Finance Insight: How the rich are making more money through debt.

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When you’re drowning in debt, your life is getting over while you’re trying to pay off your debts. Your debts are not waiting for you, they grow day by day since no one lends their money for free and there is always an interest.

The concept of debt has always been associated as a negative thought. It is mostly because of the credit card debts, a car loan and maybe a student debt, and you may think it will take me decades to pay off all of these debts, and how can that be good? In order to understand how that can be possible, let’s take a look at how rich people use the same to make even more money.

Weird play of Capitalism.

It might sound a bit confusing because why would anyone with a lot of money use debts in the first place that is supposed to be used by people who do not have money, but that’s not how capitalism works that is a powerful tool if you know how to use it and in this video you will find out how rich people use that to make even more money.

Most of the trade is based on that, and it might sound a bit controversial because borrowing money to start a business is a horrible idea, and personally I would never do that, but there are businesses, especially traditional businesses were using that is your best option

Thousands of factories work non-stop to produce everything that the world needs and in order to make it easier to sell most of these factories would gladly loan you their products in return that you would pay them some time in the future. The Industries do not lend the amount as a debt to a stranger, for that you will have to build some kind of trust with them first. And that’s how business has been running for the past 50 years.

Once the client would sell the product in the U.S. or any other part of the world, he would pay the factory and borrow more products. This is like you’re telling the factory that they know how to produce the item so let me help you sell it and if i can sell it for anything above the mentioned price, that’s going to be my profit . What makes this strategy great is that you’re not tying up your own money in this transaction, that’s why selling is one of the greatest skills you can ever master.

Loopholes in Real Estate investing.

Next way is refinancing real estate debts. It is the best kind of debt because it’s filled with loopholes and if you don’t have a mortgage then you’re paying extra taxes. Rich people always have multiple mortgages to be able to get all of those deductions. They earn more by saving their taxes. So that’s another way rich people get richer.

But let me give you a more practical way, this is how basically rich people get rich in real estate. Here is the secret let’s say you find a property that costs half a million dollars it’s in a bad condition and needs some or maybe a lot of renovation you head to a bank and get a mortgage by making a 20 down payment let’s say you’re going to spend around 10 of the total cost of the house to renovate it or around 50 000

Now you head to your bank again, but this time to refinance your mortgage. When you got your first mortgage the value of that property was just half a million dollars because it was in such a bad condition that no one wanted to live there but since you have renovated it now there are people who want to rent it out, So the market value of that property let’s say rises to seven hundred thousand dollars like the first time. Let’s say you’re going to get an eighty percent mortgage but eighty percent out of seven hundred thousand dollars is 560,000 or 400,000 out of that money is going to go to your first bank that gave you the first mortgage and let’s deduct another 50 000 that you spent on renovation and you’re going to be left with an extra profit of a hundred and ten thousand dollars.

You made one hundred and ten thousand dollars using that, and you’re left with a property that you can rent out to build equity and generate passive income on top of that you are going to avoid paying taxes because you have a mortgage this is a very common practice among real estate investors.

Hedge funds

Hedge funds are made by the rich for the rich to make rich people richer, and they usually use unpopular strategies. Normal people like us make our best efforts to predict which companies are going to grow and rise in value and invest the money we work so hard to earn in hopes for these companies to grow

But hedge funds often use a completely opposite strategy: they try to make money when companies fall or go bankrupt as it was with the case of GameStop although in that case the internet challenged them and pushed them to lose over 13 billion dollars.

But how do hedge funds make money with debt? Let’s say you expect a certain stock to decline due to some factors that newly arise and are more likely to affect it. So you borrow a stock of the company from your broker. Next week, if the stock drops as per your predictions, you sell it and return the borrowed stock to the broker from the received amount at a lower rate. Thus, you made a profit out of it.

It sounds simple in theory, but it’s extremely difficult and risky in practice and if you are wrong with your prediction then you may end up losing extra money and also the interest that you will have to pay to your broker. Now you have to buy that stock back for 200 to return it to your broker when you buy a stock and try to sell it when it rises, the maximum that you can lose is the amount you invested in. But if you have a hundred analysts working for you, you can make a fortune using this

Forex Trading.

Forex is a market where currencies are traded, and it makes international trade possible. You can use the U.S. dollar in China. You have to buy Chinese Yen to pay your employees. For example, in China, there is a market where anyone or any company can come in and purchase foreign currencies and based on different factors these currencies fluctuate.

So if you can predict which currencies will rise or fall you can make a lot of money in this market but what makes these markets so different from the rest is that for every dollar you use to trade in forex you can borrow an additional hundred dollars, that means if you trade using your thousand dollars you can hold a position worth a hundred thousand dollars if you end up making a small profit like one percent.

Credit Score

Credit score as you can see is a powerful tool. Every successful business company or entrepreneur uses that in various ways, especially if you have a proven business model. Borrowing money to finance purchase orders is practiced pretty much by every business. So stop thinking in terms of all that is bad. Of course, debts with a high interest rate such as credit card debts are horrible.

But in order to get a lower interest rate, you will have to minimize the risks of loaning you money.
Now, how should that be done? You should build a track record of being a reliable borrower. There are billions if not trillions of dollars in the banks waiting for someone to borrow them and even if there isn’t any money, banks can create money out of thin year.

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