Wages for workers rose to a nearly 10-year high in the second quarter of this year. Inflation continues to rise in the U.S. economy. While that means you see more in your paycheck, ultimately, what this means in simple terms is that your money buys less than it used.
In today’s economy, it’s lunacy to think you’ll get ahead by getting a good job and saving money. Your money becomes worth less and less each day. In the new world of money, it’s imperative that you learn how to print your own money—legally.
To me, one of the best advantages of financial education is the ability to print your own money. The way you can do this, legally, is via a financial term known as return on investment (ROI).
Most people don’t know how to do this well. Which is why I’ve actually started up a brand-new project to guide you through it step by step. The best ROI — the only kind I care about — comes from cash flow. Take a look at this rebroadcast if you want to see how it’s done… check it out before it comes offline tonight.
Now, when you talk to most financial experts, they’ll tell you that 5 to 12% is a good ROI. And it is, if you don’t have financial education. Another thing they’ll say is that the higher the return, the higher the risk.
That is also true, if you don’t have financial intelligence.
Personally, I always look to have an infinite return on my investments. And this can be achieved if you have a high financial IQ.
My wife, Kim and I started the Rich Dad Company at our kitchen table. Rather than use our own money, we raised $250,000 from investors. In less than three years, thanks to the growth of our business, we paid back our investors 100% plus an additional 100% to purchase back their shares.
Today, our business puts millions into our pockets even though we have none of our own money invested in it. That’s an infinite return. In other words, our business prints money for us.
We work with our real estate partner, Ken McElroy, to print money through real estate all the time — if you make it in time for my new service, you can learn all about Ken’s methods. We will find an underperforming apartment community, purchase it with investor money, do upgrades, raise rents, and increase the value of the property. We can then refinance that property tax-free and pay back our investors from the loan proceeds—while still enjoying positive cash flow. Once all investors are paid back, we still enjoy the cash flow. That too is an infinite return.
If I have zero in the asset and I receive $1, a return on zero is infinite. It is money for nothing. The asset is free, once we get our money back.
Keeping this overly simple, I’ll use the following for an example. Let’s say a property costs $100,000 and my down payment is $20,000. If I receive $200 net monthly cash-flow income after all expenses (including mortgage payment), I have a 1% monthly return on my investment of $20,000. That’s a 12% annual return or $2,400 per year.
ROI is net income divided by down payment.
Our investment strategy is to get that $20,000 back and continue to receive $200 a month. Once the $20,000 is returned, the ROI is infinite.
This is the investment scenario I was looking for when I finished the real estate course in 1973. This is what most real estate agents said was impossible. Today, we continue to strive for the impossible.
To most people, $200 a month, a 1% monthly return, looks sickly, certainly not exciting. Yet if you own 100 of these small deals, that is $20,000 a month in cash flow. And 1,000 properties equals $200,000 a month. That is more money than most doctors and lawyers make in a month.
When Kim started out, her goal was 20 units. She accomplished that in 18 months because the economy was terrible. It’s not that different today.
Once she had her 20 properties, she sold them tax-deferred. With her tax-deferred capital gains, she purchased two larger apartment houses, one 29 units and one 18 units. Today, following the infinite-return formula, she has nearly 3,000 apartment units, commercial buildings, a luxury resort and five golf courses—all with positive cash flow, even in down markets.
Her goal is to add at least 500 more units every year, using the same formula—the formula most real estate agents say does not exist. This difference in mindset underscores the difference between real estate education in the S quadrant and the I quadrant. The real irony is that real estate agents pay taxes on the income they earn, and investors receive massive tax breaks on their income.
On most of our investments, we have no money of our own in the property. If we do have money in the property, we are always in the process of getting that money back. In most cases, it takes a year to five years for our money to return.
Once we get our money back, we move it to acquire more assets. This is a formula known as “the velocity of money.” Our formula has not changed over the years, and it has picked up velocity.
My Real-Life Example
Project: 144 apartment units + 10 acres vacant land
Location: Tucson, Arizona
Tucson is a city with strong job growth from the University of Arizona, the military, and government agencies such as the U.S. Border Patrol. Since many jobs are transient, there is a high demand for rental housing.
The property was not listed with real estate agents. Ken and Ross were the property managers of the property. When the owner said he wanted to sell, the project changed hands to Ken, Ross, Kim, me, and two other investors.
As you may know, most great deals are not listed. Most great deals go to insiders.
Price: $7.6 million ($7.1 million for the 144 units and $500,000 for the vacant land)
Financing: $2.6 million in equity from investors $5 million via a new loan
Plan:Build 108 new units on the 10 acres.
Financing for addition: $5 million to build the 108 new units The existing property and the 10 acres were used as collateral for the new $5 million construction loan.
Total units:252 units when complete
Total package: $2.6 million equity + $10 million debt
New basis:$12.6 million
New appraisal:$18 million.
An increase in rents increased the appraisal.
New financing: 75% leverage = $13.5 million ($18 million x 75% = $13.5 million)
Paid off old loans: $13.5 million – $10.0 million = $3.5 million
Return to investors: $3.5 million
Net transaction: Kim and I invested $1 million.
From the $3.5 million return to investors, we received $1.4 million. $1.4 million is reinvested in a 350-unit property in Oklahoma.
Taxes on $1.4 million:
Today, Kim, Ken, and I still own the 252 units in Tucson. We receive monthly income from the property. Since we have zero invested in the property, our ROI (return on investment) is infinite.
That is just one example of how you can, with the right financial education, print your own money. And doesn’t it make more sense than working harder at a job to pay more in taxes, saving money in the bank and losing purchasing power, or risking your money for the long term in the stock market?
I think so. I hope you do too.
Editor, Rich Dad Poor Dad Daily
Source: Daily Reckoning