When you talk about leveraging investing to get rich, the conversation almost inevitably turns to traditional investment approaches — such as buying stocks on margin or buying real estate with very little equity. People have actually gotten rich using both of these common strategies, but the inherent limitation is that you are borrowing money to purchase an investment you have no control over.For example, you can buy stock with as little as 50% equity (the balance being a margin loan), or you buy real estate with less than 5% down.
Once you do, you can’t control the value of either investments — particularly since the primary reason for buying them is potential price appreciation.
If the expected appreciation never materializes, or the value of the investment drops, your leveraging scheme will backfire on you.
In order to leverage investing the right way, you need to take on a business venture with very little cash upfront and significant control over the performance of the venture.
Sometimes to accomplish both, you need to think and look beyond traditional investment vehicles. Investing, in this case, may involve a business, a product, or even a physical asset — as well as conventional investments.
Below are the right strategies to help you get rich with investing.
Form Strategic Partnerships With Other People
If you have a business, a business idea or investment plan, one of the best ways to make a success of it is to bring other people into the picture. You will be bringing your own particular expertise and talent to the table, but partnering with others who are strong in the disciplines that you are not.
This type of arrangement may not require you to put up any money at all. Your expertise and your time will be your “investment”.
Let’s say you are very good at providing a particular service, but weak when it comes to marketing. If you bring in a partner to handle the marketing side, someone who is really good at it, the two of you can apply your respective skills to the same project but from different directions.
In this way, you’re leveraging people for financial gain. Doing this can enable you to grow a business or a venture well beyond conventional limits.
We can think of this as a form of human synergy — the whole is greater than the sum of its parts and can enable you to grow a venture with very little capital.
Invest in Real Estate
Investing in real estate is probably the best conventional investment when it comes to using leverage. This is true for at least four reasons:
- Over the long run, real estate tends to rise in value.
- The mortgages used to purchase real estate are self-amortizing, which is to say the loan will eventually be extinguished simply as a result of your making scheduled payments.
- Income (rent) from the property can be used to pay the mortgage and other carrying costs.
- Real estate is a tangible asset, which is to say that it will always have at least some value.
In recent years, the get-rich-quick-in-real-estate crowd has reduced this practice to a fool’s game of buying as much property as you can with OPM (other people’s money). In actual practice, it’s not nearly that simple and requires you to proceed intelligently.
In order for leverage to work with investment real estate, property has to be purchased at well below the going market values and must have a reasonable cash flow sufficient to cover the operating costs of the property.
If done correctly, you should be able to buy an investment property with minimal up front capital, sufficient cash flow (so you are not subsidizing your tenants), and the reasonable ability to sell the property at a healthy profit in just a few years.
Build or Buy Businesses to Sell
It is possible to leverage businesses to sell later at a huge profit. You can do this either by building a business from the ground up or buying an existing business at a very deep discount. The key is to get involved in a business you can enter with very little capital, that will have a strong likelihood of a big windfall later.
In order to do this successfully, you’ll need to have the expertise necessary to either start a business or take over an existing one that’s failing — and turn it around.
Your skills as a business manager will be more significant than the capital you’ll invest in the business and will be the primary source of leverage.
A recent example of this phenomenon is online blogs. People have been able to start blogs with just a few hundred dollars, or buy existing ones for just a few thousand, and later sell them at substantial profits. You have to pick a business that you know well, that you’re confident that your skills can overcome the lack of capital investment.
Purchase Assets and Investments at Deep Discounts
Just as you can buy real estate or businesses on the cheap, you can also buy various assets and investments in the same way.
In the stock market, this is often referred to as value investing, buying otherwise solid companies whose stock prices are depressed simply because they are out of favor with the mainstream investment public.
You can do this with diverse assortment of physical assets as well. In the car business, some people buy “junk” cars, fix them up, and sell them a profit. Others buy similar cars and sell the parts collectively for far more than they paid for the car. In each case, you’re using the outlay of a relatively small amount of money to create a big profit payoff later.
Create a Product
This is one of the very best ways of using leverage to get rich. If you come out with a product that is both valuable and unique, you’ll have the market “cornered”, enabling you to make a substantial amount of money in a relatively short amount of time.
The problem with this scenario is that it can be difficult to identify the product. The consumer market is fickle and there’s no way to know that a new product will find a niche.
For that matter, it’s not always possible to know if you can come out with a variation of an existing product and find a niche. But if you can, profits can be substantial. This is an area where thousand dollar invested in the creation of a single product can produce millions of dollars in revenue.
Increase Production of an Existing Product or Service
Continuing on the same theme, one of the best ways to make money on a product — or even a service — is by increasing production. In the case of services, this is often done through the use of computer software programs.
Where once it took 10 people to deliver a service 100 times in a year, today a single person can deliver 200 units of the same service by using the right software package. A $500 investment in the software package can produce tens of thousands of dollars in extra revenue.
On the product side, nearly any product you can think of can be produced in a developing country quickly and inexpensively. If you can identify the product and the niche, you can generally find overseas production facilities that can provide as much output as you can sell.
The obvious advantage here is that you can produce a tremendous quantity of the given product without investing a single dollar in production facilities. That’s leverage of the highest kind.
How to Get Rich — The Right Way
In looking for ways to leverage investing to get rich, never overlook the opportunities that are close at hand.
If you find a way to increase either the value or production of a venture — without making a substantial contribution of capital or time — that represents a form of leveraging and technology and globalization are making it easier to do that all the time.