What Is Money? Part 3.

    Here it is, the last segment in this three part series about the nature of money. The point of the series has been to introduce the fact that when the way you look at money changes, your ability to use it changes as well.

    Money is traditionally looked at like something that allows us to consume. We go to work to make money so we can spend it. In essence, we are trading time for money and then money for things. Like most things in life, we do what we are taught. Many of us never spend a moment questioning if the way we are taught is the best way, or even if there is a different way at all.

    The examples I’ve given in this series have primarily compared money to apples. Apples are good for consuming, but they also contain seeds. When seeds are planted, they can grow into new apple trees. These trees provide more apples than the original apple. This process exemplifies compound interest and is a powerful, powerful concept.

    I’d like to share a spreadsheet with you that illustrates just how powerful compound interest can be.

    In order to access the spreadsheet, please go to the home page of and place your mouse cursor over “info”, then select “tools”.

    You should find a page full of different calculators. The spreadsheet we will be using is the first tool on the page. Please select the appropriate format (excel or numbers) and download the sheet. It should only take a few seconds.

    Once it’s downloaded, you should be looking at a spreadsheet with several boxes on it.

    The first box of note is labeled “initial investment”. In this box you will fill in an amount of money you have theoretically saved to invest. Choose a number that represents the very best you can do after 4 years of hard saving combined with money you now have available. You will be using this money to purchase an investment property, all cash.

    The next box is labeled “Mortgage%”. Choose the amount you will borrow against your initial investment. So if you put $100,000 in the first box, choose 75-80% for the mortgage%. This will represent the loan you take on the property you bought with the money in box one.

    You’ll see “Mortgage Value” populate in the next box. This is the amount of money you got back from the bank after taking the mortgage. This is also the amount you will be re-investing.

    Under the box “Investment Return%”, enter the percentage you believe you can earn on the money you got back from the bank.

    The next box, “Monthly Return Profit”, will tell you what your monthly passive income is on the money you got back from the bank that you have re-invested.

    Under the heading “Monthly Expenses”, fill in what you anticipate your expenses to be on the property you bought with your initial investment. If you’d like help figuring out these numbers, please see my article at:

    Crunching The Numbers-The Quick Way Analyze An Investment

    Once you’ve got these numbers punched in, you should see your total monthly expenses at the bottom.

    Enter the amount you expect to receive for rent in the “monthly rent” box.

    You’ll now see “Monthly Rental Profit” populate with the expected cash flow from your rental property.

    Under that, you’ll see the amount you’re making per month on the money you invested once you got a mortgage on the house and pulled your money out to re-invest.

    These two streams of income will be added together for a total in your “Total Monthly Profit” box.

    Ok. You should be all caught up. Now for the fun part!

    In this example, we are going to keep things as simple as possible. We are assuming you take 100% of your total monthly profit, and apply it all directly towards the principal of the mortgage you took out on your investment property. This means each month you taking all your profit and using it to pay down your loan.

    Under the box labeled “Payoff Period”, you’ll see how quickly you have paid off your 30 year mortgage. It should be quite a bit less than 30 years!

    Now that your property is completely paid off, your next step is to take out another mortgage (See the next box to the right, labeled “Mortgage #2”). Make sure the applicable boxes are all filled in. The idea is you take all the money you just pulled out in Mortgage #2 and re-invest it again, earning yourself additional monthly return profit. This new, larger monthly return profit is now combined with your original amount and put directly towards the principal of mortgage #2. As you can see under “Payoff Period”, you pay off Mortgage #2 significantly faster than Mortgage #1 was paid off.

    Once Mortgage #2 is totally paid off, you repeat this process over and over.

    Click on the bottom of the spreadsheet where you see “Sheet 2”

    Sheet 2 is a table that shows every single subsequent mortgage as you repeat this same, simple process.  If you find the cumulative years column, go ahead and scroll down as far as you’d like to go. Once you find the year you want to look at, check out your monthly income….

    If everything was entered correctly, this is how much money you can expect to be making per month in passive income from your original investment. When I enter in conservative figures for my own situation, I find myself making over $50,000 a month, from ONE investment.

    Now let me ask you something, what if you did this with 4 different investments over your life span? What about 10?

    Each of these “Initial Investments” represents apples you planted instead of ate. They are trees that grew to provide more apples, and you planted those apples as well.  As your money was re-invested, paying off each mortgage faster and faster, the compound effect of your invested money really began to shape up.

    If you’d like to see how this looks in graph form, please see the graph to the right of the table on Sheet 2. It’s truly incredible how fast wealth builds when you start to see that graph get steep.

    Now, as an investor, your goal is to do whatever you possibly can (within reason and the law) to move the steep part of that graph further to the left! You want to access the part of this process where money starts pouring in much sooner, rather than later in your life span.

    THIS is why it matters that you don’t eat all your apples. THIS is why I’m so motivated to make, save, and invest my money. The temporary joy I get from an apple now will pale in comparison to the orchards I’m going to have in time. Orchards I can leave to my children, and to their children. Possibly to the Greene family for all time.

    Once you understand how powerful your money can become when you put it to work, it becomes much easier to do so. I’d like to encourage all of you to start planning for your future, and to ask yourselves what’s really important in your life.

    Orchards of trees are yours for the taking if you’ll just start planting!!

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    1. I have a question about buying a real estate investment( flipping )with a partner. How do you recommend that we buy a property? Would we buy the property as an LLC? Thanks for the information. I really like your articles!

      • Hey Hernan,

        That sort of depends on a lot of different factors, and a tax professional would be more qualified to answer that. The method I see most people using, is they form an LLC and use it to flip properties over and over.

    2. David,

      Quick question. In your example for property 1, you pay cash, but then take out a cash-out morgtage on the property to buy a second property. Doesn’t this leave you with essentially the same as if you took out a regular mortgage in the first place? Why not just buy 2 properties with 2 conventional 25% down mortgages? Am I missing something. Thanks for the clarification!


      • Hey Collin,

        When you buy the first property cash, you are adding value to it through the rehab. Then when you pull your cash out, you get a bigger percentage of it back than if you had just put a down payment and paid for the rehab yourself.

        Doing it this way, commonly called the BRRRR strategy, allows you to keep your money buying new houses rather than running out by making down payments.

        Let me know if you’d like and I’ll link you to another article I wrote detailing how. I’m hoping to write a book on this topic!

    3. This is a very interesting strategy and I appreciate the blog post. However, how realistic is it to get a consistent 12% return on your capital? Do you have an posts that describe how to get such a high return?

      • Hey Mariano,

        12% is pretty conservative. That’s what I get on houses I put a down payment on. When I use the “BRRRR” strategy, it’s not uncommon to get returns of 75% or greater.

        Have you looked into this yet?

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