going to get that next chunk of income. And let's just say you're doing one, two or three deals a year to earn that six-figure income is an example. So it's really important because that money can be eaten up so quickly. Part of my tax liens back in the day is because I didn't save money from taxes and I thought I'd paid the taxes in the next deal and the next deal and finally it caught up with me and the IRS wasn't too happy and came down on me pretty hard and realized like, oh, okay, but after every paycheck it's like you work with you, like you and your CPA, and like, okay, guesstimating, what percentage of should I be putting away for taxes? And you have your tax bucket but you also which means a tax account that's separate than your, your operating account Then you're going to take out like your 10 or 15 or 20% profit and you're going to take that out, then you're going to take out a portion of what I call other people's money, because there's going to be other people you probably have to pay and they're somewhere. Maybe you owe somebody some money that you have to pay back out of that type of seller, future sell. So the idea is you.
Speaker 2:The point here is to really manage to maximize the profitability and make sure that, one, you keep a profit and, two, you have enough money to pay all the bills and pay everybody else, including the IRS. You have to account for every dollar and really pay attention to the money in your business. And every dollar has a job and that's why is it a tax job? Is it a pay Christina profit job? Is it I'm going to have to pay other people back job, or is it to cover the expenses job? So that's again.
Speaker 2:It's just really important that to understand that it's not just about finding the next deal and scouring the market and sending out the letters and doing all the things. It's about managing all the money also and not just worrying about the money later. So that's kind of the big takeaway. But then what happens is that then when we pay ourselves, let's say, out of this deal. We made a hundred grand. Let's say that there's I don't know $25,000 profit out of this deal. We're going to move that 25,000 to our household and now we need to save, move. Same thing we're going to bucket that money and 10, 15, 20% needs to go into maybe an asset bucket where we're going to use that money to maybe have a down payment or something on the next deal. So you're constantly moving your money and managing it. But it's just to understand that in real estate, as a real estate investor, that's the one way we make money. But that's income. We're managing the capital gains. It's flipping and we're making big chunks of money by selling and flipping out of one property to another and keeping the margin. That's different. The other type of way we make money as a real estate investor is where it's the buy-hold strategy. So that's not about getting a big chunk of money now. It's more about cash flow and building that net worth and building that asset base. That we're going to make smaller amounts of money based on cash flow, that if we buy it right and now we can have our rental income minus all the expenses, that's the profit of managing those assets. Now that might be, let's say, $1,500 a month, net net, and that's very different than getting a big chunk of six figures. So what I've always done as a real estate investor one it's like I said you manage every dollar, but while we're making that $100,000 in income through flips, we also want to build that net worth. That's going to be that portfolio of real estate that we keep over time, that creates that passive cash flow through the net income that comes from the, you know, out of the rents and ultimately, once we build that portfolio, that portfolio then matches our lifestyle costs, basically, and then we don't have to flip houses anymore. So that's what I've done over my real estate career is that, yeah, I did maybe one or two flips a year, just based on the economy and what I was doing, sometimes just maybe a flip every couple of years, but I would be doing the flip so I could get a nice big chunk of cash if I found the right deal. But my primary motive was always to build that portfolio, that I use that portfolio today, that I basically get to live semi-retired and do what I do now and I get to teach how I've done it. But the idea is that it was a both end strategy. I was focusing on using real estate to make income and I was focused on real estate to build long term wealth.
Speaker 1:And then, when it comes to measuring not only your income but your wealth, here's where you have to do some deeper analysis to make sense of the numbers. When you're flipping, we get these people that we've had some beginner flippers where they have, let's say, a $100,000, $200,000 profit on the flip and they're like, well, I got all this profit and I want to pay taxes on it, so I'm just going to buy another property to flip. And they don't realize that this is inventory, that is capitalized and there's no tax deduction. And the time only you'll only get to deduct the taxes on it is when you sell it to offset additional revenue. So if you haven't set aside money for taxes from this flip, you might find yourself in trouble. So now we're at a point where you're, let's say, you put your money into this more inventory, that is you know, and hopefully you're using leverage, so you still have liquidity. But you're often going to find that the measure, the tax measure of your profitability is greater than the amount of cash you're retaining from your flipping business Now and then. So so there's that on the flipping side, but also on the real estate investing side, you may have cash flow from your real estate investing, but your income statement because of depreciation and also cost segregation, maximizing your depreciation and also, when we do your tax return, you're going to see a loss. So it's going to require deeper analysis to understand is this really profitable? Is this making sense? Am I building wealth?
Speaker 1:And here's another thing that a lot of people may be missing out on. Let's say you invest in real estate and hopefully it's cashflow positive. You want cashflow. It's hard to maintain a business that's cashflow negative. However, if you are not cashflow, or the cashflow is minimal, or, let's say, the cashflow doesn't reflect what you were hoping to get, you're saying I'm putting all of these hours in and the cash flow isn't nearly what I used to make at my W-2 job.
Speaker 1:Why am I spending all this energy to only make a couple grand a month? Well, hold on a second. You have other things here that are building your wealth. So you're paying down equity, the property is appreciating in value, you can sell that at a future gain and pay no taxes. You can borrow from it tax-free and you're building this massive bucket of wealth. So that's another reason. That kind of ties back to the when we're evaluating our success and our progress and how we're building a future for ourselves. We want to consider all these other valuables and look at our personal like you said, our personal balance sheet and look at how much actual value are we creating for our future, when evaluating not only the cash flow and not only the cash that's coming in and out, but all of these other factors.
Speaker 2:Yeah, and I call it the. It's the difference between the short game and the long long game. And the short game is income creation, like we have to pay our bills today, we have to pay our bills this year, and so that's the short game and we're thinking the short game. So, since we're talking real estate, it is like if I'm, if my only business is real estate in this example, then I do. I have to make income this year. So that's part. One strategy is what do I do to make my six figures or whatever your income goal is? And that's again that's that's going to be flipping. If it's just real estate only and it's learning, like, okay, and how many flips do I need to do a year? And it's crucial that you're really tight on looking at all the numbers, like where I find people lose their ass, like really in these startup, you know they took a real estate investing course and they do this and they lose their ass and it's because they're not really taught the importance, like every dollar matters and some of the things we've already talked about. And, like you said, also, it's really important to have your tax person as part of your team. Also, it's really important to have your tax person as part of your team so you know the tax implications and how this works, because taxes aren't clear when you're first getting started. So to have that team, like have you on their side, is really important as you're really navigating and assessing each potential deal. So that's the short game. It needs to be strategic. You have to know your numbers and you have to have your team and your partners on board and be really in sync and tight in that relationship. Otherwise it's so easy to lose a lot of money and if you lose a lot of money on that first deal, that's going to keep you from doing the second and third and be like this isn't for me. I see that all the time, which is some of why I have an objection to some of these online courses where people spend 25 grand, take this online course, do all the things, and it's like, oh, this isn't as easy as I thought it was. But yeah, you might even lose some money on your first deal and that's part of the learning curve. No big deal. But you can protect yourself from that by just asking better questions and watching the numbers and being more prepared. But the second piece is the long game. And that long game answers the question of like and again, if we're just in real estate, how many pieces of real estate do I need? That can cash flow let's say 24,000 a year, or you know is an example how many do I need over a period of time? And if I have 20 years to do it, how many properties am I going to buy over 20 years? And, like you said, no, that $2,000 a month isn't going to pay the bills this year. But you keep doing that times 10 and it's going to pay the bills. But, like you said, you can flip out of those. When you have it for 10 years, there's a big gain. You can sell that 1031, put that into a different type of real estate asset, maybe multifamily or something what amplifies even that.
Speaker 2:So that's the long game, that real estate. Those are going to grow in value. Most likely real estate's had the biggest gain crazy gains in fact, by those of us have held for a long time, and I do that. I'll look and be like, hey, I've really depreciated this piece of real estate. I think it's really maxed out what it's going to do. I can 1031 and flip out of that and this one's going to have a lot more upside. This is going to outside. I've already really optimized the upside of this investment and you can just start building your wealth that way.
Speaker 2:But again, that's a long game.
Speaker 2:I don't know how real estate is going to be in 10 years, but when I get to that 10 years then I know what I'm working with.
Speaker 2:But that's that long-term strategy and, like you said, there's so much depreciation that you get to put on your tax return and so many expenses you can really pull out of those that really affect taxes also, and I say never go into investing or business for tax reasons, but you always want to use the best tax play to optimize how much money you get to keep in your pocket.
Speaker 2:So real estate just has so much opportunity. But that's the long game and that's reaching out like with the end in mind how much wealth do I need from these different properties that's going to provide that passive cashflow that ultimately I don't have to flip houses anymore because my asset base is now taking care of me, and when we can really focus on and be strategic about the short game and the long game at the same time, that's where you win and that's where I love real estate because it can be such a big win by being very strategic. In both of these, you know ways of thinking and go back where we started. One's an income play and one's a wealth play.
Speaker 1:Yeah, we and we see different strategies where you know, and where some folks will have investment vehicles where all the profits are put back into the renovations and back into the renovations in order to maintain some cash, some liquidity. They'll do a refi, but you don't see a ton. This is not every strategy, but one strategy we'll see is that you don't see a ton of amazing cash flow in this thing. But once they've done the renovations, raise rents and created a very stable, functional investment. Now the cash flow is coming in and now you're going to expect some really good profit in the future years.
Speaker 1:And some folks you know again thinking about the long game here, that that's their goal is that maybe some of the earlier years you might take a few hits because you have to invest and fix it up and fix the systems in some of these larger multifamilies in particular.
Speaker 1:But then as the years go on, you can raise rents and the rents go up and up and up, your equity increases and your efficiencies increase. And we've also seen some investors where their strategy is before the cash flow really starts to pay for all of the prior year investments. They've had enough of a success. They've shown enough improvement in the property and the values and fixing the rents and the systems and reducing the unnecessary costs, and they can sell it at such a strong of an exit that with the long game there's going to be significant gains and maybe a six-year exit with some of those folks. And then there's all these other ways that we can eliminate the taxes on that, with some capital gains planning too. But that's not what you should do. I'm just saying it's one of the things we've seen as a strategy and obviously you need your cashflow. You really want to have a sustainable business here, where, where cash is coming in.
Speaker 2:Yeah, and again, there there's different strategies. For sure, and you know you find the strategy that works for you. And if, yeah, you know I've done that exact strategy, I mean a few times in my career where it's like I did a refinance and pulled it out and was able to buy another piece of property, and you know, with that you really have to watch the market. You know I've done once where you know I bought at the high I think this is like 2007 or something then everything cratered, and you know so there's market variability and stuff and hopefully you're protected. Cratered and you know so there's market of variability and stuff and hopefully you're protected. And you know I've built in some rules for myself that you know I only pull out up to a certain maximum amount, so if there's a dip or something, I hopefully can still pull out without a big loss. But there's all the different strategies. But the point here is you have to go in being very strategic and knowing what is the end game here and what am I playing towards and how do I maximize both these at the same time. And in the long game strategy, like I said, the long game means you're buying and holding for at least 10 years in most cases, because it's going to take that 10 years, unless you're in an unusual market, like We've been, maybe the last few years in a way. But I've been doing this now for 30 years and so I've been through the 2008 crash and I've been through actually 2000 crash there's like a 2008 crash and then a little bit of what's happened recently.
Speaker 2:And I just say those, when you're following those in real estate, make sure they've been through a crash or two, because we've all learned lessons along the way and and those are the those those of us that have, you know, still wound up with a significant amount of real estate wealth. You know we've we've learned to navigate the markets and what to look for and, and you know, I found so many people that were teaching real estate investing before we had this latest downturn and they're not speaking anymore. They got crumbled because they'd never been through a down market before. So I just say, as you're starting this out, just be careful who you learn from. Make sure maybe they have a gray hair or two. They're very successful over this. They've done it for a long time. They've done it. They've done it for a long time. They've wound up. You know they, they have a $10 million plus portfolio and they're going to. They're going to teach from wisdom as opposed to just sheer youth opportunity and, and you know, current market conditions.
Speaker 1:Yeah, you know it's good. It's good that you pointed out because we've seen this and we've seen this in some of our clients where they quit their jobs. They came in just at the right time and there was so much appreciation and wealth creation just from being at the right place at the right time. It was just, it just looked so easy. And now that they're full-time real estate investors and things aren't as easy as they used to be, a lot of them are struggling to pay their bills and they're over leveraged and it's been very challenging for some of these people who found who have had to find out the hard way, that you know maybe their systems in place weren't what they thought, they were as good as they thought they were Now that it's not so easy.
Speaker 1:So we're we've seen it firsthand with some of our clients exactly what you're talking about. You know it takes, yeah, go through. You know you gotta in anything. You gotta take some melds and really experience some of these hardships and, when things are tough, and survive those tough moments, to really strengthen your abilities and what you're good at. What your abilities and what you're good at.
Speaker 2:Yeah, with that too. You know what some things that you learn along the way, for example, is that that you know I, when I was young, I did over leverage and I hit a down market and I realized the pain of that and and so I don't over leverage anymore. I have my rules for the amount of leverage that you know, or equity, basically in any deal that I might borrow up to that amount. But I'm going to have that buffer that's going to build in because none of us can predict the markets, otherwise obviously we'd all be bazillionaires and the markets surprise everybody. So you learn what your own rules are and create those for yourself. And you know that semi-conservative approach is why I am sitting on.
Speaker 2:You know a lot of real estate and a lot of wealth and haven't been crumbled where a lot of my I'd say peers, in essence kind of building the same time, went fully bankrupt and and found themselves in in very dire financial situations with some of the bigger market corrections in real estate. But there's that piece, and then it's also understanding that it's not a fast game. Really, where I find the most risk is out of this get rich quick type of mentality and real estate's the way to do it and when you can approach real estate very methodically and, like I said just this, this long game I'm in it for, you know, for the rest of my life type thing, and I'm going to build this fortune over time, you, you'll be less risky, you'll you'll you know, cause you're just not trying to to get rich quick. And so there's that piece. Another thing that you learn is that you always want to have a certain amount of liquidity sitting around. So liquidity matters and liquidity is the opposite of being over leveraged and it's just making sure you have, especially because your real estate business is a business. But you want to make sure that in your personal finance that you have six months of liquidity sitting there in a rainy day or whatever word you want to give it, and you have money so that if you have to navigate markets or navigate a deal, which just a bad deal, which that happens Sometimes you get in the wrong business with the wrong person deal, which that happens Sometimes you get in the wrong the business with the wrong person.
Speaker 2:Sometimes there's a deal I'm in right now where one of my, my, my partner he's my builder partner in Austin and we bought this piece of property and it was, I mean, just all the numbers were amazing, I mean, and the numbers are still going to work out, but we're not going to make as much because the city of Austin changed the codes right before we went in to get our approval to build onto this property as an old house, perfect part of town, central Austin, and the code changed and we had to do all this extra stuff and it wasn't just an extra, you know, $75,000 of money that we'd had to correct these things, that the code wasn't that way six weeks before we decided to do this. But then also we had delays of about nine months of going, jumping through all these hoops, and so it's ending up probably costing us. Now there's a good. There's a really nice return on this if it flips out the way it should, assuming nothing else changes, but still there's $. Good, there's a really nice return on this if it flips out the way it should, assuming nothing else changes. But still there's $200,000 of profit that we lost just by code changing.
Speaker 2:Now imagine if we were leveraged to the hilt and we didn't have the ability to navigate this. This one deal could really sink somebody. So having, you know, the extra cash, having some different things it's really important to have. Even if you're maxing out, leveraging maybe, this specific deal, it's important to have liquidity sitting around in other places if you need it.
Speaker 2:There's another deal that I'm in and it's a little bit more of a syndicate. It's a small group of investors where we went in together and buying a piece of a building in Brooklyn and so we put the money in, and same thing numbers. We've done this a number of times and then all of a sudden, when the market changed a little bit before we fully were buying this deal Obviously we're borrowing and we were going to renovate this building and same thing there were delays, some code change, all these things that we've done this 10 times before, but this one deal, and so we all had to put in extra money to keep the reserves and to keep it going because of the delays. So if we didn't, if all the investors didn't have that extra money, sit around to recapitalize what some of these deficiencies are. So you can see just how quickly, even as seasoned investors, sometimes you find yourselves in situations that are unpredictable and you have to have the ability to navigate those, and that's why it's not as easy as it looks like on TV.
Speaker 1:Yeah, absolutely. Tell us about some of your biggest wins that you've had implementing your principles and relying on some of your experiences in personal finance and wealth.
Speaker 2:I mean, my biggest wins have been buy, hold and that's where it's just. It's the antithesis of get rich quick. It's get rich slow and if you have a get rich slow mentality in real estate, you can get rich. Those that follow a get rich quick mentality in real estate. I find I've found more people losing their asses and just really creating havoc in their financial situation.
Speaker 2:Because I wasn't over leveraged, I was able to write out just the dips in the market, even serious dips, and hold onto the real estate. And you know cashflow would go way down. Some I had to even you know we're in the negative for a little while. But because I was liquid I was able to keep those going. And then you know I'd have multimillion dollar exits when I bought the property. Really well, you know, 10 years before rode through a low when everybody else had to sell at the low. I was able to ride that out and sell at a high. And then you know several million dollars able to flip out of the property.
Speaker 2:1031. That take some money, you know, shave 20% off the top have, you know, really nice boost to lifestyle and whatever I wanted to do there. Put in the other 80% gain and the 1031, paid some little taxes on the money I took out, but you know 1031 that in bought the next piece of property. And then you do that again. And you know, when you have a whole portfolio of assets that you can kind of, you know, rearrange on the chessboard in a way, then you do that and you can retire in real estate. So I just, I love real estate, I I've built my fortune on real estate but again, it, it, it wasn't fast, it was slow yeah.
Speaker 1:So, um, and that's the amazing thing, when you play the long game and now you have capital gains instead of ordinary income on these long-term buy and holds A lot more opportunities on the tax planning side. You mentioned earlier holding a property for 10 years. We may be losing this opportunity soon if they don't update the tax code. But one thing, one area we love to see people hold their real estate for 10 years of is qualified opportunity zone funds, and if you have boot, it's not the worst thing in the world for your 1031s. If you have some money that you pull out of the deal just so you can have some cash to live on, you could pay taxes on it. Or maybe you can't find enough of a value in replacement property, so you have some potential boot, what we call, which is taxable. You could put some of that into a Qualified Opportunity Zone fund or something else as well.
Speaker 1:Um, and sometimes you'll see clients invest in oil and gas if they have ordinary income, which is a really fun strategy for some of their cash. But lots of fun things you can do, uh, with tax, with capital gains, tax planning. Um, chris, christina, can you tell us a little more about what your project is what you offer to people, and if they want to learn more, what can they do to explore these concepts and work with you and tap into all of your knowledge and wisdom that you acquired over the years?
Speaker 2:all of your knowledge and wisdom that you acquired over the years. What I do is I help people really develop their relationship with money and learn how to count it, learn how to look at it on the books, learn how to manage it and really learn a profit-first system for how to create wealth and understand the difference between income and wealth. We talked about how much money is enough, how much income is enough, what's the cost of my lifestyle, how do I manage my expenses, how do I manage my expenses relative to income, how much profit is enough, and just really getting a look, understanding the money and really understanding the numbers from a non-accounting way. So even like I said, I started accounting and I found accounting was really boring. Personally, I didn't like to be in the books all the time. I didn't. I just it wasn't me. I just thought why did I study this in college and and do all these things when I don't like accounting?
Speaker 2:I think what gets in our mind is that I don't like accounting either. As a business owner, I want to put that I'm going to give my money to the accountants and then to the tax planners to let them manage that for me, and I say no, there's a difference between kind of business and personal money management and understanding your money and giving every dollar a job and making sure that money's covering all the places in our life that we need to cover. And we know our own numbers. We know our own, how much money is enough. And then we work with the accountants and the bookkeepers and the tax planners to help us optimize what our money, that we're accountable for. And so that's what I help entrepreneurs and investors do is to understand their money from a more intimate level and appreciate the fun side of accounting and give the boring side of accounting away to the accounts to find that stuff not the masochists of the world.
Speaker 1:Exactly Awesome. So what's your site? We'll put it on our show notes, just so the listeners can say, hey, when they hear you and they want to learn more about you. Where can they go?
Speaker 2:Really where I'm putting everybody right now is my YouTube channel, because I'm teaching a lot of this, what we're talking about today, and just very practical sound bites to help really any of the listeners, especially investors and entrepreneurs, really understand money differently what I call from the inside out, and money differently what I call from the inside out, and to start to learn this different mindset and management style so that we can create wealth while we're building our businesses and really optimizing and increasing our income. So that's just at Christina Wise at YouTube with my unique spelling of my name. So, yeah, point people to YouTube and otherwise I have a podcast is called Wealthy Wealthy and you know I'm I'm interviewing those like you. You'll be on my podcast, for example, where I'm interviewing other experts in all categories of money, so that you know again we can.
Speaker 2:Just my goal with the mission of my work is just really help us to be educated and knowledgeable when it comes to money and every aspect of it and really learn to love it, manage it, grow it, spend it, build it, share it, all the different pieces. But when we're uneducated about money fundamentals, it's just really easy to find ourselves in the constant chase of more money, being dissatisfied, finding ourselves in really dire financial situations, having a lot of financial conflict at home, so on and so forth. So that's the problem I'm trying to solve is just the lack of understanding of how money works.
Speaker 1:Wonderful. Okay, thank you so much, christina. And you said with the and the last name, it's Christina, with two S's and is wise W I-I-S-E if you search her, and obviously this will all be in the show notes. Thank you so much for your time today and we're very excited to share this with our audience, and if you have any other questions, just reach out. And this is a really important topic you guys got to start thinking about with building your wealth, it's not all about reducing your taxes. It's just one element, and we got to think about the long game here and having a deeper, more connected relationship with our money.