How Owning Income-Generating Assets Can Fast-Track Your Wealth in 10 Years or Less

TL;DR

• The key to financial freedom is owning assets that rise with inflation, work with taxes, and provide income streams
• There are only two proven paths to retire in 10 years: grow a scalable business or own income-generating assets
• A $10,000 house from the 1960s is worth $700,000 today, while a $10,000 insurance policy is still worth $10,000
• Getting mentors who have achieved what you want is crucial - wealthy people are surprisingly generous with their knowledge
• Real estate allows you to extract millions tax-free through cash-out refinancing while tenants pay down your debt
• From 1950 to 2025, the median home value increased from $7,000 to $426,000 - a 6,000% return
• The biggest mistake is selling assets for equity instead of refinancing to maintain ownership while accessing capital

What is Asset-Based Wealth Building? Acquiring income-generating properties or businesses that appreciate with inflation, provide tax advantages, and allow others to pay down your debt while you maintain ownership and extract capital through leverage. — Ken McElroy

The Inflation Revelation: Why Traditional Investing Fails

At 64, having built a billion-dollar real estate empire with over 10,000 apartment units, Ken McElroy has witnessed firsthand how inflation either makes you wealthy or destroys your purchasing power - and it all depends on where your money sits.

The most powerful illustration comes from his own family's financial history. "My dad bought a $10,000 insurance policy back in the 60s, and they also bought a house just over $10,000 at the same time," McElroy explains. "In my dad's mind, the insurance policy was worth a house, right?" Fast forward to today, and the contrast is staggering. When his father passed, "that house was worth seven hundred thousand and the insurance policy was ten thousand."

This stark comparison reveals a fundamental truth about wealth building that most people miss entirely. Both were considered "investments" at the time, but only one protected against inflation. "The house rises with inflation and the insurance policy did not have an inflation adjusted component inside of it," McElroy notes.

This isn't just a story about real estate versus insurance - it's about understanding how the monetary system actually works. The rules of money changed dramatically when the United States went off the gold standard in the 1970s, ushering in an era of consistent inflation. From 1970 to 1980, the median home value jumped from $17,000 to $47,000 - a staggering 176% increase in just one decade.

"We live in a world where we're told to invest in a way that it's not really investing. We're really just speculating," McElroy observes. Traditional investment advice focuses on stocks, bonds, and savings accounts - vehicles that often fail to keep pace with real inflation rates. Meanwhile, those who understand the game focus on assets that benefit from inflation rather than being destroyed by it.

The key insight is that inflation is neither good nor bad - it's simply a feature of our monetary system. "Inflation is either making you poor or it's making you richer. It all depends on where your money's at," McElroy emphasizes. The wealthy position themselves on the right side of this equation by owning assets that appreciate with inflation while using debt (which gets devalued by inflation) to acquire more assets.

The Two-Path Framework to Financial Freedom

After decades of building wealth and observing countless successful investors, McElroy has identified a clear pattern: "If you want to retire in 10 years, if that really is a legitimate objective, there's only two ways to do it. You have to grow and scale a business, or you have to own assets that can be functioned and treated as a business."

This framework cuts through the noise of countless "get rich quick" schemes and investment fads. McElroy has "met so many multimillionaires, so many people who are financially free, and I don't think any one of them have done it any other way."

Path 1: Building and Scaling a Business

The first path involves creating a business that can generate substantial income and eventually operate without your constant involvement. This might mean developing a product, service, or system that scales beyond your personal time investment. The key is building something that creates value for others while generating multiple streams of revenue.

Path 2: Owning Income-Generating Assets

The second path focuses on acquiring assets that function like a business - generating regular income, appreciating over time, and providing tax advantages. Real estate is the most common example, but this could also include businesses you buy rather than start, royalties, or other cash-flowing investments.

Asset Type	Income Generation	Inflation Protection	Tax Benefits	Leverage Potential
Real Estate	Monthly rent	Property appreciation	Depreciation, 1031 exchanges	High (70-80% LTV)
Operating Business	Profit margins	Pricing power	Business deductions	Moderate
Stocks/Bonds	Dividends/Interest	Variable	Limited	Low
Savings/CDs	Interest	Negative (below inflation)	Minimal	None

The beauty of this framework is its simplicity. Rather than trying to time markets or pick winning stocks, you focus on acquiring assets that generate income regardless of market conditions. "The fastest I realized that, look, it's about owning assets that rise with inflation, that work with taxes, and that give me a stream of income, the whole game of money just started changing," McElroy reflects.

Key Insight:

Financial freedom isn't about earning more money - it's about owning assets that generate income without requiring your direct time and effort, while protecting against inflation.

Real-World Case Studies: The Power of Long-Term Asset Ownership

The theoretical benefits of asset ownership become crystal clear when examining real-world examples spanning decades. McElroy's experience provides compelling evidence of how patience and strategic thinking compound into extraordinary wealth.

The 17-Property Portfolio Transformation

After reading Robert Kiyosaki's "Rich Dad Poor Dad," McElroy embarked on an aggressive real estate acquisition strategy. "Within four years, I bought 17 properties. And then after I bought 17 properties, I walked away from my corporate job."

What happened next illustrates the power of passive wealth building. While McElroy focused entirely on building his business for the next 3-4 years, his real estate portfolio worked in the background. "I didn't pay attention to the real estate for the next three or four years because, you know, it's just kicking off rent checks, doing what it's doing."

The revelation came when he and his wife decided to build their dream home. "I went back to my real estate portfolio, those same 17 properties that I'd held now for almost 10 years. And I actually did a cash out refi. And we took millions of dollars out of that account... but we did it all tax free."

This example demonstrates several crucial principles:

• Assets continue working even when you're not actively managing them
• Time and inflation dramatically increase property values
• Leverage allows you to extract capital without selling assets
• Cash-out refinancing provides tax-free access to wealth

The Sister's Simple Strategy

Perhaps even more powerful is the story of McElroy's sister, demonstrating that extraordinary wealth building doesn't require sophisticated strategies or advanced education. "My sister, who was a bookkeeper, never went to college. She bought five houses as a bookkeeper until she retired."

Despite facing typical landlord challenges - "management issues," "tenant issues," and "capital work and some repairs" - she maintained her course over 20-25 years. The result? "Today she's got somewhere between three and $4 million of assets paid off by someone else."

This case study proves that consistency trumps complexity in wealth building. By simply buying properties and holding them while tenants paid down the mortgages, a bookkeeper accumulated millions in net worth.

The 20-Year Property Explosion

McElroy's larger portfolio provides even more dramatic examples. "We have properties that we paid 10, $20 million for 20 years ago that are 50, 60, 70, $80 million today." These aren't anomalies - they represent the natural result of owning quality assets in inflationary environments.

The strategy extends beyond simple buy-and-hold. "We have assets where we've refinanced at least three times," McElroy explains. "We take the money out of the assets, then we actually put the money back into the asset. We upgrade the appliances, we upgrade the flooring, we upgrade all the fixtures."

This improvement cycle creates a compounding effect: better properties command higher rents, which support higher valuations, which enable larger refinancings, which fund further improvements. Meanwhile, tenants continue paying down the debt on increasingly valuable assets.

The Mother's Care Strategy

When McElroy's 90-year-old mother needed assisted living care, the family faced a common dilemma: how to pay for expensive care without depleting savings. The solution came from their real estate asset: "We took that house and we put a renter in there, which pays for her."

This arrangement provided multiple benefits:

• No need to sell the appreciated asset
• No requirement to take on additional debt
• Preserved the option for his mother to return home
• Generated ongoing cash flow for care expenses

"The asset is what's paying for everything," McElroy emphasizes, demonstrating how properly structured wealth can solve life's challenges while preserving capital for future generations.

The Hidden Mistakes That Sabotage Wealth Building

Despite the clear benefits of asset-based wealth building, most people make critical errors that prevent them from achieving financial freedom. Understanding these mistakes is essential for anyone serious about building lasting wealth.

Mistake #1: Selling Instead of Refinancing

The biggest error McElroy observes is premature asset sales. "There's one big mistake that people make and that is they sell because they see the equity and they're like, I want the money from the equity and then they pay tax."

This mistake stems from short-term thinking and a misunderstanding of how wealth building actually works. When you sell an asset, several negative consequences occur:

• You trigger taxable capital gains
• You lose future appreciation potential
• You eliminate ongoing cash flow
• You must find new investment opportunities

Instead, sophisticated investors use cash-out refinancing to access equity while maintaining ownership. "Debt is not taxable because it's not a sale. The IRS wants their pound of flesh if you sell something, but you're not," McElroy explains.

Mistake #2: Focusing on Speculation Rather Than Assets

Many people confuse investing with speculating. True investing involves acquiring assets that generate income and appreciate over time, while speculation involves betting on price movements without underlying value creation. "We live in a world where we're told to invest in a way that it's not really investing. We're really just speculating," McElroy notes.

Speculative activities include:

• Day trading stocks
• Cryptocurrency speculation
• Market timing strategies
• Get-rich-quick schemes

Asset-based investing focuses on:

• Cash-flowing real estate
• Operating businesses
• Assets that benefit from inflation
• Investments with tax advantages

Mistake #3: Neglecting Financial Education

Perhaps the most fundamental error is assuming you can build wealth without understanding how money actually works. "Financial freedom starts with financial education," McElroy emphasizes. "We're not really taught about money anywhere. You go to school, you're not taught about money. Our parents likely didn't teach us about money because the rules have changed."

This educational gap leaves people vulnerable to poor financial decisions and prevents them from recognizing genuine wealth-building opportunities. Without understanding concepts like leverage, inflation, tax strategy, and asset valuation, even well-intentioned investors often sabotage their own success.

How to Apply the Asset-Based Wealth Strategy

Transforming these insights into actionable wealth-building requires a systematic approach. Based on McElroy's experience and observations, here's how to implement an asset-focused strategy:

Step 1: Increase Your Financial Education

"Step number one, if I had to go back and do it all over again, I'd increase my financial education," McElroy states. This means understanding:

• How inflation affects different asset classes
• Tax advantages of various investment types
• Leverage and how to use debt strategically
• Cash flow analysis and property valuation
• Market cycles and timing considerations

Start with foundational books like "Rich Dad Poor Dad" and progress to more advanced real estate and business texts. Consider courses, seminars, and podcasts focused on asset-based investing.

Step 2: Find Mentors Who Have Achieved Your Goals

"I'd get around mentors who had done exactly what I wanted to do. I would ask them every question under the sun. I would model what they had done," McElroy advises.

The good news? "People that are wealthy and have built their own wealth from scratch are very generous with their time. And I've actually never run into anybody that said, no, no. And they always help you."

To find mentors:

• Attend real estate investment meetings
• Join online communities and forums
• Reach out to successful investors in your area
• Offer value in exchange for guidance
• Be specific about what you want to learn

Step 3: Start with Simple Buy-and-Hold Strategy

Begin with the fundamentals: "Get somebody else to buy an asset, hold it, and let somebody else pay it off." This means:

• Purchase rental properties in stable markets
• Ensure positive cash flow from day one
• Focus on quality tenants and property management
• Hold for the long term (minimum 10+ years)
• Use cash flow to acquire additional properties

Step 4: Implement the Refinance-and-Reinvest Cycle

Once your properties appreciate, use cash-out refinancing to access equity without triggering taxes. "You can use the cash flow to buy more assets," McElroy explains. The cycle works like this:

• Buy property with leverage
• Tenants pay down debt while property appreciates
• Refinance to extract equity tax-free
• Use proceeds to improve existing properties or buy new ones
• Repeat the process

Step 5: Upgrade Quality Over Time

As your portfolio matures, focus on quality improvements. "I'm downsizing the quantity of my real estate, but upgrading the quality of my real estate," McElroy notes. This involves:

• Using 1031 exchanges to trade up to better properties
• Consolidating smaller properties into larger assets
• Focusing on Class A properties with professional management
• Reducing active management requirements

Key Insight:

Success in asset-based wealth building comes from understanding that you're not just buying properties - you're acquiring income-generating businesses that appreciate with inflation while others pay down your debt.

The Median Home Value Journey: 75 Years of Wealth Creation

To truly understand the power of real estate as a wealth vehicle, consider the remarkable journey of median home values in America from 1950 to 2025. This data, researched by McElroy, reveals the consistent wealth-building potential of simple homeownership:

1950-1960: $7,000 to $12,000 (71% increase)

1960-1970:$12,000 to $17,000 (42% increase) 1970-1980:$17,000 to $47,000 (176% increase) 1980-1990:$47,000 to $79,000 (68% increase) 1990-2000:$79,000 to $119,000 (51% increase) 2000-2010:$119,000 to $222,000 (87% increase) 2010-2025:$222,000 to $426,000 (92% increase)

The 1970-1980 period stands out with its 176% increase, coinciding with high inflation and the end of the gold standard. "There was really, really high inflation during that period of time," McElroy notes, demonstrating how real estate thrives in inflationary environments.

Even including the 2008 financial crisis, the 2000-2010 decade still produced 87% appreciation. This resilience shows why real estate has been called "the millionaire maker" - it consistently outpaces inflation over long periods.

The implications are profound: "If you just owned a home, put a tenant in it, dealt with some of the crap of having tenants but they're paying off your mortgage, you're owning an asset that... inflation is either making you poor or it's making you richer. It all depends on where your money's at."

Advanced Strategies: The 1031 Exchange and Portfolio Evolution

As portfolios mature and investors gain experience, sophisticated strategies become available to accelerate wealth building and reduce tax burdens. The 1031 tax-deferred exchange stands out as particularly powerful.

"Rather than selling it, you can just 1031 it and totally redo your portfolio," McElroy explains. This strategy allows investors to:

• Sell appreciated property without paying capital gains taxes
• Use all proceeds to purchase replacement property
• Upgrade to better locations or property types
• Consolidate smaller properties into larger assets

McElroy's recent experience illustrates this evolution: "We have 1031s rolling forward and we're upgrading into Class A buildings." After 15 years of building his portfolio, he's "going back to some of those original houses that I bought for 50, 60, 70, $80,000" and trading them for higher-quality assets.

This progression represents the natural maturation of successful real estate investors: beginning with smaller properties that require active management, then gradually moving to larger, professionally managed assets that provide more passive income.

The strategy also extends to new acquisitions. "We just bought a 303 unit project in North Scottsdale," McElroy mentions. "The tenants pay down that debt... If we can keep it in the 90% occupancy, we just got to keep it there. And it just does its thing."

This evolution from active to passive investing represents the ultimate goal: owning assets that generate substantial income without requiring significant time or effort from the owner.

FAQs

Q: How much money do I need to start investing in real estate? You can start with as little as 3-5% down on owner-occupied properties or 20-25% down on investment properties. The key is starting with positive cash flow properties and using appreciation and cash flow to fund future acquisitions. Many successful investors began with single-family homes under $100,000.

Q: What if I don't want to deal with tenants and property management? You can hire professional property management companies that typically charge 8-12% of rental income. As your portfolio grows, you can also transition to larger apartment complexes with professional management in place, or invest in real estate syndications where others handle all management responsibilities.

Q: How do cash-out refinances work and why are they tax-free? Cash-out refinancing involves replacing your existing mortgage with a larger loan and taking the difference in cash. Since debt is not considered income, you don't pay taxes on the proceeds. The IRS only taxes you when you sell (realize gains), not when you borrow against appreciation.

Q: Is real estate investing risky, especially with leverage? All investing involves risk, but real estate provides multiple ways to profit: cash flow, appreciation, tax benefits, and debt paydown by tenants. Leverage amplifies both gains and losses, which is why financial education and careful property selection are crucial. Start conservatively and increase leverage as you gain experience.

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This article was created from video content by Ken McElroy. The content has been restructured and optimized for readability while preserving the original insights and voice.