Kevin breaks down leverage as a principle—not a scary four-letter word—showing how everyday investors can “partner with momentum” to build wealth faster and safer. Using baseball and waterslide analogies, he reframes leverage as using existing systems, people, and financing (like the 30-year fixed mortgage) to multiply results. He distinguishes bad consumer debt from principle-based leverage, walks through the math of leveraged returns, and shares on-ramps like house hacking, refis/HELOCs, and the “ROI Refi.” The episode closes with guardrails for low-risk, data-driven leverage and micro-wins to put the ideas into motion.
00:00 – Partnering with Momentum
Baseball analogy: aim for singles, harness the pitcher’s energy; leverage as momentum you can use.
02:23 – Leverage in Everyday Life
Employers, parents, and tech tools—how we already partner with existing assets to amplify outcomes.
04:29 – The Waterslide Analogy
Riding on engineers, builders, pumps, and physics; American business runs on leverage too.
06:47 – Debt vs. Leverage
Why consumer debt is harmful but asset-backed leverage can be beneficial; nuance beats slogans.
09:10 – The 30-Year Fixed Superpower
U.S. mortgage structure, amortization, stability; Dave & Holly’s portfolio growth via refis/sales.
11:29 – The Math of Multiplication
$250K all-cash (20% total ROI) vs. five financed properties (100% total ROI) over 5 years at 5% appreciation.
13:48 – Growth Phase vs. Payoff Phase
Use leverage to build, then de-leverage later; younger investors can accelerate timelines.
16:11 – Easier Entry: Your First Home
FHA example from Steve; equity stair-steps over decades; house hacking with a basement/ADU.
18:33 – Interest Rates: Use, Don’t Fear
Rates reflect risk; fixed vs. variable, 1980s context, and why we stick to fixed terms.
20:52 – Is Your Primary Residence an Investment?
Equity you never deploy is a locked safe; turn it into an investment by putting equity to work.
23:19 – The Worst “Investment” Framed
Thought experiment: why passive, locked-up home equity underperforms as a “savings plan.”
25:37 – Creative On-Ramps
Live-in flips (with caveats), duplex/ADU, family co-ventures; Lisa’s casita deal structure.
28:01 – The ROI Refi
Reframe refi costs as an investment; example of a 20% annual return via monthly payment savings.
30:15 – Principle-Based Leverage
Data > emotion; cash flow, cash-on-cash, reserves; when (rarely) a small negative can make sense.
32:41 – Micro-Wins & Action Items
Identify leverage you already use, find a positive leverage step, and reframe your primary residence.
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Chapter four, the power of leverage. General principle, seize given advantages to maximize results while minimizing effort. Partnering with momentum. In the game of baseball, getting a hit no matter how small harnesses the pitch's momentum for the batter's advantage. Despite being viewed as an adversary by the pitcher, the batter in essence forms a partnership with them to attain their goal. The pitcher's responsibility is to hinder the batter from utilizing their momentum.
Bat speed and swing trajectory are pivotal to the batter's success. So the harder the pitcher throws, the more challenging it is for the batter to optimize their bat speed and swing trajectory. However, if there's no pitch, there's no chance for the batter to harness the physics to meet their target. Simply put, batters leverage pitchers. So how can a batter mitigate the pitcher's impact? They have two options. Number one, they harness the energy imparted to the ball by the pitcher
hoping that their bat timing, speed and swing trajectory align perfectly or number two, they drain most of the ball's energy through a bunt. If you're familiar, a bunt involves the batter lightly tapping the pitched ball without a full swing, aiming to make it tougher to field and secure a transient advantage. A bunt dissipates all the physical leverage the pitcher added to the ball, resulting in a low short distance travel of the ball. It's the polar opposite of swinging for the fences.
However, most batters favor leveraging the pitcher's momentum for their benefit. If the batter's focus is merely on making contact with the ball, the probability of success significantly escalates. By aiming for singles instead of home runs, the batter can leverage the pitcher, minimize risks, and boost their success odds, all while minimizing some effort. This is a crucial lesson that leverage is essential in baseball, but how you wield it can dictate your success.
However, our primary focus today isn't on baseball. More generally, consider leverage akin to momentum, a force you employ to foster further success. We've extensively discussed the pitfalls of swinging for the fences, but some individuals tend to play it too safe and bunt every incoming ball. If you navigate your life, particularly your financial life, without applying any leverage, you'll lack momentum and thereby progress will be limited. Hence, we wish to reshape
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your perception of leverage. Every one of us applies leverage in various aspects of our everyday lives. Employers leverage the time and expertise of their staff to operate their businesses. Individuals leverage innovative products that streamline their daily routines. Parents leverage the skills of educators and tutors to provide a superior education for their children than they could do alone. Leverage is essentially forming a partnership with existing assets, even if those assets are owned by others and doing so for your benefit. And in doing so,
decreasing some of your effort. Your capacity to generate momentum as an individual is significantly amplified when you harness the people, tools, and resources around you, culminating in a result greater than the mere sum of your contributions. Free falling. Have you ever experienced the thrilling descent of one of those steep free fall water slides?
You know, the ones where you ascend ramps and flights of stairs lie flat on a small water bubbling platform, then inch your body over the precipice to hurdle down six or seven stories of water slide at a dizzying 60 miles an hour before splashing into a mere six inches of water. Let me share a story. One day as my family and I queued up to ride the free fall water slide at our local water park, I started connecting some dots to my daughter's amusement and slight annoyance.
I didn't keep these thoughts to myself with palpable enthusiasm. began, imagine this, someone dreamed up this freefall slide concept and commissioned physicists and engineers to calculate and actualize its feasibility. These professionals had to crunch the numbers, conduct tests, draw plans and build prototypes.
Once they determined what was functional and safe, they had to figure out the exact drop degree and the required height of the barriers to prevent riders from flying off the slide. My monologue continued in this vein until my daughter playfully interjected that she wished to, you know, genuinely enjoy the water park experience. in other words, zip your lip, dad. We shared a laugh, but as she gleefully plummeted down the water slide, my thoughts pivoted to the functioning of the pumps that recycled water from the base back to the top of the slide.
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Here's the crux of the matter when you descend that slide. You're leveraging the collective wisdom of the experts and the owners, the materials used in construction, and so much more to achieve your intended result. Analogously, American business operates on the principle of leverage, capitalizing on someone else's money, expertise, and time. Leverage essentially implies maximizing the benefit derived from a particular resource, and we utilize leverage every single minute of each day.
However, many of us harbor a somewhat negative conception of leverage, particularly in the context of finance. We aim to help you reorient this perception. Leverage and the Peril of Debt. The term leverage may elicit diverse reactions. While some of us might perceive it positively, many Americans associate financial leverage with the so-called quote unquote perils of debt. We've been conditioned to believe that debt or leverage signifies irresponsibility.
borrowing money that you don't currently have in your account should be circumvented at all costs. At least, so goes the common wisdom. We concur with this sentiment to an extent, especially if it pertains to acquiring consumer debt and living beyond one's means. It's a widely accepted notion that spending money you don't have, essentially borrowing from a lender, is a perilous course of action that could jeopardize your credit rating if you're unable to repay promptly, or worse, unable to repay at all.
The root cause of this belief is the detrimental impact of compound interest on a typical consumer. Compound interest, when associated with debt, works against you around the clock, making you shell out more for something in the long run than you would have paid if you'd paid upfront. Minimum payments on a credit card for a purchase beyond your financial capacity can essentially confine you in a debt prison. But what if we altered the context to real estate and business? Could leveraging debt resemble the thrill of plummeting down a freefall waterslide?
Imagine being able to harness available resources to amplify your wealth, gather momentum, and let financial inertia prepare you further, faster, just as the water slide does, instead of incurring debt with the conventional consumer mindset. Several well-known personal finance gurus have built their entire brand on a core message advocating a debt-free lifestyle, including home loans. These experts, dissuading their audience from loans, are often selling products to sustain their livelihood.
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The tangible products might include books, live events, paid educational courses, applications, tools, and recommended local service providers. However, we believe their real product is their message. Selling a message necessitates a hard line stance, void of nuances, especially when the message is as binary as quote, all debt is bad. We'd like you to consider that this mindset can obstruct the average person's wealth building journey. In our perspective, debt and leverage are distinct
concepts. Debt with its negative connotations corresponds to consumer debt, credit card expenses, personal loans, and similar liabilities. Leverage, on the other hand, we propose is beneficial debt. It's about employing resources to bridge the gap and expedite your journey toward your goals. It's about capitalizing on the efforts, resources, and expertise of others for your personal and financial advantage. For those questioning, but what about
Fill in famous guru's name who advocates purchasing only what I can afford in cash. Our response is if a debt free lifestyle suits you. Excellent. Awesome. High five. Go for it. Live your best life. However, this mindset might not serve you well when venturing into wealth creation through real estate investment. Even the conservative low risk version we promote with Moneyball real estate. There's a reason those gurus are renowned personal finance personalities and not
real estate investment experts. Real estate application of principle. Utilizing leverage in the form of 30 year fixed mortgages and real estate investing is the quickest way to grow your income producing portfolio and your long term net worth. The advantage of the US economic system. Regardless of the current ruling political party or the sitting president, the strength of the US economic system is powerful.
How often do we pause to consider our good fortune or acknowledge the array of assets available to us, including those that aren't immediately apparent? One such hidden gem is the 30-year fixed mortgage. This tool, boasting some of the most favorable terms, is one of the most potent forms of financial leverage. Warren Buffett himself has praised the 30-year mortgage as one of the world's finest financial instruments. The significant wealth accumulation of many middle-class Americans
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who've only ever purchased one primary residence testifies to his value. Consider our clients and personal friends, Dave and Holly, who inherited a home in Salt Lake City from a grandmother. She had only ever owned that one home, bought it for tens of thousands of dollars. However, over the years, its value soared to hundreds of thousands of dollars. Using the proceeds from the sale of this property, Dave and Holly were able to invest in their first property with Dunfee Real Estate.
Despite their inheritance not being enough to purchase an investment property outright, it served as a sufficient down payment, allowing them to secure a 30 year fixed mortgage. Over time, they were able to grow their portfolio from one to five properties by leveraging refinancing and sales. Despite each property being mortgaged, Dave and Holly have built substantial wealth that continues to increase, all thanks to leveraging real estate, beginning with a single injection of capital. The benefits of the 30 year mortgage are hard to beat.
even for large profitable companies. You're generating hundreds of thousands of dollars in profit from a single property over time, yielding four to five times the amount you invested. All this while paying a small fixed interest rate over 30 years with a fixed amortization schedule. That's remarkable. When people opt for financing tied to certain indexes, they're subject to market fluctuations. However, fixed loans offer stability, which is a great advantage. Essentially,
Leverage is a collaboration with the existing power of the US economic system, where regular people can qualify for loans based on and collateralized by one of humanity's basic needs, shelter. Without leverage, the middle class in this country would be substantially smaller, if not practically non-existent. How else is the average working person supposed to afford a house before retirement age considering today's prices?
While companies may not receive terms as favorable as those for home buyers, leverage remains a prevalent and recommended tool in the business world. Venture capital essentially provides private leverage for startup companies while going public as a form of leverage for established companies. Banks leverage by lending out customer deposits and much more thanks to the current Federal Reserve model. Creators use crowdfunding platforms like Kickstarter to fund production. Each of these methods is a form of partnership with external sources
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to gain additional funding or leverage to achieve a higher objective. If successful banks and businesses can leverage to generate profit, why shouldn't we leverage it to create wealth also? Yes, we hear your concerns. Despite our discussion on the difference between leverage and debt, you might still equate home loans with negative debt. Loans equate to debt, isn't that risky? You may ask. Admittedly, there is some risk involved. However, if managed astutely,
You can leverage home loans to mitigate these risks and benefit you. Moreover, if it's in rental real estate, you aren't even the one repaying the loan. Your tenants are. It's a win-win scenario for both you and the lenders entering into the loan agreement with you. Leverage accelerates your income replacement rate. Here's a simplified hypothetical scenario to illustrate the power of leverage in real estate versus traditional investments. Suppose you purchase a
$250,000 property outright in cash. After five years, if the property value appreciates at 5 % per year, you'll be able to sell that property for roughly $320,000. Accounting for $20,000 in commissions and expenses, you'd have made a $50,000 profit over those five years. That equates to a total return on investment of 20%, not including any additional profit from sources like rental income and tax savings.
That's an amazing rate of return for a cash purchase. Now consider a different approach. What if you took that same $250,000 and instead of buying one home with cash, you use it as a 20 % down payment or $50,000 on five separate properties. The bank would provide the rest of the $200,000 you need per property with a 30 year fixed conventional mortgage. If each property appreciates at the same rate of 5 % per year,
Over five years, you could sell all five properties for the same $320,000 each. After subtracting the same $20,000 in commissions and expenses and what you owe to the bank, you'd walk away with $50,000 in profit per property. Excluding the accumulated rental income, that's a $250,000 profit in total. Suddenly, thanks to leverage, your return
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is 100 % on the same initial investment, which is in stark contrast to the 20 % return in the cash purchase example. Same investment, same type of real estate, but significantly more profitable with the use of leverage. We previously discussed that the ultimate goal of replacing your income through real estate is to pay off all the mortgages and own your properties outright. The economic independence of a free and clear portfolio of 10 properties is a dream scenario. However,
Later on in your investing career, you may want to avoid using leverage, but when you're building your real estate in the growth phase of your moneyball real estate plan, the power of leverage is an option you should seriously consider. Younger listeners just starting out in their careers might fear it'll take them a decade or more to save up for a down payment on a financed home. Fortunately, this isn't necessarily the case. Let's explore other significant benefits of leverage and how it can expedite your journey to financial independence. Benefit number one.
simplified access to the world of real estate ownership. Leverage provides a significant advantage by offering an easier initial entrance into the world of real estate ownership. Your first investment could be your own primary residence. If you plan to live in it for a significant amount of time, you could acquire a property with a much lower down payment, depending on the type of loan and current lending guidelines when you make your purchase. Steve here with an example from my own life. I bought my first home in 1996 for $82,000. It was a simple home.
just 975 square feet with one bedroom and one bathroom. It was a beautiful little red brick home, literally with a white picket fence. It also had a wide short driveway into a back entrance that we used as a second bedroom for our two little boys. I was able to secure an FHA loan, so I was required to only put 3 % of the purchase price of the home, which allowed me to secure the property for just a few thousand dollars. Within just three years, our home had appreciated enough that we sold it
and made a profit of $30,000. As someone in my 20s, this was a life-changing amount. By now, my wife and I had a third child and needed a bigger home. With a down payment of $30,000, we were able to purchase what I then considered my dream home. I paid $198,000 for it. Our family's new home was 3,600 square feet, five beds and three baths with a great backyard for the kids.
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I could never have saved the needed $30,000 down payment over 3 years from simply working and saving. Purchasing our first little red brick home by using leverage is what made it possible for us to upgrade to a home more comfortable for our growing family. The beautiful thing about real estate is that it gets better and better over the years. 7 years after purchasing home number 2, my wife and I sold that second home for just over $100,000 more than we paid for.
As I'm sure you've guessed, we were able to use those $100,000 in proceeds to build a custom home. We got to design our next dream home to fit the needs of our then four children and purchased it for $425,000. We lived in that home for 10 years, after which we sold that home for $650,000. Once again, we used our proceeds, more than $200,000, to move into what we consider today to be our final home. At the writing of this book,
It's valued at nearly a million dollars and is the perfect home to accommodate our children and grandchildren when they come to visit. As my wife and I upgraded our homes over the past 27 years, we only used that increase in equity combined with some leverage to create our own little piece of paradise that we call home. It all started with a small one-bedroom brick home, a few thousand dollars and time, all complimented by the power of leverage in the form of residential mortgages. If you're just starting out, you might consider your first primary residence
as your initial investment property. Leverage has the potential to facilitate your first step into that property. If you happen to live in a state or city that permits renting out a basement apartment, you could purchase a primary residence and lease out the basement. This could potentially cover a good chunk of your mortgage using the rental income from your basement renters. A basement apartment paired with the power of leverage and the strategy of a primary residential purchase can provide an incredible start to your journey in real estate.
Benefit number two, interest rates. The power of leverage also shines in the arena of interest rates, which Warren Buffett once referred to as the driving force behind the economic universe. Interest rates essentially reflect perceived risk. When banks offer higher interest rates, they perceive that they are extending riskier loans. Thus, interest rates are typically higher for non-collateralized debts, like credit cards, and lower for collateralized loans, such as those tied to assets like houses or cars.
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Nonetheless, if the collateral for a loan is a depreciating asset like a car, then the loan will attract higher interest rates than a loan backed by an appreciating asset like a house. There are times when certain markets offer particularly low interest rates. If you secure a 30 year fixed loan on a piece of real estate at a low interest rate, your rate remains unchanged regardless of market shifts over the next 30 years. Even with a slightly higher interest rate on a 30 year fixed loan,
wealth creation is still highly achievable. Historical interest rates provide illuminating examples. Did you know that mortgage interest rates reached the mid teens in the 1980s? In 1981, the annual average mortgage interest rate was 16.63%. According to Freddie Mac data, even so purchasing a home in a desirable area at 1981 prices, despite a 16 % fixed interest rate could have led to substantial wealth today.
It's crucial to note that the term fixed variable rate loans also exist where the rate can change during the loan term. Such loans often start with lower rates than fixed loans, but we advise against them due to the risk of sudden unaffordable payment increases. This was a significant factor in the 2008 housing crisis. Interest rates on investment properties are typically higher than those on primary residences because banks deem loans for the house you live in as less risky.
However, these are still loans backed by appreciating assets offering better rates than most other business loans. Despite past economic events, don't let the fear of rising interest rates dissuade you from real estate investments. If you're concerned about higher interest rates, run the numbers. Assess whether the proposed interest rate would still yield a good return on investment, a satisfactory cash on cash return, and a robust average monthly increase. Much more on this in principle number eight. If the returns are still appealing at a higher interest rate,
Moneyball Real Estate still considers it a sound investment. If you missed out on historical low interest rates, the best step is to get involved now. If rates drop in the future, you can always consider refinancing to leverage the lower interest rate to your advantage. Is your primary residence an investment? Earlier in this discussion, we mentioned the idea of treating your primary residence as your first investment. However, this statement is only half true.
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Unless underpinned by key financial principles, your primary residence may not necessarily be an investment. It could even turn into a liability. Americans are frequently told that a house will be the most important investment they'll ever make. Yet the home you live in only qualifies as an investment if it generates returns. For many people, this isn't the case or even the intention when buying their primary residence. When individuals refer to their residence as an investment, they're often considering the property's equity.
which is the difference between the house's value and the remaining principal balance on their mortgage. We believe this view of home equity is flawed. It's a misconception to classify the equity in a primary residence as an investment. In essence, equity in your primary residence is like paper money locked in a safe to which you don't have the key. Although it's yours and located on your property, you can't access the funds that are locked within. Let's step back to break this down further.
the undisputed worst performing investment in America. Let's imagine this scenario. You have a half a million dollars in the bank and a trusted investment advisor managing your portfolio. They've invited you to discuss a new investment opportunity, one which millions of Americans are investing in each month. Your curiosity is naturally peaked, but before revealing the investment vehicle, they outline its key features. Picture this as if you were considering any other investment like a 401k mutual fund IRA or cryptocurrency.
Here are the conditions the investment advisor gives you. Number one, to open this account, you need to contribute an initial sum between two and 9 % of your total long-term investment upfront. This is essentially a setup fee based on every dollar you plan to invest over the next 30 years. Number two, you have limited contribution options, but you can choose your monthly contribution amount. Once selected, it's locked in for the life of the investment. Number three,
You can exceed the elected monthly minimum investment, but you can never contribute less than the minimum, not even in the case of job loss, medical emergencies, a global pandemic or other adversities. Number four, failing to pay the minimum contribution in a given month risks losing all of your contributions to date, regardless of how long you've been investing in the vehicle. Number five, in most cases, around 95 cents of every dollar contributed during the first five years.
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goes directly to the investment company, leaving only 5 cents of every dollar for you. Over 30 years, you'll own less than 50 % of your total contributions. Number six, your money lacks liquidity tied up and inaccessible except through specific loan provisions allowing limited access. These provisions come with numerous hoops to jump through for approval. Number seven, the money in the investment is at the mercy of the market with no guarantees or insurance. Number eight,
Each required monthly contribution increases the principal's risk but simultaneously secures the investment company's position with your money. Number nine, once fully funded, no additional contributions can ever be made again. Number 10, the fully funded investment pays no dividends or income unless you sell off your entire interest in the asset. Number 11,
You must pay taxes annually on the investment during the entire contribution period, as well as on the fully funded investment. These taxes must be paid each year, even though the investment provides no income. Sounds unthinkable, right? Who would invest a half a million dollars in such a venture? Well, surprisingly, 70 % of Americans do. What we've just described is the scenario of someone investing in their primary residence
with no intent to leverage it for further real estate investment or income replacement. Purchasing a primary residence with the goal of building equity without leveraging it is akin to throwing money into a locked safe you can't open. But what if you could change that? What if you could unlock the safe, withdraw some money, and invest it elsewhere? This transformation is when your primary residence becomes an investment, and that is the power of leverage. Even more primary residence creativity.
While flipping properties isn't our usual recommendation because it only brings value if you can complete repairs faster and cheaper than the market, we've seen people who've done it successfully. If you have the means to flip a property, we suggest buying one you can live in and transform it into a desirable single-family residence. You can secure a good deal and a lower down payment since it would be your primary residence. However, be aware that living in a house during renovations isn't for everyone.
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If you need an organized home to function well and stay happy, this option may not suit you. It's also not a suitable strategy if you have pets or children due to the safety hazards that come with renovation zones. Living in a flip house often means giving up certain comforts we take for granted, like, you know, finished floors or finished walls, et cetera. so ponder on that before diving in. Another creative real estate strategy involves purchasing a duplex or a property with an in-law apartment or a rentable basement.
The rent you can collect helps offset your mortgage aiding to saving for the next down payment. Sometimes people call this house hacking. Consider the example of our friend, Lisa, who crafted a unique real estate deal with her parents. They owned a land zone for adding a casita. Lisa, in lieu of a down payment, funded the casitas construction by securing a construction loan. Instead of a traditional bank mortgage, she agreed to pay her parents monthly, buying them out of their home, interest free. In return,
Her parents will live in the house until they're ready to move into the casita in their old age. It's important to know we can't guarantee that any of these ideas will work for you. Unexpected variables can derail even the best laid plans. But if you're looking to get creative, a myriad of different options are waiting to be explored. Use leverage to grow your portfolio. The ROI refi. A cornerstone of the Moneyball real estate strategy involves harnessing your primary residence as an asset to help expand your portfolio.
This is frequently done via refinancing. Refinancing is when you close out your original mortgage after making payments for a while and open a new one, generally to get a lower interest rate or new term, known as a rate term refinance. You can also use cash out refinance when you refinance your home with the aim of extracting some of the equity. Alternatively, depending on the lending environment, you may also be able to access part of the equity through a home equity line of credit, also known as a HELOG.
Refinancing is often seen as an expense because it involves costs such as closing costs that cover the loan officer, the bank, and other professionals involved in the refinancing or the loan process. As we often do, we like to view this through a different set of lenses. Typically, people assess the expense of refinancing costs by determining how long it will take to recoup the amount spent with the money saved on monthly mortgage payments. For instance, if refinancing your home saves you $100 per month on your new monthly payment,
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and the loan and lender fees total $6,000, you save $1,200 per year, meaning it would take you five years to recoup the $6,000 expense. In the context of a 30-year loan, this doesn't seem unreasonable, but what if you reframed refinancing as an investment rather than a cost? Looking at a refinance on an existing property as a way to boost your rate of return shifts the perspective entirely. We'd dub this the ROI, or return on investment, REFI.
If someone trustworthy asked you to lend them $6,000 promising to repay it with 20 % interest, you'd be thrilled, right? This represents a significant ROI. The $1,200 annual savings you may achieve by refinancing a mortgage on an investment property, as stated in the example above, is a 20 % return on the $6,000 you're paying, enhancing the overall ROI on the property.
The $6,000 cost of completing the refinance yields a positive return of at least $1,200 annually, improving the bottom line over the life of the property. We refer to this process as ROI refi because it involves a bit more investment, often added to the balance of your new loan, effectively double leveraging the lender's money to immediately secure a slightly larger cashflow and return on investment.
To calculate your ROI percentage, divide your annual mortgage payment savings by the amount you added to your new loan balance to refinance. This represents a smart use of leverage and is often used by individuals considering refinancing with a focus on income replacement. Principle-based leverage. We emphasize the use of principle-based leverage, which means leveraging wisely. Let data guide your decisions, not emotions.
By data, we don't just mean market research, but also personal factors such as your current financial capacity for monthly out-of-pocket payments, realistic ROI expectations, and the market size for a specific type of property. Remember, taking on leverage means committing to a monthly payment. Therefore, don't stake everything on leveraging a property no matter how attractive the deal appears. Allow us to reiterate this. Don't just leverage something because you can qualify for it.
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This is an advice many gurus won't share with you. An incident that springs to mind involved a wealth creation guru who encouraged the audience to increase their credit limits. Participants were drawn into a competition to see who could get the most significant credit line increase while everybody was in the room. Once successful, they celebrated their new found potential for large scale debt with the guru subsequently coaxing them to purchase an expensive program promising further wealth creation strategies.
That's not principle based leverage and such strategies can leave you shouldering a considerable debt if they fail to deliver. Despite most of this chapter, extolling the virtues of leveraging, we don't advocate for borrowing money and using credit irresponsibly. It's crucial to stay within your financial limits to avoid falling into a debt trap that might be challenging to escape. As a general rule, when leveraging for real estate investments, the rental income from a property should at the least offset the cost of the new payment you've committed to when purchasing the property.
However, in certain economic climates, there can be some merit to tolerate in a slight negative cashflow initially when investing in a property. This is because such a property has the potential to yield tens of thousands of dollars in returns and long-term income. But it's important to remember that this strategy requires patience, discipline, and a long-term outlook. It's a course of action that should only be pursued in specific economic conditions and with a comprehensive understanding of the risks that are involved. Therefore, the choice of property is a
critical factor and you should be prepared to contribute some personal funds into the investment. Furthermore, you should be prepared to shoulder the property's expenses during periods when it's not producing income. If covering these costs would be financially straining, it could lead to unnecessary stress. On Team Moneyball, we firmly advocate for utilizing leverage only after thoroughly evaluating and mitigating potential risks. After all, we maintain a low risk tolerance to ensure financial stability and sustainable growth.
We hope this chapter has highlighted the numerous benefits of principle-based leverage, helping you incorporate it as an effective financial tool on your journey to economic independence. Chapter four, ideas summary. Reframed leverage as a positive force, move beyond financial stereotypes and embrace leverage as seizing advantages to boost results and reduce effort. Think of a batter using the pitcher's momentum to score a hit. Leverage time, talent, skills and expertise. Utilize the resources around you, aligning them with your goals.
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Leverage isn't just a financial tool. It's a mindset that maximizes what you have. Good debt versus bad debt. Differentiate between harmful consumer debt and the beneficial financial leverage, like 30 year fixed mortgages in real estate that can expedite portfolio growth and net worth. Principle-based leverage in real estate. Apply sound fundamental principles to harness leverage wisely in real estate enhancing its power without compromising integrity or stability. Chapter four, micro wins.
Reflect on an area of your life where you have effectively leveraged time, talent, or expertise to achieve a goal. How did it feel? How could you apply the same principle to your real estate endeavors? Have you identified opportunities for positive financial leverage in your investment strategy? Consider the properties or investments where principle-based leverage could maximize your returns. Think about your perspective on debt and leverage. Has this chapter changed your view?
If so, acknowledge the shift as a micro win and brainstorm how you might implement these ideas into your financial strategies.