The Use of Intelligent Leverage In Your Investing
Hi Everyone,
It's another hot day here in Charlottesville as I am typing this. I'm actually on the campus of the University of Virginia on the second floor of a private library. It's one of those "hidden" nooks that I've found over the past few years that I escape to in order to write.
I hope you enjoyed the special report I sent to you earlier in the week called, The Nine Steps to Investing In Commercial Real Estate. If you missed out on that email I have two tips for you.
1. Add the following two domains to your "acceptable" list in your email program. Many times email filters can accidentally sort email that you want, like this bi-weekly E-Letter, in with email you don't. The two domains to add are: mauimillionaires.com and investorfattrack.com.
2. Check the www.mauimillionaires.com website under the "Wealth Updates" tab. I do my best to post all the content from the E-Letter, plus other articles as I write them, up there.
Sometimes I get a bit behind in this so checking your email is still the most reliable and fastest way, but at least it gives you a second chance.
This E-Letter I want to talk with you about the use of Intelligent LeverageTM.
Just what is leverage? Leverage is when you are able to take one unit of input, and direct it in such a way to produce a magnified return. In this article the leverage I am talking about is financial leverage--also known as loans.
I want to make one more key distinction, that of "Intelligent Leverage". Intelligent Leverage is a concept I created to define way I've observed the world's wealthiest individuals actually use debt to grow their wealth.
I define Intelligent Leverage as investment debt that is used that meets the following two criteria:
First, it's leverage that pays for itself. In other words, it must be used to acquire an income stream that is more than enough to pay for the financing costs including loan payments, interest, and other fees associated with it. For example, you borrow $100,000 to finance the purchase of a new piece of equipment for your business, where the purchase allows you to increase your business and easily pay for the cost of the financing.
Second, at its best, Intelligent Leverage is debt that is "non-recourse". This is a fancy, legal way of saying that it is debt that you do not personally guarantee. There is a principal of wealth building that says pay all your debts, but make sure that if worst comes to worse, you haven't given personal guarantees. You probably will never need that last layer of protection, but then again, you never know.
Let's look for a moment at how different levels of wealth builders use debt.
Level One people use debt to finance a lifestyle that they really can't afford. The most common form of debt they use consumer debt, namely credit cards. They mortgage their future to fund their lifestyle today. It's no wonder that they end up in such tough financial positions. But it isn't like they are doing this to themselves and by themselves. A BILLION dollar industry is out there pushing them into taking on more and more consumer debt.
I recently read an interesting book called, The Dual Income Trap, in which the authors meticulously lay out all the ways the consumer credit industry works hard to push more and more credit (and hence more and more unsupportable debt) at Level One consumers.
Which is no surprise that when you look at Level Two wealth builders, so many of them are characterized by an irrational fear of debt. Looking at how hard they had to scramble to climb out of the pit of their staggering consumer debt, it doesn't surprise me that they are so fearful of it now.
But relating to debt out of fear is very disempowering. Leverage is neutral. It can be good or bad depending on the USE to which it is put. In just a moment I'll share what I see as the best uses of leverage for each level of wealth builder, but first I want to cover how Level Three people use leverage.
Level Three people intelligently use leverage to magnify their financial returns and lower their financial risks. Imagine that, you can actually use debt to lower your financial risks! Don't believe me? It's absolutely true.
You can use Intelligent Leverage to encumber your assets as a form of asset protection. You can use it to reduce your cash outlay in a deal, and hence your lower your risk. You can... you get the idea I hope.
So let's look now at how I suggest you intelligently use debt at each level of your wealth building.
At Level One: I suggest you use debt to finance your financial education. At Level One YOU are your greatest asset--your earning capacity, your skills, your ambitions, your network.
Just make sure you choose smart places to learn. I highly encourage you to read at least 2 financial books each month and attend at least 2 quality financial workshops each year.
I follow my own advice. I read at least double that many financial books each month and attend (in person or via recorded workshops) at least that many workshops each year. Why? It's made me a multi-millionaire before I turned 34, why would I stop now?
Side Note: If you haven't yet taken our foundational financial fluency courses I urge you to enroll now for the upcoming September events: The Mini-Maui Wealth Workshop plus the 2-day Financial Fluency Workshop. These two events, held back-to-back in Atlanta, are the best primer on succeeding financially available. I should know, I personally designed and created every minute of them to be exactly the wealth workshop I wished I would have had access to when I first got started building my wealth. And if you register now, the cost is less than $800 for BOTH!
Now for those of you at Level Two my advice is different. I still think you'll want to invest in yourself, but you should shift the bulk of your focus on investing on "forced appreciation" investment opportunities. These are deals that you can acquire an asset and "force" that asset to be more valuable. This could be growing a business, or improving a property, or buying a below value stock, or... You get the idea.
At Level Two you should use Intelligent Leverage to magnify your best financial investment moves for a greater return. I need to caution you here that this is NOT a license to speculate. Speculation is when you buy an asset at or close to market value in the HOPE that it will go up in value. That is not investing and I think you should be very cautious of any type of speculation.
Instead, I recommend that you develop your skills and advantages so that when you buy an asset, you know you are covered. For example, when I buy a 300-unit apartment complex for 70-cents on the dollar, I'm confident that I am making a smart investment move. Hence I'm very willing to boldly borrow (nonrecourse of course) to make that investment happen.
At Level Three I often use leverage to gain from forced appreciation deals, but I now also focus on using debt to magnify my passive, residual cash flow.
I can do this by using better debt to lower my debt service. Or I can use the debt to acquire cash flowing assets where the cash flow pays a healthy premium above my borrowing costs.
This is the ultimate use to put your Intelligent Leverage to work at--to help you increase your net worth and transition that net worth into passive, residual income.
Now before I end this E-Letter I just want to remind those of you who are serious about succeeding investing in commercial real estate that the special offer I made you in my last email is about to expire!
In case you need a quick reminder that special offer is:
Buy the course, called "How to Invest in Commercial Real Estate", by midnight Sunday, July 22nd, and you'll get the complete recordings from the negotiating 3-day workshop I taught earlier last year for FREE! That course would normally cost you $997 but when you take advantage of the special offer I am making you, using this unlisted link, you'll get the negotiating course free.
Order now! At midnight on Sunday that chance will be gone forever. Remember, your purchase is unconditionally guaranteed for a full year.
That's it my friend. I hope you have a great weekend.
My best to you,
David Finkel
P.S. Remember, the special offer to get two of my most popular home study courses on investing in commercial real estate and negotiating for the price of one expires at midnight on Sunday! Order now!
P.P.S. I posted a new online workshop for Maui MastermindTM Online members on the different kinds of wealth vehicles. It's approximately 28 min. long and in it I walk you through the pro's and con's of each vehicle, plus share with you some key distinctions between how Level
Two and Level Three people approach their investing. Members click here.
Not a member yet? No problem, click here to sign up for a free 30-Day Trial Membership and get instant access.
It's another hot day here in Charlottesville as I am typing this. I'm actually on the campus of the University of Virginia on the second floor of a private library. It's one of those "hidden" nooks that I've found over the past few years that I escape to in order to write.
I hope you enjoyed the special report I sent to you earlier in the week called, The Nine Steps to Investing In Commercial Real Estate. If you missed out on that email I have two tips for you.
1. Add the following two domains to your "acceptable" list in your email program. Many times email filters can accidentally sort email that you want, like this bi-weekly E-Letter, in with email you don't. The two domains to add are: mauimillionaires.com and investorfattrack.com.
2. Check the www.mauimillionaires.com website under the "Wealth Updates" tab. I do my best to post all the content from the E-Letter, plus other articles as I write them, up there.
Sometimes I get a bit behind in this so checking your email is still the most reliable and fastest way, but at least it gives you a second chance.
This E-Letter I want to talk with you about the use of Intelligent LeverageTM.
Just what is leverage? Leverage is when you are able to take one unit of input, and direct it in such a way to produce a magnified return. In this article the leverage I am talking about is financial leverage--also known as loans.
I want to make one more key distinction, that of "Intelligent Leverage". Intelligent Leverage is a concept I created to define way I've observed the world's wealthiest individuals actually use debt to grow their wealth.
I define Intelligent Leverage as investment debt that is used that meets the following two criteria:
First, it's leverage that pays for itself. In other words, it must be used to acquire an income stream that is more than enough to pay for the financing costs including loan payments, interest, and other fees associated with it. For example, you borrow $100,000 to finance the purchase of a new piece of equipment for your business, where the purchase allows you to increase your business and easily pay for the cost of the financing.
Second, at its best, Intelligent Leverage is debt that is "non-recourse". This is a fancy, legal way of saying that it is debt that you do not personally guarantee. There is a principal of wealth building that says pay all your debts, but make sure that if worst comes to worse, you haven't given personal guarantees. You probably will never need that last layer of protection, but then again, you never know.
Let's look for a moment at how different levels of wealth builders use debt.
Level One people use debt to finance a lifestyle that they really can't afford. The most common form of debt they use consumer debt, namely credit cards. They mortgage their future to fund their lifestyle today. It's no wonder that they end up in such tough financial positions. But it isn't like they are doing this to themselves and by themselves. A BILLION dollar industry is out there pushing them into taking on more and more consumer debt.
I recently read an interesting book called, The Dual Income Trap, in which the authors meticulously lay out all the ways the consumer credit industry works hard to push more and more credit (and hence more and more unsupportable debt) at Level One consumers.
Which is no surprise that when you look at Level Two wealth builders, so many of them are characterized by an irrational fear of debt. Looking at how hard they had to scramble to climb out of the pit of their staggering consumer debt, it doesn't surprise me that they are so fearful of it now.
But relating to debt out of fear is very disempowering. Leverage is neutral. It can be good or bad depending on the USE to which it is put. In just a moment I'll share what I see as the best uses of leverage for each level of wealth builder, but first I want to cover how Level Three people use leverage.
Level Three people intelligently use leverage to magnify their financial returns and lower their financial risks. Imagine that, you can actually use debt to lower your financial risks! Don't believe me? It's absolutely true.
You can use Intelligent Leverage to encumber your assets as a form of asset protection. You can use it to reduce your cash outlay in a deal, and hence your lower your risk. You can... you get the idea I hope.
So let's look now at how I suggest you intelligently use debt at each level of your wealth building.
At Level One: I suggest you use debt to finance your financial education. At Level One YOU are your greatest asset--your earning capacity, your skills, your ambitions, your network.
Just make sure you choose smart places to learn. I highly encourage you to read at least 2 financial books each month and attend at least 2 quality financial workshops each year.
I follow my own advice. I read at least double that many financial books each month and attend (in person or via recorded workshops) at least that many workshops each year. Why? It's made me a multi-millionaire before I turned 34, why would I stop now?
Side Note: If you haven't yet taken our foundational financial fluency courses I urge you to enroll now for the upcoming September events: The Mini-Maui Wealth Workshop plus the 2-day Financial Fluency Workshop. These two events, held back-to-back in Atlanta, are the best primer on succeeding financially available. I should know, I personally designed and created every minute of them to be exactly the wealth workshop I wished I would have had access to when I first got started building my wealth. And if you register now, the cost is less than $800 for BOTH!
Now for those of you at Level Two my advice is different. I still think you'll want to invest in yourself, but you should shift the bulk of your focus on investing on "forced appreciation" investment opportunities. These are deals that you can acquire an asset and "force" that asset to be more valuable. This could be growing a business, or improving a property, or buying a below value stock, or... You get the idea.
At Level Two you should use Intelligent Leverage to magnify your best financial investment moves for a greater return. I need to caution you here that this is NOT a license to speculate. Speculation is when you buy an asset at or close to market value in the HOPE that it will go up in value. That is not investing and I think you should be very cautious of any type of speculation.
Instead, I recommend that you develop your skills and advantages so that when you buy an asset, you know you are covered. For example, when I buy a 300-unit apartment complex for 70-cents on the dollar, I'm confident that I am making a smart investment move. Hence I'm very willing to boldly borrow (nonrecourse of course) to make that investment happen.
At Level Three I often use leverage to gain from forced appreciation deals, but I now also focus on using debt to magnify my passive, residual cash flow.
I can do this by using better debt to lower my debt service. Or I can use the debt to acquire cash flowing assets where the cash flow pays a healthy premium above my borrowing costs.
This is the ultimate use to put your Intelligent Leverage to work at--to help you increase your net worth and transition that net worth into passive, residual income.
Now before I end this E-Letter I just want to remind those of you who are serious about succeeding investing in commercial real estate that the special offer I made you in my last email is about to expire!
In case you need a quick reminder that special offer is:
Buy the course, called "How to Invest in Commercial Real Estate", by midnight Sunday, July 22nd, and you'll get the complete recordings from the negotiating 3-day workshop I taught earlier last year for FREE! That course would normally cost you $997 but when you take advantage of the special offer I am making you, using this unlisted link, you'll get the negotiating course free.
Order now! At midnight on Sunday that chance will be gone forever. Remember, your purchase is unconditionally guaranteed for a full year.
That's it my friend. I hope you have a great weekend.
My best to you,
David Finkel
P.S. Remember, the special offer to get two of my most popular home study courses on investing in commercial real estate and negotiating for the price of one expires at midnight on Sunday! Order now!
P.P.S. I posted a new online workshop for Maui MastermindTM Online members on the different kinds of wealth vehicles. It's approximately 28 min. long and in it I walk you through the pro's and con's of each vehicle, plus share with you some key distinctions between how Level
Two and Level Three people approach their investing. Members click here.
Not a member yet? No problem, click here to sign up for a free 30-Day Trial Membership and get instant access.
posted by David Finkel at 10:33 AM
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