Similarities between IBC (the infinite banking concept) and real estate. (Part 3)
Many have quoted Albert Einstein as saying that compound interest is the 8th wonder of the world. If you go to quoteinvestigator.com you will find that there is no record of him ever saying that. I agree that compound interest is a great tool. However, I would argue that compound interest is a red herring to pacify the low and middle class into believing that they are amassing wealth. The fact of the matter is that rate of return and compound interest pale in comparison to liquidity, velocity, and leverage. I’ll explain.
Real estate has had average growth rates of about 3% annually over the last 100 years. That doesn’t seem like that great of an interest rate, yet why do so many people jump at the opportunity to purchase real estate? It is the ability to leverage such a large asset with a small down payment. It is also the ability to have full control over a large asset. Here is an example, there is a pot of water on the stove that is 210 degrees Fahrenheit, what do you have? Just a pot of hot water. What happens if you raise the temperature a little over 1%? You have boiling water; you have a force strong enough to move enormous locomotives. You have great power just by adding a small amount of energy.
Real estate investors have partially come to realize how banks make money, they use a small amount of money to leverage a property and then when they have equity in their property, they take that equity and place it as leverage in another property. Taking the same money and recycling it is called velocitization and banks do it all the time by loaning money out then as those payment start coming back in, they use those same exact dollars for another loan.
How does the infinite banking concept relate?
- Your rate of return is not very good
- You don’t care because the volume of interest that comes back to you is far more important than the rate of that interest. (Just like injections, rate is far less important than the volume of an injection).
Thank you again for reading this email, please feel free to reach out to me if you have any questions. May God bless you, eternally. -Shawn
