How to Steal Money from the Rich and Amass Your Own Riches

 How to Steal Money from the Rich and Amass Your Own Riches

With pension plans in limbo, unemployment on the rise, and the widespread belief that no matter how diligent you are, your expenses always seem to outstrip your income, it's hard not to be amazed.

Do you need an answer? Then get rich off of other people's money!

So, how exactly does this work, and how exactly will it bring you wealth?

Provide me with an actual, working example. I bought an investment property in Middlesbrough around a year ago, and my friend Mike did the same. I used "Other People's Money," while he used his savings.

Mike prefers to play it safe. Very cautious and likes to take things easy, despite being a pleasant guy. Since he would not be reliant on the income of his tenants to cover his repayments, he reasoned that buying the property outright with cash would reduce his risk. The problem is that he wasn't even trying to win; in fact, the very definition of "never win" is that one never tries to win.

We can compare Mike's cash deal with my "Using Other People's" deal and see how they stack up as investments.

Mike took out £100,000 from his savings account, which was already earning about 5% annually, and was fortunate to find a tenant the very next day. So, he was making around £500 monthly from his investment from the very first day.

My share of the cost of the apartment was going to be around £430 per month with an interest-only mortgage, and I borrowed 85% of the money to buy it. Moreover, my first tenant, who also paid £500 per month, didn't come along for another two months.

So, Mike made £6,000 in the first year, which left him with about £3,600 after taxes (since he didn't have any outgoings like a mortgage to reduce his tax bill).

Now, as for me, my rent income was barely £5,000 during the two months that I had a "void" with no tenant. I appeared to have lost £160 in revenue on balance, but I didn't owe any taxes because my mortgage payment was £5,160 per year. I would have actually made an extra £840 in revenue if I had had a full year of tenancy.

But now let's take a look at our joint capital gains.

Last year, Mike witnessed a 10% increase in the value of his property, despite only earning 5% in his savings account with his £100,000 investment. With his own money, he was able to double his investment in real estate and amass around £10,000 in equity, which is equivalent to a 10% return on investment.

Even though I am a tightwad who hates to part with money—especially my own—the value of my property went up by 10%.

My initial investment of £15,000 yielded £10,000—a 67% increase—because I had only spent 15% of my own money and 85% of other people's.

My original investment of £5,000 would have yielded around £10,000, or a 200% increase in capital, had I been able to secure a deal that required only a 5% down payment.

Tell me what this means. So, Mike would need an additional £900,000—or one million—of his own money, which could have been earning at least 5% in any old savings account—if he wanted to build a portfolio of ten such houses.

Alright, Mike could have made about £36,000 a year after taxes if he had purchased ten more fully-rented houses, giving him a return on investment of 3.6%. His initial investment would have yielded £100,000 (or 10%).

So, what if I were to purchase nine more of these properties, but this time with a significantly larger sum of money from "Other People"?

Well, in addition to the other people's money (£950,000), I would have had to put in £50,000.

I would have made about £8,400 in nett revenue, but my £50,000 investment would have yielded about £100,000 in increased equity, or a 200% return, if the value of all my properties had increased by about 10%.

I could have taken out around £85,100 to reinvest or buy a few luxuries (my choice) after three years, and I would still have around £127,650 in equity (plus my other house deposits) if I sold four of those properties and assumed a 10%, 5%, or 5% growth.

What you must keep in mind is that I have, primarily through the use of other people's money, actually created this additional £85,000 in cash and the remaining £127,650 equity.

If Mike had invested his entire million dollars along with twenty million dollars from other people, he could have made a fortune.

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