By Tom Wheelwright, ProVision (FYI this is the firm I use for my Tax Strategy)
Most of us are raised to believe that money is scarce. The fact of the matter is that there is an unlimited supply of money.
How Can There Be an Unlimited Supply of Money?
The amount of money in the economy – the supply of money – changes each and every day. Some days there is a greater supply of money and some days there is less. This is a basic economic truth.
The supply of money in the economy is a function of the amount of borrowing and lending that goes on at banks and other financial institutions. When there is more lending and borrowing going on, the money supply gets bigger. When there is less lending and borrowing, the money supply shrinks.
The Federal Reserve controls the money supply primarily by raising and lowering interest rates. As interest rates rise, fewer people borrow money and the money supply shrinks. The opposite happens when interest rates fall.
For you, this means that as long as you are borrowing and investing, your money supply is growing. When you borrow money to invest in real estate or your business, you are leveraging your money. This increases your money supply.
The Abundance Zone
There is a tremendous multiplier effect going on with your money as you continue to leverage and continue to invest. The result is that you can have as much wealth and as much income as you can imagine.
Let me give you an example using one of my first deals.
My nephews, who form part of my real estate team, found a property with a cost of $300,000 and a value of $450,000. The catch was that they found it on a Friday and we had to close on Monday.
On Saturday morning, I was a little discouraged because, having just made a down payment on another property, I did not have the cash or the credit line available to me to make this $300,000 investment, even for the short time it would take to get it refinanced by the bank.
As I thought about this problem, it occurred to me that I was experiencing a “scarcity” mentality. In other words, I was only looking at my own resources and not looking at the bigger, “abundant” picture.
When I started looking at it from a “how can I do this” point of view, it became clear that I just had to find the $300,000 some other way. I began by making a list of everyone I knew who might have cash on hand and would like to make a quick dollar by lending it to me at a high interest rate.
Then, I began calling the people on my list. My goal was to raise $300,000 that morning. I was willing to pay 24% interest on the loan, because it would only be for a short time and the value of the property would more than make up for the interest payment.
The first person I called said he would have to get back to me, because he had to check on his resources. The second person I called said he would do it. Just get him the papers and the information and he would arrange for the money first thing Monday morning. This entire transaction took up about an hour of my time on Saturday morning and another hour or two on Monday.
The Results
The bank lent me 80% of the value of the property which came out to $360,000.
When I paid back the private loan in 60 days, I paid $12,000 in interest.
After paying back the private loan and interest, I got cash out of the deal of $48,000 ($360,000 bank loan proceeds – $12,000 interest – $300,000 private loan)
I had equity in the property of $90,000 ($450,000 value – $360,000 bank loan).
I owned a property worth $450,000 and I had no money of my own in the deal.
Get out of the Scarcity Zone
You may be tempted to think that this could never happen to you. You could never find a deal like this and could never find someone to provide the loan for the deal. If you think this, you have just entered the “Scarcity Zone.”
I encourage you to get into the “Abundance Zone.” The Abundance Zone is where everything is possible. And you make it happen.