How I move from 0% leveraging to 100% leveraging and achieve infinite return (and how you can too!)
In my previous blog, I summarized a deal that took me 3 years to achieve infinite return. Filled with excitement from that, I went ahead and did the same thing for another house and achieve yet another same and phenomenal result: infinite return!
The number is very similar if not almost the same from the previous deal: I bought the house for $75,000 with my partner. We each own 50% of the property. We rented it out and three years later the house appraised for $135,000. Going through the pain of refinancing is another story but in the end, the bank agreed for us to take out $100,000. We are still keeping the house and currently renting it out for ~450 in positive cash flow.
You can read the previous blog to capture all the details. But in this post. I want to talk about how I shifted from 0% leveraging to 100% leveraging mindset. I used to be a big believer in no such thing as a good debt. All debts are bad! My original plan was to buy one house at a time, the pay off all the mortgage as soon as I could, then move on to another house. I sure did it on this house that I bought. After a year of paying the mortgage. I and my partner each came up with $30,000 to pay off the mortgage. At 1st I was very excited because I was no longer have a mortgage and enjoyed all the rent that was flowing from the property.
I thought I was smart….
However, the reality came at the end of the year when I actually did my number. The Return on Investment went down significantly from 30% to 12% since I put up a lot more capital into the house and the rent is not increasing. I was like wow, what have I done! This event ignited a light bulb in my mind and I started to look hard into the concept of leveraging and redefine my definition of debt. There is such thing as a good debt. Good debt will put money into your pocket and financial leveraging will excel your investment career if use properly! Since I cashed out all my original investment plus more, I no longer have any money invested in the property. Yet, the property is still cash flow. When you take your cash flow figure and divide it to the money invested in the house, which is zero, what do you get?
You get Infinite
What Rate of Return do you prefer? Some people prefer 0.15%, 9%, or 25%
I prefer ∞
I cannot wait to apply this in commercial real estate, especially with the concept of force appreciation that is available mostly in the commercial world of real estate!