We all know debt can be dangerous. But we also know it’s virtually impossible to only save our way to wealth.
So how is it possible to use debt wisely to create wealth?
How can you increase your returns using the bank’s money?
In this episode, Cash Flow Expert and Anti-Financial Advisor, Chris Miles, teaches us how he has used debt to increase cash flow for him, and others, as well as accelerate his returns.
Tune in to find out how!
Chris Miles Bio:
Chris Miles, the “Cash Flow Expert,” is a leading authority on how to quickly free up and create cash flow for thousands of his clients, entrepreneurs, and others internationally! He’s an author, speaker, and radio host that has been featured in US News, CNN Money, Bankrate, Entrepreneur on Fire, and has spoken to thousands getting them fast financial results.
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Listen to the podcast here
How Can You Get Debt Working FOR YOU?
I’m welcoming you here. I’m here to help you to be able to get your business or your money working harder for you so you don’t have to work so hard for that money. As a reminder, check out our website, www.MoneyRipples.com. Especially if you want to see ways to free up cashflow, it’s a great place to go. In this episode, I want to talk about a concept that a lot of people still get hung up on. I don’t blame you one bit because if you’ve been trained by most of the financial pundits out there and everything else, you have been told that this is bad, stay away from it, never to do it and all that other crap. I’m going to address the topic of debt.
How do you get your debt working for you rather than the other way around, which is what most people do when they end up working so hard for debt? When I’m using the word debt, I’m using the traditional sense of the word. True debt is not debt. We’re talking about using liabilities. We’re using cash and other people’s money to create something more or create leverage.
When we think about debt, I would agree with some of the pundits and maybe with what some of your beliefs are. People are using it to consume. They’re using debt to consume such as buying crap. I’m not talking about cars or even houses necessarily. I’m talking about things that you’re putting on credit and getting charged high interest for something that you can’t afford in the first place. This is an issue. We’re not talking about that right here. We’re talking about how to use it wisely. How do we use it in the proper sense of stewardship?
The hard thing is that everybody teaches you all debt is bad. They’re like, “Don’t get it. If you could get a mortgage, pay it off as fast as you can.” There are other things I’ve done to address that specific topic of whether or not you should get a mortgage on your house or what it costs you to pay off your mortgage. This always comes back to stewardship. Can you use this money wisely? I’m going to use a few examples from my life to where this can work. I want to use it from the point of a business owner as well as from a point of view of an investor.
Let me give you an example here. Where can it work for you? We already know where it doesn’t work and those are the things that create more. Especially if it creates tighter cash flow, we don’t want that. When it comes to interest rates, it is not the most important thing. Although all things are equal, I want the lowest interest rate possible. There’s no doubt.
What ultimately helps to create better leverage is making sure that the payment is the lowest possible. The key is cashflow. It comes down to that. You can put yourself in a world of hurt if you don’t address this. Let me give you an example of my business. Back in early 2007, I was launching a new coaching business with a few other guys. Pretty much, we were putting all of our skin in the game.
I’ve been retired in 2006 and came out of retirement in 2007. I was thinking, “I’m great. I don’t even have to work. This is what I love. This is my next passion and next thing here.” I started to do that. I go to the bank and say, “I don’t want to touch all my cash reserves but I do want to see if I can leverage some money.” Cash reserves are key. You want to keep those intact. I got an SBA loan. That’s a business loan or a business line of credit. They gave me a $25,000 line of credit and the interest rate was right around 6%. It stayed at 6% for quite a while. The payment on this was a whopping $126 a month when I had leveraged the whole thing.
Here’s the thing you got to look out for. This is the perspective you need to have. Ask yourself, “Can I create more than $126 a month with this money?” This is the ultimate question. This is true even if you’re using a line of credit for different things, whether it be for your business or even to invest. Ask yourself, “Can I create more than that monthly payment?” If you can create the same, sure. Technically, by the numbers, you’d be okay but you wouldn’t be any better off from a cashflow standpoint. That would be questionable. Could you be better off?
Think about this. If I can’t take $25,000, put it into my business and make at least $126 a month, the truth is I should not be in business and nor should you. That’s the real truth here. Most people think, “If I had $25,000, I would hope to create a couple of grand in the business.” Hopefully, that’s what you would say. If the bank says, “Let’s make it a hard money loan.” Maybe it’s a bad, hard money loan and they say, “You’re going to pay us $2,000 a month.” I’ll probably question a little bit more. I’ll say, “Can I guarantee I’m going to create at least that much if we’re a few thousand dollars a month?”
I don’t care if the interest rate was 3%, 2% or 1%. If they’re making me pay $2,000 a month, I got to ask myself, “Is that worth the cashflow? Am I going to create more than that?” If I do, that’s awesome. If I can take $25,000 and make $100,000 in that year, who cares? I almost did with that money but that’s not the point. The point is what you can create. That’s where $126 a month to me seemed like nothing.
The hard thing is that everybody teaches you that all debt is bad. But it’s not. You can create leverage. You could get a mortgage, pay it off as fast as you possibly can and everything else. Click To TweetMy wife and I said, “What can we do to create more cashflow? We’ve got some cash. What do we do? Do we invest it? Do we do this? Do we pay off loans?” The next loan based on my cash flow index that finally came down a little bit was the SBA loan. We said, “Should we do this or this? Do we do another real estate property or pay off the loan?” The answer is both. We did both. That was our choice.
The thing is at that point, the index was low enough that it made sense to pay it off finally. It finally made sense because with the balances remaining versus the cashflow I can free up, there are very few investments that would beat that kind of return. That’s what I did. In that case, I ended up not only using the loan but eventually, over eleven years, I finally decided to pay it off.
I’ve made way more than any interest that was charged at that $25,000. I don’t know how much that that was charged over the years, even if it was double. Let’s say it was double the amount, which it wasn’t. It was not even that much. Let’s say the interest was another $25,000 so I had to pay $50,000 in total. The thing is if it helped me make hundreds of thousands of dollars in my business, why would I care? That’s the power of leverage. I’ve run the numbers in any which way possible. We did an episode before about putting money in a 401(k) versus doing real estate. I used that example before I ran those numbers. You can see it’s almost impossible to retire.
I had somebody come to me. They’re 57 years old. They said, “I like your stuff. I got referred to you by my friend. We’re trying to figure out what we can do to retire. We want to have a $240,000 a year income coming off of it. Even though between 401(k)s, mutual funds and everything else, we got $2 million. Despite that, based on what every financial advisor is telling me, that means I can only live on about $60,000 or so a year. Can you do better?” My answer is, “Yes. I don’t even have to touch your 401(k) and we could still do better. You can wait another three years before you can touch that 401(k) and we would be doing better in the meantime.”
I even showed them. I said, “In a year conservatively, we could probably make you at least $50,000 to $100,000. That’s more than trying to use all your resources combined to live on the interest or less than the interest that they’re trying to do with mutual funds.” He’s like, “$50,000 to $100,000? That’s realistic?” I’m like, “I’m being conservative. I’m talking about the money that’s not in your 401(k) because we can’t touch it. It’s locked up. I’m talking about the money that’s outside of it. You could easily, within 5 or 6 years, make that up to $20,000-plus a month.” That blew his mind and I don’t blame him. It was hard for him to wrap his head around it because he had been taught to accumulate money for so long. He never saw that with possible leverage, you could create more.
That’s from the business standpoint. In business, it’s easy to tell because you got to be making it. What about from an investing standpoint? Investing can be tricky. The way most people “invest” usually means they take high risks with low returns. That is like mutual fund investing and investing in your 401(k)s, IRAs and stock market stuff.
For the most part, you are going to be taking these super high risks with low returns. Do you know what I did? Let’s take an example of a deal I did. With the real estate property I’m buying, the total price of the property is about $134,000. I said, “Let’s do a comparison. What if I paid this property outright in cash so there’s no loan and debt? Let’s compare that to where I did have debt with the same $134,000.” Scenario one means I bought a house free and clear with no debt. I get to keep all the rent other than property management fees, taxes and insurance, which you still have to pay.
Here’s the thing. With what I’m doing, my strategy is I’m only putting 20% down and getting a mortgage for the rest. The 20% I’m putting down is a little over $26,000. It’s almost $27,000. With that money, what if I bought former properties like it? If I’m only putting 20% of my cash down, it means I can buy 5 properties for $134,000. That $26,800 times 5 is $134,000. What if I bought five properties?
I got to take into account that I do have a mortgage. I have expenses there. I pay interest, principal and everything. I’m paying for all of that. My net cashflow and I already know this too, is under $300 a month. It is $295. That $295 a month cashflows me nearly $18,000 a year or almost $1,500 a month. If we were to be exact, it is $1,470 a month. $1,470 versus $950, I’m cashflowing an extra $520 a month by having debt and creating leverage. Here’s what’s cool. This alone with the $18,000 versus $11,400 is obvious I’m making a pretty good return. I’m making about 1/3 more than I was otherwise. If you were to choose $1,500 a month versus $950 a month, what would you choose?
Here’s the thing. Let’s say these properties grow by 20%, not 100%. It’s nothing crazy. That’s a 3.7% average, which is not much. Compared to what we’re seeing with real estate, it’s low but 3.7% is a pretty good conservative number. Some people will say at least 4% or 5%, especially for lower price rental properties. I’m going to say less than 4% even. Over that period, it grows 20% in 5 years. That means my $134,000 property is worth over $160,000. I’m going to round down to make it $160,000 even so I gain an extra $26,000.
You can create a massive amount of wealth in a quick amount of time just by creating the right amount of leverage in the right places. Click To TweetIf we look at the 1st scenario where I bought this outright in cash, not only have I made $11,400 a year for 5 years but I’ve also made an extra $26,000 in appreciation. That ran total in 5 years is $83,000 from that $134,000. The $83,000 is the same as a 62% rate of return in 5 years. Would you say that’s pretty good? That’s awesome. You would hope that the stock market would do that consistently. Even if we take out appreciation, I still made good money. We already know that. The cool thing is that I’ve made 62% in 5 years. Even if I buy out rent in cash, I’m doing pretty good. I’m doing better than I probably will get in any mutual fund, especially over a given period.
However, with these five properties, a few things have been going on under the surface. All 5 properties appreciated by that 20%, which means each of those 5 properties made $26,000 each in appreciation. On top of that, my renters have also been paying down my mortgage for me. Maybe I’ve only been pocketing about $295 a month but they’re also paying down some of my principal as well as my interest on my mortgage. I’m not paying any of it. My renters are paying that. What happened? We’ll find out.
My loans after 5 years go down to about $98,000. That’s $98,000 up to the $160,000. If you put those 2 together, that means I’ve made $62,000 on each of those 5 properties. That’s the grand total. With the $18,000 over 5 years for the cashflow plus $62,000 of appreciation and equity building on 5 properties, that’s a total of $400,000 or a 298% return. I’ve got $400,000 of cashflow and equity. Would you bet I’m going to turn around and make some more? Yes. Can you see the power? That’s 62% versus 298% because I leveraged debt the right way, not the wrong way.
Does this mean I’m going to be telling everybody to go get all of the debt they can and invest it in whatever? No. I’m using great systems and tools. I minimize my risk. I make sure there are seller conditions so that sellers have to fix up the property based on our specifications before we even buy it. There are renters already in place. All this stuff has been happening. These are all stuff I’ve done to minimize my risk. You can’t blanket statement this.
This is not guaranteed either. I’m just giving an illustration by using one of my properties and a real-life example of what we are doing. That’s it. Also, this is with higher interest rates. If I have done this a couple of months ago, these numbers would have been even better in my favor but interest rates have been going up. That’s the point. There is so much you can create and can do when you have leverage. It’s about acceleration, not accumulation.
When people get stuck in that traditional mindset of how they can leverage money doing the same old way of using all of their cash, it’s not impossible but it’s very hard to create any kind of financial freedom by doing it all yourself. You would have to scrimp and save everything, sacrifice and suffer in the hopes that maybe you might be able to create it. You can do it the wise way. Do it smart. Do it in a way that works right. You’re not working harder but working smarter and especially working right. Watch what you can create.
I want you to wrap your head around this. You might have to read this a couple of times but that’s the point here. You can create a massive amount of wealth in a quick amount of time by creating the right amount of leverage in the right places. I’m going to issue a call of action here. This knowledge is great but it’s got to be applied. First and foremost, if you’re thinking, “I need help with this to figure it out. I have the potential to create something like this,” reach out to me at Chris@MoneyRipples.com. Let’s see what we can maybe do one-to-one.
Here’s the other thing. If you’re saying, “I’m getting some good education but I want to see how this works,” and maybe you want to be able to see this in a different format. Maybe you want to do this face-to-face or do it better visually, there are only a few spots I’m letting open here. Usually, I have my clients show up at my events and occasionally, there are a few special guests that can come. I do this out of my home in Utah. On May 11th and 12th, 2018, I’m going to be doing my Wealth Empowerment Intensive.
If you’re like, “I’m in this situation. What do I need to do? I’ve got money sitting in savings doing nothing,” you need to probably come to this as well. There are a few spots open. You need to email me at Chris@MoneyRipples.com to see if you can get a spot. I’m not going to have it open for registration online. You can’t do it that way. This is a special invite. This is something that I want to make sure is a good fit for you and me for you to be there. I challenge you to go do that.
There are going to be some amazing things in that day and a half. It’s from May 11th to 12th, 2018 here in Utah. It’s going to be done from my home so you’re going to be in my home with me and learn from me face-to-face. If that’s something you want to do, let me know. I hope this becomes awesome for you. I hope that this helps you and your life as well as anybody else you know. Make a great and prosperous time. I’ll talk to you soon.