When I was investing in real estate, I rehabbed broken down properties and then either sold them or kept them as rentals. On rentals, a.k.a. “fix-and-holds,” the idea was to buy and rehab with a short-term loan and then get a cash-out refinance when the project was done. If the numbers worked right, and project went smoothly, then that refinance would return my original capital or even more. I would have my capital to do the next project without having to wait for the rental cash flow or other savings.
This pattern is recycling capital and was made popular in real estate investing circles as the BRRR strategy (Buy, Rehab, Rent, Refinance), but it was not a new idea. Other investment strategies recycle capital, too. House flippers want a profit when they sell, but it’s not really a profit unless they have gotten back their original investment and profit after all the closing costs, fees, taxes, etc. If they have achieved that, then the original capital can be recycled (reinvested) into the next project.
I loved the idea of recycling my capital and created great spreadsheets to show how many projects I could do at a time with the capital I had. If I could speed up the projects by a month or two, then I could do more projects faster. That’s what we call “velocity of money,” or “how many times I recycle the same capital.”
I recycled my capital a few times on rentals and flips but not every time. It’s a great pattern, but as a budding real estate investor, I didn’t have flawless systems, processes, contractors, suppliers, and everything else needed to make things run smoothly every time. I burned through reserves on a few projects because of various challenges that led to cost or schedule overruns, and as a result, I didn’t always get my capital back. I guess spreadsheets are not always reality.
I had encountered two problems trying to implement velocity of money:
The volatility and uncertainty of my projects overwhelmed my ability to make sure the projects were smooth and got the required financial results consistently.
The projects were (for me) fairly large, so I could only do 2 or 3 projects at a time without raising money from partners or other investors, which I wasn’t doing then. If I had been able to do 10 or 20 projects at a time, then perhaps I could have been more successful with velocity of money.
To be clear, recycling capital is implementing a process of continual cycles of projects or investments. If the cycles are not smooth, consistent, and reliable, velocity is interrupted, and it doesn’t work well. One way to smooth out the cycles is to have a lot of projects so you can have more that are working like clockwork. Along with having lots of projects (hopefully running smoothly) is having enough reserves to solve problems and weather storms.
Until the last few years, I had not seen velocity of money used anywhere except for real estate projects, but other businesses or investments can implement velocity of money. Lenders use it all the time by structuring loan terms and payments to return capital so they can reinvest it as soon as possible. They don’t wait for all the payments on a loan. They reinvest received payments right away. That’s recycling money they loaned out as soon as they get it back - velocity of money.
You can create your own velocity of money with smaller amounts of capital and with relatively low-risk investments. The result is systematic, consistent, higher growth of your capital than you can get reliably with high-growth, high-risk investments. For most people, reliable low-volatility compounding will generate better results.
The magic is NOT settling for slow growth; it is learning how to implement velocity of money in combination with leverage and safer, low-volatility investments. If investing in high-growth equities and retirement plans is like driving a car, then leverage is like getting on a plane. Combine velocity of money with leverage, and you are now on a fighter jet. If you understand how to optimize leverage and velocity of money, and you expand it into multiple areas of your financial system, it’s like getting on the Milennium Falcon spaceship and hitting the hyperdrive button.
Unfortunately, you can’t just skip to the spaceship part. But many people can turn their financial world into financial freedom in less than 10 years. Compare that with the typical wealth plan of 30, 40, or 50 years, and the uncertainty about whether you may run out anyhow.
I’ll share the best training I know for fully implementing these ideas below, but let me give you some context so you understand how I came to this conclusion:
I left the rat race in 2001 and started a small business (which was just owning a job even harder than the rate race job I had!)
I returned to full time work as an IT consultant in 2006-9.
I got an MBA in Finance from University of Chicago 2007-2010.
I completed the Evidence-Based Coaching Program at Fielding Graduate University in 2011.
I returned to full-time IT consulting work again in 2013.
I lost that job by surprise in 2014 and started my real estate investing business.
I paid off hundreds of thousands of dollars in student loans, credit cards, and business debts as a result of the education I gained from starting the investing business.
I made and lost money in about 20 real estate projects.
I have invested my own money since 2014.
I took over the management of all my money from my financial advisor in 2017.
I went from negative net worth in 2014 to well over 7 figures now.
I am NOT saying my path is the right one or the best one. I’m sure many others have done much better in the same amount of time or less. My path was much harder than it might have been if I had known how to be smarter. I have been through a wide range of experiences to find what is now working for me. I have no idea how much of all those experiences was necessary for me to find a great path.
In terms of the wealth building mechanisms, using leverage and velocity of money allows me to achieve financial goals faster than I could possibly have imagined. I will achieve my financial freedom in about 5 years after starting with the program I will name below. That freedom is without
does not require high-risk investments
does not require raising money from partners or investors
does not require real estate investing (but it could include it)
does not require life insurance (but it could include it)
There are many other advantages, but I’m not trying to sell you. I’m trying to point in a direction of what learning will lead to knowledge and skills that could change your life. It’s ideas and strategies that are hiding in plain sight but are overlooked because of so many half-truths, lies, myths, and noisy, waste-of-time information sources.
What I want more than anything is for you to believe that it’s worth investigating these ideas. Whatever success I have had in finances and life is a result of continually challenging what I think I know, what I have been taught, and what I have been discouraged, dissuaded, criticized, and sabotaged from doing.
The best training I know about for learning and implementing a complete plan is here:
Their programs will lead you to create your own financial spaceship with hyperdrive (my analogy).
I am not affiliated with them in any way other than being an eager, satisfied student the last 7 years.
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