Geometrical growth is something not seen in stock, which knows only linear growth. Geometrical growth is much, much faster than linear. If you are one who takes advantage of geometric growth, you will surely be rich. In fact, this is the only way to be rich. Geometric growth separates the rich and the poor, who use linear growth.
This secret force is the force of borrowed money. Borrowed money is the surest way to become rich. Why is it that the middle class and poor have such little money? It is because they spend their lives fearing debt. Unfortunately, nobody ever taught them that there is such thing as good debt.
The richest people of all time built their fortunes with good debt; good debt is the force behind every one of their fortunes.
You will only need twenty-percent of what you buy in this world. Sometimes, you do not need anything. The bank will cover the rest.
When compared with stock investment, the advantages become quite clear. Twenty-thousand put into stock versus a twenty-thousand down payment on a one-hundred-thousand dollar piece of property is a fine comparison. For simplicity sake, the bank is charging five percent on the loan.
Both investments appreciate by six-percent after some time. The stock, then, has made us one-thousand, two-hundred dollars, while the real estate has made us six-thousand. Naturally, we will need to subtract what we owe the bank before determining what our real profits are. So, we take away the four-thousand, and we end up with eight-hundred more dollars than what our stock returned to us.
Stock only earned sixty-percent of what the real estate did. In other words, the stock made you six percent on your money, but the real estate made you ten. It is obvious which one is better.
This is just a taste of the real fun of real estate. If the investments made eight percent, then real estate would have earned us four-thousand while stock would have made us one-thousand, six-hundred. This time, stock only earned forty-percent of what the real estate did. Real estate really does earn exponential growth.
This is just a start. If our investments made eight percent, the real estate would have won by an even bigger gap; the stock would have earned only forty percent of what the real estate had.
Of course, we will invest it all again. After buying twenty-one-thousand, two-hundred dollars worth of stock, and one-hundred-twenty-thousand dollars worth of real estate (which we borrowed ninety-six-thousand of at five-percent interest), assuming an eight percent earnings growth again, the stock has made us one-thousand, six-hundred and ninety-six dollars, but the real estate has earned us four-thousand, eight-hundred dollars. The stock has dropped to thirty-five percent of the real estate’s earnings.
The more time goes on, the higher percentage earned on capital invested in real estate. Stock, however, only grows linearly.
To truly take advantage of other people’s money, one must use real estate, the essence of capitalism.
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