The Velocity of the ROI Method

The term velocity is how many times can you use the same source of capital to work for you. The quicker you can send out your capital and have it return along with your profit the faster you will begin to build wealth. Wealth is different than riches. Wealth is self-sustainable income whereas riches depend on not only our ability to maintain our employment, it also demands that economic conditions remain constant or improve. It sorts of like figuring out and implementing the maximum number of houses you can purchase with the same dollar.  This is achieved through sending it out and realign it back time after time.  It is the turn over rate for your dollar.

If I purchase a property and earn 10% a year, I must wait 10 years before I recoup my initial investment. But if I purchase a property and immediately recover my investment and still earn my 10% without the guess work, I have not lost years of opportunity cost. If I do this 4 times in a year then my initial capital outlay has earned me 40% profit and my cash flow double in 2 and a half years. This is not the only potential for an increase in income. It is extremely unlikely that rents will remain the same. Let’s say I have a built in 5% cost of living increase per year in each property.

I would get 5 percent profit on my 1^st investment and .0375 on my second,.025 on my third and .0125 on the fourth investment.  When these are added I earn 0.125 per year on the investment.

If you take those houses and hold them for twenty years and each year you add another four units at the and oof twenty years your initial investment is unrecognizable.

Again, when you wish to invest in real estate you have two options the traditional method or the ROI method. Do your math calculate the risk you are comfortable making and proceed along the path you choose.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.