Before exploring further how to earn secure, hassle free and high returns through Private Lending, let’s pause for a moment and contemplate this question: What can you buy with $10,000? When I ask this question, people often reply with responses such as, “Not much.” Or something like, “An old used clunker.”
What I generally say is, “$10,000 can buy $100,000.”
You say, “No way!” Consider, though for a moment, the value of time and interest.
Let me show you what I mean. If for instance, you were to take your $10,000 and put it in a CD at 2% interest for 30 years, your initial $10,000 would buy you about $18,000. If you took the same $10,000 and invested in a better investment vehicle other than CDs for the same 30 years at 4% it would buy you about $33,000. An even better investment vehicle at 6% will buy you $60,000 and an even better investment vehicle at 8% will buy you over $100,000.
All that changes between the $18,000 earned and the $109,357 earned is the rate of return. Initial investment and term remain the same. See Table below.
Comparison of yields over 30 years
|Initial Investment||Rate of Return as percentage||Term||Future Value|
So, a more accurate answer to the question of how much will $10,000 buy, might be, “It all depends upon the term and yield.”
For those of us who spent the $10,000 on the old clunker, we might be able to say, “Look at this old clunker I just bought. You won’t believe the deal I got. I only paid $100,000!”
For further illustration purposes consider the cost to you of earning 2% when you might be able to be earning much more.
If, for instance, you are earning 2% interest when you could be earning 8%, you might be like the ole fella who goes into the local super market and asks to change a $100.
Old Fella, “Can you change a Franklin for me?”
Cashier, “Certainly. Will five 20s be okay?”
Old Fella, “Oh thank you, but ONE 20 will be plenty.”
The result of earning 2% when we could be earning 8% brings us about the same result as the Old Fella changing a $100 for a $20. In real time no one is ever likely to do this but in essence over time, this is exactly what we are doing when we are earning only 2% when we could be earning much more. In either situation (earning only 2% or changing a 100 for 20), we’re short about 80. See the above Table: Comparisons of Yields Over 30 Years.
Stopping the bleeding and learning to earn secured, hassle-free, and higher yielding returns while building our local communities is what this website is all about.
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Allen Lomax is a licensed realtor in the State of North Carolina and he does not provide tax, legal, or investment advice. Allen Lomax does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Allen Lomax on this site or through any other means of communication, is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.