So I found this question online that I think is brilliant, it's totally worth
making a video about. The question is, why are rich people always borrowing money?
I would explain to you why rich people go into debt and borrow money and to do
that, you got to understand first of all that there's an opportunity cost to
everything in life like what am I foregoing with the choices that I'm
making? So for example, why would a rich person borrow money? I want to give you
an example right now. I'm doing this real estate deal right now, it's a commercial
deal, this commercial deal needs about a million dollars to get off the ground
and then it's gonna make me about a million dollars every single year like
would you do that deal? Totally, you would do that deal. If I showed you the numbers
on this deal you would do this deal. This is a deal that I need a million dollars
and then I'm gonna.. So I can either put in a million dollars or I can borrow a
million dollars. Well, if I borrow that million dollars and let's say it's at
10% interests then that million dollars gonna cost me $100,000 a year but guess
what. Even though that costs a hundred
thousand dollars a year, what am I making a year? A million dollars so guess what.. I
don't have to put up a million dollars but I get a million dollars and the cost
of it, it's a hundred thousand dollars so check it out. Why are rich people always
borrowing money? It's because the question is, it comes down to a
magic word called arbitrage. Now don't you now, I want you to tune in, this is
really important. Arbitrage is the Delta or the difference
between what you're earning and what the money costs so for example in the
example I just gave you, if that money cost me 10% but I'm making a
100%, the difference is 90% so why would I put out a million
dollars when I can borrow it so cheap and make the difference of nine hundred
thousand dollars? So at the end of the day, when do you just pay something off
or when do you borrow money, well, it all comes down to that
arbitrage shows up in the form of what's called the cash flow so for example
here's another way of looking at it.. Let's say I want to buy a real estate
deal and it requires me to put a small amount of money down but I'm gonna
borrow this big loan against and that big loan is gonna cost me
$1,000 a month. I just went into debt, I borrowed money, it's costing me $1,000.
Some of you are like, dude, why would you ever do that? Who wants an
extra thousand dollars in debt? That seems crazy, right? Guess what I'm gonna
do with that house. I'm gonna rent it out to a nice friendly couple that are gonna
pay $1,500 a month and every month, they're giving me $1,500 and every month
I have a liability of $1,000, $1,500 in, a thousand out. What's the difference? Well
the difference is $500. I've done so many deals where the cash flow is $500 a
month and I want to ask you.. What could you do with an extra $500 a month? Would
that cover minimum payment on a credit card bill? Could that get you out of debt
faster or could it cover your car payment? Could it do a million
different things? Could it send you to Disneyland? Could I buy you lunch for the
next two months? Dude, $500 a month for a lot of us,
for average normal financial people, that's a really big deal so in real
estate, I created my wealth because I borrow money. I didn't have the money to
buy a house but the bank was willing to loan on it so I used the bank's money,
the bank gives me money 3% 5% 6%. Dude, that's cheap. So if you can find the
right business or the right real estate or the right whatever or you can get a
higher amount, the arbitrage there and something at cash flow, five hundred
dollars a month. I paid one thousand, I received $1,500. Now
I get it, you're watching they're thinking, but Kris, there are risks. Like
what if the house goes unrented? Well, you're right, I'm gonna have $1,000
payment and, oops, no money came in. Or Kris what if this, Kris what if that?
You got to write down all those what if's and you need a business plan. For example,
when I do a house I do a lease option, it's a very special type of seller
financing deal or I'll put a family in a home and that family actually they won't
eventually buy that house so they're gonna give me $5,000 up front
non-refundable and then they're gonna give me $1,500 a month and I paid to make
a thousand a month. Well I got five thousand dollars sitting in the banks.
Now five thousand dollars ahead, that's a buffer that gives me a margin of safety.
Dude, why do rich people borrow money? Dude, I was poor and I borrowed money and
it got me ahead. Now that I have more money, do I just
want to buy everything cash? No. Why? Because it actually cost me more money.
As long as people are willing to give me money for less and I can invest that
money and make more then I'm gonna invest with their money, they're always
gonna require I put a collateral or some amount of money but I'm usually gonna
borrow as much of theirs as possible for the same reason that rich people do. Why?
Because I want to make money with other people's money. If I showed you deal
worth a hundred thousand and you can borrow the money from the bank and
create five hundred dollars a month the cash flow, would you do the deal? Dude, I
like you, you should subscribe to the channel, check out some of the other
videos and for sure come visit me on my website where I can fast track what it
takes for you to get that money, put it to work and make the difference.