The Unique Property Site Blog

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Reverse Engineering Your Investments

It’s always puzzled me why people only look at money and investing from one perspective.
I have been writing about buying real estate over the course of the past few weeks, and the way people look at things is in one direction only, and that direction is the one most likely to cost money rather than make money. Let me try to explain.
The average family borrows money to buy a house. As a teenager interested in algebra, and maths in general, I found that an absurd way to go about things, and led me to propose my Backwards Principle.
What that effectively meant was that whatever the average adult did, I would turn it round and do the opposite. That approach has worked very well for me over the years.
In general I have looked at sayings like ‘The longest journey starts with the first step’. One only has to use the little grey cells to realise how stupid a statement that is. Any journey starts with the last step. After all, if you dont know where you are going, which way do you face when you’ve closed the garden gate?
How about the simple question: Where shall we go for our holidays this year? The first decision is to decide the destination.
I applied that principle very successfully to my time fighting cases in the courts. I also applied it to my investment strategies.
One could start with a principle. Einstein used to say that the eighth wonder of the world was compound interest.
What’s that got to do with buying a house, you may ask. My answer is, Rather a lot.
If you start off with money, you can make it grow. If you start off with debt you do the opposite.
Your first aim therefore in terms of investment is to borrow money in order to make it grow.
Suppose you can borrow money at 5%. If you can find an investment paying 10% and you borrow 10,000, you will be making money on someone else’s money. Not a lot, but what’s wrong with the principle?
If, on the other hand, you start with debt, things work the opposite way round. I gave an example a couple of weeks ago. Here it is again.
You buy a house for 90,000. If you take out a standard mortgage and pay back over the years that house is going to cost you 330,000. And that’s if interest rates dont go up. Pure insanity.
In the first example you are making money. In the second example you are losing money.
In the first example you are taking advantage of the eight wonder of the world. In the second example the mortgage company is doing just that but at your expense.
One of my other golden rules is that you should only borrow money if you can make that money make you more money. You borrow to make money, not to spend it.
Once you understand how things work you will be able to build in all sorts of ways that you can use other people’s money to make yourself rich.
What I did when I was still at school was decide that average adult logic was seriously flawed, and that way of spending one’s life was certainly not for me. Work for decades for somebody else? You have to be joking. I simply wanted to muck about. I soon learned that was eminently possible. I noted that when I went bumming around the world I always seemed to have a good time and never seemed to be up against it with regard to money. There were always ways to survive. But when I got back home the first thing that hit me was mother with her standard comment “I suppose you’re broke”, which meant I had to get a job. How ghastly!
I sat down and thought, what is the last step in life? I shall be old, losing my grip. How will I survive? i do not want to be like the old people around me, huddled into coats, waiting at the bus stop in the rain, struggling back with inadequate shopping. Not for me. Thus I started my journey through life by concentrating on the last step, and making plans that would allow me to get where I wanted to go.
Since then I have divided my investments into two categories. The first was to invest in things that were cheap and could be held for decades. The second was to get hold of as much of other people’s money, and make a turn on that money to allow me to survive.
i bought a ruin and turned it into a rather nice house. That didn’t do my leisure life much good but it got me a house for the cost of a two year loan. I then borrowed against it and made money on other people’s money, and have been doing that ever since.
I then decided to build assets which I could use to operate a business that was the opposite to what most people do. I operated like a mortgage company.
Think about it. Over the course of twenty years that mortgage example I gave above brought in 330,000 for an outlay of 90,000. That was the kind of logic I wanted to be working for me, not against me.
Now I’m supposedly retired I should be living in a nice mortgage-free house. That is, if I was an ordinary guy.
No. I’ve sold my main residence and invested the money, and I can now rent something really nice for a pittance compared to what it was really costing me to live in an expensive house.
Let’s do the maths.
House value: 750,000. I could rent somewhere similar for 1,500 a month.
With the house sold I can now invest in anything my broker can throw at me. Let me give you the deals I have received over the past three months.
Invest in a gold based deal for either a monthly return of 1.5%, or an annual return of 24%.
Invest in a property deal paying 25% over the course of one year.
Invest in a property deal paying 50% over the course of one year.
There are others with rates starting at 1.4% a month.
Let’s do our maths on the 1.5% a month deal which is the simplest to work out the essential maths.
If I sell up and move into similar rented accommodation that will cost me 1,500 a month. However, my income from my invested money will be 1.5% of 750,000, which comes to 11,250. Subtract the rent cost, and I am left with 9,750 a month spending money.
If I dont sell up, you could say that it’s costing me 9,750 more than the market rate to own my own home.
I rest my case! But idiots are doing that on a daily basis.
The real trouble is that people dont understand how to use maths, and I’m not talking calculus, or even long division.

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