MAKE $20.00 FOR EVERY $1.00 INVESTED
MAKE $20.00 FOR EVERY $1.00 INVESTED
Info from: Ahren Lotze
It has been said you can lift the Rock of Gibraltar if you have a
fulcrum point and long enough lever. When we refer to "financial
leverage" we are talking about the same principle. If you buy a
business building for $100,000 with $5,000 down, this is using
leverage of 20 to 1. For a mere 1/20th of the purchase price, you
actually own and control property that is 20 times more valuable
than your cash investment.
If the income of the building is only sufficient to make the
payments and expenses and you don't gain any cash flow, you are
still getting the building paid for and perhaps in 5 years or so,
with continuing inflation, you can sell the building for
$200,000... a gain of $95,000 on a $5,000 investment. This is the
potential result of proper use of leverage.
A good rule to follow in applying leverage, relevant to any
business venture for that matter, is always provide a reserve.
Hold back some cash for emergencies. Hold back additional capital
so if you go under you will have a nest egg to start a new
venture.
Sometimes when things go sour and there is no way out it is
better to take the least loss possible, save what you can and get
out. NOW! Use the remainder to again find financing, margin
leases, mortgages, franchises and all the other manners of using
money belonging to others for both their profits and yours.
Selling your property for cash then leasing back on a long term
lease is an other form of leverage. If you sell for one million
dollars cash and lease back at $10,000 per month, you have
generated tremendous leverage. You now have $1,000,000 each with
10% down for each property, you now control 10 millions dollars
worth of income producing properties. Sometimes it is possible to
use options to hold property, with very little cash down, until
you can obtain title and take possession. This can produce
fantastic leverage if planned property.
Going public is an other method used to gain leverage by using
other people's money. You receive money from the public for
shares of your corporate stock and at the same time establish a
market value for your unissued stock.
Before you apply leverage on any proposition, be sure know just
what your are doing. There must be a continuous favorable cash
flow to service your debt, pay all your costs and expenses and
give you a reasonable profit. If weakness occurs in any one or
several of your business entities, it could drag down your entire
organization.
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