Whatever you invest in, the big key to becoming wealthy is to increase your rate of return while simultaneously reducing risk. Whatever your investment vehicle of choice, you should continually be striving to increase your ROI and lower your risk. Real estate note investing reverses “risk vs reward” where a higher potential return would otherwise carry a higher risk. By contrast, in the real estate note business, risk actually decreases as the reward goes up. This is due to the nature of this type of “low risk high reward” investment– notes are bought at a discount (time value of money), thereby lowering exposure for the investor and creating high yields in the process while strengthening equity position.
You, too, can learn how to reverse “risk vs reward” through just a little education.
Let’s start with increasing returns. A good place to start is with the most powerful financial success formula in the world, as such:
Suppose you were to invest $1,000 per year at various rates of return over a period of 25 years. Here’s what you’d end up with:
$1,000 per year invested at 5% for 25 years = $47,727
$1,000 per year invested at 10% for 25 years = $98,347
$1,000 per year invested at 12% for 25 years = $133,333
$1,000 per year invested at 15% for 25 years = $212,793
$1,000 per year invested at 20% for 25 years = $471,981
$1,000 per year invested at 24% for 25 years = $898,091
Note how an increase in rate of return from 5% to 10% will more than double your bottom line.
Now, double that rate of return once again to 20% and you then end up wit $471,981— your bottom line just increased by over 3 1/2 times! Not bad.
Now, just suppose we can up that rate of return again— this time by a mere 4 percentage points.
If you were to do that, you’d end up with $898,091 which nearly doubles the prior figure.
It is important to note the dramatic increases in the bottom line resulting from only slight increases in rates of return. The key takeaway is that every time you raise your rate of return even slightly, your bottom line goes up exponentially.
In order to effectively implement the above, however, you may see some problems that you will need to overcome. Let’s look at them:
1. For starters, where are you going to find rates of return like 12-24% in today’s climate where many investors are fortunate to average around 5-8% rate of return with their current investments over the long term?
2. What about the long time frame used in the example? 25 years may be too long a period to wait for many people. After all, we may or may not still be here in 25 years!
3. How will you find the $1,000 necessary to invest every year to implement these formulas? Some may have some difficulty coming up with that amount.
The good news is that there are ways to quickly overcome all of these problems, all within a greatly reduced time frame and starting with zero capital on your part through note brokering and investing.
In next week’s tip, we’re going to cover all of that. You won’t want to miss it!
Tune in to NoteInvestors.com for Tim’s regular posts and columns on notes, investing, and personal wealth building. You can email him here.