Learn ROI to Make More Money from Your Investments!A way to learn ROI a little better is to look at examples in more realistic and larger terms. You want to be wealthy, so you want to think in larger terms as it is, and you can't get much larger or realistic than real estate as an example. In real estate, there are several ways to invest in order to make money - usually a lot of it. This is why you want to learn ROI! One way is to buy a property and sell that property for a profit. Well, properties don't come cheap and not everyone has a lot of money to spend on a home. Thus the reason for a mortgage - borrowed money. So, what happens when you initially buy a property? Do you pay cash for the property, say $200,000? Of course not. No, you use a form of leverage called borrowing other people's money, in most cases, the other people being a bank, financial institution, or a private investor that backs the loan. Remember, ROI = profit/personal investment! Your personal investment means the amount of money that comes out of your own pocket or the initial investment made out of your own pocket plus the total interest paid on the borrowed money. If you turn around and sell that house in a year for $300,000.00, yes, you would make less than $100,000 profit since you have to pay back some interest and payments on the loan, but your actual return on investment is very high. In fact, if you pay zero down, your return is over 1 million percent! Do you see where I’m coming from with this. That $200,000 was never yours to begin with and you only paid back a small portion of it. Subtract the interest you paid back from your profits and divide that by your initial investment, and you have just learned how to use Other People’s Money as leverage for you, even if you didn't pay anything down on the property! As you learn ROI a little more, you will see the importance of using debt to your advantage. Debt can be a wonderful thing if not abused, as most people throughout the world do on a daily basis. There are things that borrowing money should not be used for or should not be considered as an investment or an asset when you learn ROI. Purchasing an automobile is not an investment unless you are in the business of selling cars for profit. Purchasing furniture is not buying an asset. Furniture depreciates much too quickly, unless of course you are in a furniture selling business. Same with purchasing a house for your own residence. If you are not making more money on a home than you are paying out each month, it can not be considered an asset for you. It is a liability as you will see when you learn ROI. I hope you see the point I'm trying to build in your mind as you learn ROI. It is encouraged to borrow if that borrowed money is going to help you (or provide leverage for you) purchase assets that will make you money (either on resale or with cash flow). Either form of income will provide a great return on investment over time.
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