497: Why High Salaries DON'T Create Wealth, Why Western US Homes Cost More than Eastern US Homes

No one gets wealthy from a high salary. Wealth is acquired by owning things.

But how can you own MANY things without much money? I discuss it.

Learn how to use major banks (Chase, Wells Fargo) to fuel your wealth and retirement when you’re young. 

Debt is like fire. Kids will burn down the house with fire. Adults will use fire (debt) to produce prudent leverage and outsized returns. 

High salaries don’t create wealth due to: lost time, no leverage, few tax benefits, and entrapment due to sunk education costs.

I sat down with a conventional financial advisor. Things got interesting. 

Learn why Western US homes cost more than Eastern US homes. This fact confounds most real estate pros. I break down 8 reasons.

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Complete episode transcript:

Welcome to GRE! I’m your host, Keith Weinhold.

Don’t make this giant wealth mistake - understand why a high salary does NOT create wealth. Learn what does instead. 

See how to get deep pocketed-banks like Chase & Wells Fargo build wealth for YOU. 

I recently sat down with a traditional financial advisor - this got interesting. Then, why do WESTERN US homes cost more than EASTERN us homes? All today, on Get Rich Education.

 

Welcome to GRE! From Port Jervis, NJ to the Port of Bellingham, WA and across 188 nations worldwide, I’m Keith Weinhold and you’re listening to Get Rich Education. Welcome in!

 

When I grew up, I thought that people got wealthy from high salaries. I figured that I could get wealthy if I got a high salary too.

 

And then adulthood has proven to me that… they don’t. 

 

People don’t get wealthy from high salaries. They get wealthy by OWNING THINGS.

 

Let’s break this down. 

 

People DON’T get wealthy from high salaries. 

 

In fact, have you ever seen THIS happen? I haven’t. I worked as an employee in both the public sector and the private sector, and I’ve been a longtime real estate investor and entrepreneur. 

 

In fact, how would anyone even GET wealthy from a high salary?

 

If you’ve got a job… you’re trading your time for dollars and selling your time for money. 

 

I used to do that too… and I actually think that everyone might get some perspective by having a taste of that. Most get that taste.

 

And say you’re even entrenched in the game of climbing the corporate ladder, to a higher and higher salary.

 

Well, first, in my experience, many job promotions get you perhaps 10 to 30% more in salary, but 2x to 4x the responsibility - that’s 200% to 400% more responsibility.  

 

Even if there’s an edge case here, in your situation, in climbing the corporate ladder - where does that even get you in the end?

 

Look at your supervisor and their lifestyle. Is that what you want to be?

 

Look up higher at your supervisor’s supervisor. What’s their life like? Is that the life that you REALLY want? 

 

Is that what you aspire to be - and expend so much of your most precious resources to get THERE - time, time away from your family, energy, skill, potential. Is that really it? 

 

The answer is right in front of you!

 

People don’t get wealthy from high salaries. People get wealthy from OWNING THINGS. We’ll get more on how - if you have average means - on how you can OWN MANY THINGS shortly. 

 

But first, let me address any more hangups you might have if you still think that high salaries can create wealth. 

 

We won’t even look at, sort of, common jobs like an IT specialist or a systems analyst or a plumber. 

 

Let’s take an edge case - a classically, high paid profession - a doctor, a surgeon, a specialist even. Highly compensated - several hundred thousand dollars in salary each year. I know some of them. 

 

I also know a bunch of RESIDENT doctors too and I talk with them - they’re basically, finished with their formal schooling and are doctors-in-training. 

 

They are repaying loans deep into the six figures after undergrad pre-med and after a few more years at medical school - often it seems to be $300K to $400K in debt that they have to pay back in the case of these resident doctors.

 

But that’s besides the point. It’s common for these specialist physicians, once they start working, to work as a doctor for, say, 58 hours a week… or 71-and-a-half hours a week. 

 

Now I said that high salaries don’t create wealth. How wealthy are you, if after undergrad, med school, and three years of low paid residency, you finally get out, you’re in your 30s or older, and you’re working 60+ hours a week. 

 

60+ hours a week is not MY idea of wealth and freedom at all. 

 

You know what else, when you’ve pursued a specialty track like that, which often comes with loads of debt, you are in so deep - you’ve invested so much time & energy & chapters of your life… and DEBT into that field you CAN’T pivot to another career, even if you wanted to. 

 

You’re trapped. Entrapment is the very opposite of wealth and freedom.  

 

Understand, I just went out and gave an example of perhaps the highest salary type of person that I can think of… to help prove my point. Where’s that leave you?

 

And you’ve probably heard… the “end game” trope… about climbing the corporate ladder by now. 

 

Yep, you spent the best years of your life climbing the corporate ladder… only to find at the end… at the top… that the ladder was leaning up against the wrong wall the whole time.

 

Because high salaries don’t make people wealthy, then how do people get wealthy from OWNING THINGS?  

 

There are two main ways:

 

#1 - You can launch and own a business.

#2 - Real estate.

 

Now, launching and owning a business takes a ton of entrepreneurial ambition, risk, and you’ve got to have a novel idea - a NEW idea - that creates value for the world.

 

This can be a worthwhile venture… and successful entrepreneurs create value for the world with their own business. It’s terrific! It’s capitalistic! It’s turning lower use resources into higher use resources.

 

But unless you have your own money, you’re going to have to be scrappy and resilient for a long time. Because it’s really hard to get loans for a new business.

 

If you hire anyone to help you, you need to quickly produce enough income to have leftover profit - paying your overhead expenses, software subscriptions, paying your help… and having enough leftover to fuel your own lifestyle.

 

Household names like Apple and Facebook are one-in-a-million. You don’t have to be an Apple or Facebook. But it’s tough. 

 

The first way is by owning a business. The second way is by owning real estate. 

 

New businesses are unproven. Real estate is proven. Like I say, wealthy people’s money either starts out in RE or ends up in RE.

 

But how do you OWN much real estate? Because RE is expensive, and wealth is created by OWNING things.

 

With prudent loans. Because RE is proven, banks will GIVE you loans. Lots of them. Have good credit, be credit worthy.

 

And… being credit worthy should be an innate trait in any virtuous human being. Because it shows that you repay the debts that you owe. 

 

I think that when it comes to debt, debt is like fire. Don’t let a little kid play with fire. They’ll burn down the house. 

 

Leave fire to adults. They’ll use it to HEAT the house. 

 

Leave debt to the adults. Use debt to fuel your lifestyle, fuel your ambitions, and fuel your opportunities. To the scarcity mindset of “all debt is bad”, here at GRE we say, you’re an adult. Grow up. 

 

Learn… that debt is Leverage… and your debt isn’t paid back by you at all. Tenants and inflation both RELENTLESSLY and INCESSANTLY pay it down for you, until they pay it OFF for you… if you want.  

 

So then, who’s really funding your wealth, enabling you to own things? 

 

Who really funded my wealth from nothing, enabling me to own things? 

 

Who funded my retirement? Leverage… from Chase Bank, Wells Fargo, Bank of America, and other banks. They all give you the opportunity to let THEM fund your wealth for you. 

 

Now, I’m going to explain a core GRE principle here. But so that this isn’t repetitive for the longtime listener, I’ll use a NEW analogy for you, here.

 

Look, let’s say that you’re a kid. You don’t know how to responsibly use fire or debt. In fact, you’re still just 4’ tall. 

 

But learning about leverage is like… seeing the light.

 

Now, with the sunlight, a 4’ tall kid can now cast a 20’ tall shadow. You look like a giant now.

 

5-to-1 leverage made you, not just grow up, but grow into a giant. You suddenly wield the power of a financial giant thanks to the banks. 

 

Because with your 20% down payment, you're only putting up one-fifth of the property price.

 

How then, do these big banks make you a giant?

 

Let’s say that’s your $40K down - on a $200K income property, when the property appreciates only 4% - like RE did last year per the NAR number - you just got a 20% return. 

 

How? Because you got a 4% return on both your $40K down… and you got a 4% return on your $160K borrowed. 

 

Yep, the return from that $160K of borrowed bank money didn’t go to Wells Fargo, it won’t go to Chase Bank, it won’t go to Bank of America.

 

It ALL goes to you - because you leveraged them. That’s how you beat the banks. That’s how you build wealth.

 

Two years ago, when property appreciated 10% that year, you got a 50% leveraged return.

 

And it gets better than that. You can make income property down payments even lower than 20%, like I did when I began.

 

A 4’ tall kid then, that sees the light, can cast an even taller shadow than 20 feet at 5:1 leverage. A bigger giant.  

 

Any GRE devotee knows that leveraged appreciation is one of just 5 ways you’re paid. We’re only talking about ONE here.

 

Sounds amazing. Some think, “There’s gotta be a catch.” There is, but it’s manageable. Leverage amplifies losses, just like gains.

 

Though it doesn’t happen often, RE can go down in value. 

 

Even in a downturn, look at what happens. Between any ten-year period, nominally, you won’t find any loss of RE value in modern history… and you must manage cash flows.

 

So, no. This is not a 6-month plan. It’s to build wealth durably with a reliable vehicle in more like five to ten years. 

 

It gets better. As your equity grows, harvesting it out through a cash-out refi maintains your… magnification into a financial giant, to stick with the analogy.

 

And every cash-out refinance that you do… is a tax-free event. Not tax-deferred. Tax-free.

 

You can make tax-free cash grabs, separating it out from your properties along the way, since the IRS doesn’t classify debt windfalls as taxable income, and you have a pro PM handling all the day-to-day for you, if you prefer.

 

Now you really know WHY, wealth is not created from high salaries. It’s created from owning things.  

 

And you need to be more than creditworthy. You need to be strategic in building your portfolio with the right properties in the right markets. 

 

Set up a time with one of our GRE Investment Coaches… and they help you do exactly that for free.

 

Either that or you can just keep believing that high SALARIES create wealth. Ha! 

 

Now, a few weeks ago here on the show, I told you that I’ve had a sit-down meeting coming up with a conventional financial advisor - a retirement planner type of guy. 

 

I’ve been getting their e-mails and dismissing them, for 8 or 10 years, but I always stayed subscribed.

 

This is from when I used to work at a State DOT - Department of Transportation. 

 

So I finally responded & we set up a 1-hour sit-down. We did it virtually on web conferencing. 

 

I prepared by having some things ready for him that he asked for - like my monthly cash flow statement, net worth worksheet, and he also asked I have my Soc. Sec. statement pulled up, so I had that ready.

 

Now, this is not the forum for espousing GRE’s proven wealth-building formula to him. No PROS-il-uh-tie-zing. proselytizing. 

 

And, he told me that… I’m in really good shape.

 

He didn’t dig in with questions on my backstory, like, how were you able to retire at such a young age… or how did you amass all this?

 

And yes, I could retire now. I could have a while ago. I think you know that. 

 

He was interested in knowing what the cash flow from the rental properties was. In fact, that was his first question about them. Good first question. 

 

Interestingly, he really wanted to know how long I have to pay on my rentals. Like, when would the 30-year mortgages be paid off? 

 

Well, gosh, they all have 20-some years to go. Most of them are clustered around 27 years to go. 

 

He could see that I COULD pay many of them off quickly, now, if I wanted to. But he didn’t tell me that I should. Of course, I wouldn’t want to lose the leverage.

 

You know the most interesting question that this conventional financial advisor asked about these properties that I have all over the place, in different states and even nations?

 

He asked, “Do you plan to LIVE in any of these areas?” 

No, I don’t plan to live in those properties or even in those areas. I pick investor-advantaged areas for investments, and live where I want to live.

 

Now, he encouraged me to import my financial info into their retirement portal. When I say, they, he works for a private company that administers the DOT’s retirement plan.

 

You know, I had previously been reluctant to do that and share all my financials with another party. 

 

But, I’ve got to say, I’ve reconsidered and MIGHT enter it in there. It does some pretty impressive modeling and scenarios. 

 

For the properties, you enter the address and they use Zillow estimated values. 

 

It looks at how the graphs change when you get to the age of where any pensions and soc sec & all that enters your life. 

 

All-in-all, maybe you thought I’d bust this guy's chops for being scarcity-minded or not about passive cash flow. But he was pretty good. It was an hour of my time well-spent, I would even say. 

 

And again, the reason that I was able to be positioned this way comes down to… relying on compound LEVERAGE, not compound interest - casting the shadow of a 20-foot tall giant compared to when you’re a 4-foot tall child.

 

BTW, I do NOT consider myself retired. I remote “asset manage” my REIs and I produce this show, produce videos for our YouTube channel, write our newsletter, and write for Forbes and more… on material that is interesting to me and helps others.

 

Coming up straight ahead, why do homes in Western US states cost more than homes in the East?

 

This fact makes zero sense to most people, because areas east of the Mississippi River are more densely populated. 

 

In fact, nearly 2/3rds live on just over 1/3rd of the land, suggesting the East should clearly be pricier. 

 

Then how could it be opposite? It might seem weird. That’s coming up shortly.

 

You’re listening to Get Rich Education podcast Episode 497. That means we’re just three weeks away from a special, milestone, Episode 500.

 

I’ll tell ya. I sure know how to put the performance pressure on myself, don’t I? Ha! 

 

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On air EVERY single week since 2014, some say that we were the first show to finally CLEARLY explain how RE makes ordinary people wealthy. 

 

For advertising information and inquiries, visit, GetRichEducation.com/Ad. That’s GetRichEducation.com/A-D

 

More next. I’m KW. You’re listening to Get Rich Education. 

 

A little tribute and melodic swan song to Russell Gray there.

 

Welcome back to Get Rich Education. I’m your host, KW. 

 

Before returning to real estate, let’s do a quick first quarter asset class review.

 

It’s coming a little later than usual here. But it’s good to see what the rest of the world is doing. 

 

Almost everywhere you look, asset prices are up, up, up.

 

In real estate, as housing intelligence analyst Rick Sharga & I discussed in detail here in each of the last two weeks, prices & sales volume are both up.

 

The S&P had its best start to a year since 2019, up 11%

 

The yield on the 10-yr T-note was up 26 basis points. Remember that mortgage rates move closely along with that. 

 

Gold was up 8% to an ATH over $2,200. And gold even touched $2,300 here in Q2.

 

In the first quarter, oil was up 15% to $83.

 

Bitcoin was up 68% to $70K

 

And the biggest beneficiary of AI hype, Nvidia was up 88% in just the first quarter.

 

And this is even wilder - a little wild card for you here - for the first time ever, cocoa prices briefly surpassed $10,000 per metric ton, making the confectionary commodity more valuable than copper.

 

That’s what’s goin’ in the TOTAL investment world.

 

Why do homes out West cost more than homes in Eastern states?

 

This fact makes zero sense to most people, because the East is more densely populated. 

 

According to the US Census Bureau, 64.4% of Americans live east of the Mississippi River. That’s on land that's barely more than one-third of the US - because the Mississippi doesn’t run right down the center, it’s a little to the east of center in the contiguous states.

 

So this means that nearly 2/3rds of people live on just over 1/3rd of the land, suggesting the East has GOT be pricier. 

 

Well, it’s strange to many that it is, in fact, just the opposite. The West is pricier.

 

Now that pandemic migration and RE prices have settled, we’ve taken a fresh look at prices and this trend - which is curious to many - continues.

 

Let me demystify it for you. 

 

And you saw a beautiful, colorful map that brilliantly demonstrates this. I sent it to you a few weeks ago if you’re a DQYD Letter subscriber. 

 

Now, there are some notable exceptions to "the West is pricier", like New England and south Florida. Housing is expensive in densely populated northeastern cities.

 

New Mexico is an outlier as a cheap western state.

 

No, the West is not pricier because The Kardashians' lavish $200M total portfolio of California real estate skews the entire nation.

 

Here's my more, I suppose, scholarly breakdown. 

 

Yes, one of my degrees was in Geography before I became a real estate investor.

 

The first reason is - NEW: The west has more new-build homes.

 

Higher costs of land and labor, then, had to be priced in. Eastern homes are older because it's closer to Europe's (die-A-spruh) diaspora, where the US' early immigration was heaviest.

 

Then there’s the factor of - the FEDS: No, not Jerome Powell’s Fed. 

 

It’s that over 90% of federal land is located out West. No building is typically allowed here, and that makes developable land more scarce.

 

This helps explain why when you see huge swaths of undeveloped land when you fly over the West and think there’s boundless room for growth and sprawl, often times, there… is… not.

 

3-D: Maps are 2-D. The world is 3-D. Western housing is expensive because you have scenarios like port cities surrounded by mountains and high desert. 

 

So developable land is more scarce than it seems, making demand exceed supply in more places out West than what one might think. 

 

San Fran is confined by the bay and hills. Seattle is confined to an isthmus. Salt Lake City is next to the Wasatch Range. Alaska looks enormous, but nearly half it’s state’s population lives in the biggest city of Anchorage, which is sandwiched between water, mountains, and that aforementioned federal land.

 

The fourth reason, is CALIFORNIA DREAMIN'. Despite recent domestic OUT migration and The Kardashians aside, California REALLY DOES help tilt the balance. 

 

People are attracted to SoCal's Mediterranean climate such that nearly 1-in-8 Americans are still coolin' in Cali, with a median home price of $737,700. That climate desirability drives up prices.

 

Much of CA also has… these layers - just myriad - codes and limits and regulations like, for example, solar panels on new construction that can add $25K to a home's cost alone.

 

The next reason western homes cost more than Eastern home is, what I’ll call…

 

DOWN BY THE RIVER: 

 

[Play insert]

 

Ha! Famous classic comedy sketch there, with the late Chris Farley. 

 

The East has the Great Lakes and more rivers. 

 

It costs 1/12th as much to transport goods and housing materials over water than land. 

 

That is a fact that has been stated on this show previously. It was first brought up a few years ago when we had geopolitical strategist Peter Zeihan here to discuss the “geography of real estate” with me. 

 

A river city like Memphis is a GIGANTIC transportation hub, for example. This keeps down the costs for all kinds of consumer goods and building materials, making for a lower cost of living and, in turn, property prices. 

 

QUAKIN': There's more seismicity out West. It costs more to BUILD to those construction standards. 

 

For example, CA and WA are 20%+ more expensive to build than many Southeastern states. There are more fires in the Western US, tornadoes in the middle, and hurricanes in the East.

 

JOBS: It takes more high-paying jobs to attract new residents and get them to uproot and move to the faster-growing West. Higher incomes buy pricier homes. 

 

The East has tons of jobs going for it too. In fact, the northeast might be the world’s most productive region - NYC, Boston, Philly, DC. 

 

But out in Appalachia and elsewhere, there are some waning business sectors like various heavy industries and coal. But most of the ones that were going to move out, already HAVE moved out, decades go. Much of that downdrain is overwith.

 

The last reason is…

 

I CAN SEE CLEARLY NOW: The West has mountain and desert VIEWS. These can be seen from farther away than Eastern… forest and flatter areas and piedmont landscapes. The East has a lot of lake and river view properties though… and… 

 

There they are—8 reasons why Western homes cost more than Eastern homes.

 

Now you know why West Virginia has million dollar homes so big that you can get lost indoors. 

 

And in coastal Cali, it seems like a million bucks gets you little more than a ramshackled pool house.

 

Of course, at times, I've had to make gross generalizations about such a vast nation of 340 million people and so many variables. 

 

Otherwise, this episode could be a few hours long. As I discussed those, you sure could think to yourself at times, “I believe there’s an EXCEPTION to that criterion.”

 

I want to tell you why this all MATTERS TO YOU shortly. 

 

Yes, there is some irony here though. The western US has lands that are arid, inhospitable, and what some describe as wastelands, like four deserts.

 

Well, the invention of the air conditioner made those places more livable. 

 

The West also has the most beautiful national parks, and hey, some find places in the East INhospitable, like Michigan’s Upper Peninsula in March.

 

Now, I like a change in seasons, coming from Pennsylvania like I do, but some don’t. You’ve got to serve real estate to where people want to own and rent. 

 

Florida has not been thought of as a mosquito-infested swamp since last century. Today, it’s livable and desirable to many. 

 

Now, there are some other factors in addition to the main 8 reasons I’ve mentioned, on why Western US homes cost more than Eastern US homes, from a slavery legacy to unionization and more. I’ve been hitting the big ones here.

 

Real estate has made more ordinary people wealthy than anything else. 

 

When you're on our website, GRE Marketplace, and hover over the blue "INVEST" button, you'll notice that most long-term rental investor markets are in the East.

 

There's a reason.

 

Rents are strong relative to this LOW PURCHASE PRICE that I’ve discussed here.

 

And now you know more of the “whys” behind the Eastern US’ lower property prices. And maybe, today, I hope it's the BEST understanding you’ve ever had for why that’s the case. 

 

We buy in strategically chosen GROWTH areas that tend to be more East than West. 

 

And, that’s really part of the progression of this show. We began in 2014 with this podcast and other real estate investor education. We still lead with that.

 

But next, listeners wanted to know where they could FIND PROPERTIES conducive to our wealth-building strategy, and we added that at GRE Marketplace. 

 

Yet, that still wasn’t enough because I noticed that some of you that wanted to build your wealth with real estate, needed to make it easier to have your questions answered, or find a lender, or insurer, or find just the right property in the right market that fits your goals.

 

So starting more than two years ago, we added Investment Coaching - it’s still free like everything else that we do here. 

 

Our coaches are real people and real, direct, real estate investors just like you are… and just like I am. Our coaches simply have more EXPERIENCE doing it than most people do.

 

Because knowledge is not power, but knowledge plus action is power, I often like to leave you with something actionable… that’s really going to help you at the close of the show. 

 

If you didn’t already know, you can find properties and a coach, at GREmarketplace.com

 

Until next week, I’m your host, KW. DQYD!