How to use leverage like a billionaire

1978, Donald Trump He launched his real estate empire By purchasing an aged Commodore hotel in Manhattan. week He reports that he provided funding with a combination of a bank loan (co-signed by his father Fred Trump), a $1 million loan from his father, cash from Hyatt Corporation, and a 40-year tax reduction partnership with New York City in place of future profits.

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It was a bold plan – and it worked. Trump reopened the hotel as the Grand Hyatt in 1980, and later sold the remaining share for $140 million.

Trump certainly doesn’t just use his debts and use the money of others to build his wealth. So What about billionaires? Do you use leverage differently from the middle class?

Middle classes use their debt to buy furniture, cars and burritos at Klarna. A wealthy purchase asset that generates cash flow.

“Billionaires use leverage to build wealth, and the average person uses it to buy debt,” said Josh Tory, CEO of a business brokerage. Kings Bridge. “They use business credits, real estate loans, or asset support loans to generate cash flow.”

For a simple example, imagine buying a rental property for $100,000. You borrow $80,000, earn a down payment of $20,000, and increase $4,000 in closing costs. This property generates $200 in average cash flow each month. You invest your cash for $24,000 and in exchange you earn $2,400 in your first year (10% cash return).

That $80,000 loan helped me start earning cash flow. It didn’t go to fill your wardrobe.

Debt helps you get a higher return on cash. In the example of rental properties, rents can rise by 5% each year. Over time, it will earn you disproportionately high cash flow compared to your own investment.

For example, two years later, the rental property will generate $3,600 in cash flow per year. This will result in a 15% cash-on-cash return. That is, even if rents rose 5-10%, cash flow increased by 50%.

It’s leverage.

Inflation does not hurt actual asset owners. If anything, it helps them.

Don’t forget that monthly loan payments for that rental property are fixed. But the more hotter inflation occurs, the more the owners can raise rents and create a wider range of cash flows.

Inflation also increases the value of the actual assets along with cash flow. Real estate agent and investor Eli Pasternak Liberty House Purchase Group I’ll explain more. “The key is to use fixed interest rate liabilities to assess assets, as they are cheaper to pay for assets.”