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In our previous blog, we explored whether leveraging debt is a good idea for the average person. This week, we’ll be seeing how the other half lives.
Wealthy, especially ultra-wealthy people, employ a number of strategies to maximize their potential gains while using as little personal capital as possible. Here are five common debt-leveraging methods rich people use to expand their portfolios and grow their fortunes.
Next to playing the stock market, real estate is the most common way rich people leverage debt. Of course, many of them could simply pay for a house in full with a fat stack of cash. But why do that when they could use that money to take out loans on multiple different properties that could earn back their money and then some over the long term?
For the rich, it’s a lot less risky to take out a mortgage. They don’t have to worry about whether they’ll be able to keep up with payments, so they can focus on the big picture: growing their portfolio with additional properties and the returns they’ll eventually bring in.
Similar to a home equity loan, where your bank lends you money based on the equity you have in your home, margin loans allow investors to borrow money against the value of their stock portfolio.
These loans typically allow investors to borrow up to 50% of the value of any qualifying investments, and they come with relatively reasonable interest rates. However, the more they borrow, the more risk they take on. If the stocks perform well, they can multiply their gains. But if the market drops, they may have to repay the loan at a much bigger loss.
Margin loans are a win-win for brokerages because even if the borrower makes a profit, they still collect interest. For investors, they’re an effective, albeit risky, way of leveraging their capital to maximize their buying power and potential gains.
If you’re an aspiring small business owner, chances are you’re going to pump as much of your personal savings into it as possible to get it off the ground, along with any donations from generous friends and family members.
If you’re wealthy, your game plan will likely look a bit different. Instead of investing your own money, you’ll take out a business loan and leverage that debt to grow the operation, expand its profit potential, and make the money back on the loan and then some.
Acquisition financing is another trick rich people use to invest in businesses. Rather than shelling out their own money, they leverage debt to buy a business, typically using the acquired company's assets to secure an acquisition loan. That way, they get the perks of owning and investing in a business without the hassle of laying the groundwork to achieve profitability.
Hedge funds are for the big dogs, typically requiring hefty minimum investments, and they come with a high amount of risk to match. When a wealthy investor puts money into a hedge fund, it goes into an investment pool. This pool is then managed by either a hedge fund manager or financial firm, which will use a variety of risky strategies (leveraging borrowed money, options, futures, etc.) to chase returns that can multiply their investments by two, five, or even ten.
Luckily, you don’t have to be mega-rich to build wealth. You don’t have to win the lottery or build a 7-figure business from the ground up.
You can monitor every aspect of your finances, reduce the interest you pay by up to 70%, and create your financial future right from your computer with the Money Max Account (MMA). This award-winning interest cancellation software helps everyday earners calculate risk and leverage debt based on their current financial situation.
MMA brings all your financial accounts and information into one secure location, giving you a comprehensive snapshot of your finances. Then, using advanced banking algorithms and strategies, it calculates the fastest route to paying off your debts and achieving your financial goals and guides you step-by-step on how to get there, like a financial GPS.
Along the way, MMA will identify any idle money in your accounts and suggest where to move it to best support your goals, allowing you to work toward your future without making any drastic changes to your lifestyle.
With this streamlined system, you can pay off your 30-year mortgage and all your other debts in as little as 7-10 years, freeing you up to explore wealth-building options like investments, real estate, etc.
Thinking about taking out a second mortgage on a rental property? Simply enter the cost and terms of the mortgage into MMA, and it will tell you the exact date you’ll be paid off. If you decide to pull the trigger, the system will guide you to your new destination, like a financial GPS.
Curious to see how MMA can help you build your future? Fill out the form below to get in touch with one of our financial experts and set up a free consultation where you’ll learn the ins and outs of the program and just how much time and money it can save you.