Page 136 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money
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The reason leverage is so important is because the higher the leverage, the
higher the return. For example, if I buy a $100,000 rental unit with my
money, and I receive $10,000 a year net income, my cash-on-cash return is
10 percent. If I borrow $50,000 and am still able to receive a $10,000
return, my cash-on-cash return is 20 percent. If I finance the entire
$100,000, and still receive a $10,000 return, my return is infinite. Infinite
returns mean money for nothing. Ten thousand dollars flows into my
pocket, and nothing comes out. The renters cover my expense, and I receive
the income.
Money for Nothing
In my next example, again using the 300-unit apartment house, I will
explain how I receive an infinite return by using leverage. The way this will
be done is by raising rents and adding washers and dryers to each of the 300
units. This is how the numbers work in oversimplified terms:
