How Debt Can Make You Rich

How Debt Can Make You Rich

Let’s talk about how debt can make you rich. WARNING!!! Debt is a double edged sword. If you can’t control your emotions when it comes to debt and spending, then you need to stay as far away from it as possible. However, if you’re capable of keeping a calm, focused, disciplined mindset, there is no quicker way to achieve financial freedom.

How Debt Can Make You RichReal Estate Investors are notorious for conducting their ventures using leverage. When you can make a 15% profit margin even after the cost of lending, it almost always makes sense to conduct the transaction with as much borrowed money as possible. In fact, many of the savvier investors have so many different sources of lending that they can pretty much do everything with borrowed money. Even if their wrong, it just means that they might lose the house that they never spent a dime on anyway in the first place.

There are a few variables to consider when it comes to borrowing money for the sake of investing it. You have to consider…

• What am I capable of doing with borrowed money?- in other words, do you have some track record that you’re going off of? Are you consistently able to make 10%, 20%, or even 40% annual?

• What is the maximum interest rate I can afford?- the answer to this question is determined by the prior one? If you can only average about 10% compounding return, then you better keep it under 7% just to be safe and make a decent profit. If you’re track record is closer to 40%, you can pretty much borrow even from the highest interest credit cards. But you better be pretty certain about your ability.

• What is the amortization schedule?- when you borrow a loan, or from a credit card, they don’t simply wait until the end of the year to get all their promised money back. They want minimum payments. So you have to either have some other source of income which makes those payments, or you better keep enough of the cash you borrowed on hand to make some initial payments until your investment pays off?

• What is my holding period?- you have to give yourself enough time for your strategy to pay off. If you take out a 6 month loan, but your venture takes a year to get paid, it could cause you to sacrifice profits, or even make the whole deal go bust. Be clear on how long you need to borrow for, and give yourself a buffer just in case.

• Where can I get a better deal?- Credit Cards and Hard Money Lenders are some of the more easily accessible sources of lending. However they are some of the most expensive. Even if you can average 40% annual, you’ll keep more profits when you borrow at a 7% interest rate rather than a 13% interest rate. It may also be more beneficial if you can postpone repayment until the end of the deal. Many private lenders are content to borrow slightly above the average performance of the stock market, and because they want to keep their money working, they’ll let you hold onto all of it until your deal is done.

There are many variables involved. But when you account for all of them, you can potentially structure some of the most profitable deals of your life. Many times you’re also helping your private investors who are simply hoping for a satisfactory rate of return. It is easy to understand how debt can make you rich.

That’s why the “It takes money to make money” saying goes right out the window. If you have the knowledge and the deal, it doesn’t have to be your money that makes the deal work.

Some investors on our team make a killing by investing on margin. Here is one strategy they use to grow their wealth consistently…..

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

Share your thoughts......