The Velocity Of Money

My wife and I spent most of Saturday and Sunday at a meeting of richdad.com forum members. We met at Rich Dad headquarters in Scottsdale and got to meet with Rich Dad staff, including Robert Kiyosaki, his wife Kim, Sharon Lecter, and others. (Is it just me or did anyone else think Robert looked like he's lost a lot of weight? His face seemed much thinner and I thought his coat and shirt were just hanging on him.)

Saturday was spent with presentations by successful forum members. Russ' presentation on different ways to play Cashflow 101 was very eye opening and dramatically demonstrated the power of teamwork. Les' talk on financing contained lots of useful info and prompted some questions that he was able to answer for me during the round table discussions on Sunday. Steve's presentation on apartments has gotten the apartment bug into my wife (and myself). Seeing the various apartments around town that he owned was a great way to help move the discussion from the theoretical realm to a more concrete plane. The weekend was well-spent and I only wish I had be able to spend more time with the people there. (I was able to meet with a couple local investors, including Kenric / Biophase / Monarchcrest. If you get a chance, check out his blog.)

Before the event happened, I was thinking about financing, since I knew that was to be the subject of Les' talk. Sometime Wednesday, I had the realization that it may be possible to double or triple the speed at which I am buying and selling properties. Currently, I am paying all cash for a property, fixing it up, then selling it. This is working, but it is slow going. I figure at best, I could do maybe 3 properties a year - and that's only if there are no hangups. But if I were to use a hard money loan for maybe 50% or slightly more of the cost of the property, I could buy two houses at once and still have enough cash to start fixing them up simultaneously. Using hard money will increase my expenses, but I may be able to make up for that by the fact that I'll be able to turn twice as many houses. It would also allow me to buy more expensive houses, which tend to have more equity and hence, a bigger profit for me. Finally, using hard money rather than a conventional loan allows me to still have the advantage of being able to close quickly. This is something I need to look into more and, obviously, the viability of this depends a lot on the properties in question, but it is a technique I will keep in mind once my current project is done.

If I do go this route, I will be increasing the rate at which profits return to me. In other words, increasing the velocity of my money. This is a concept Robert Kiyosaki talks about in his book Who Took My Money.

Yesterday, I realized that Prosper.com makes it very easy for a lender to increase the velocity of their money. Prosper allows lenders to lend money in amounts as small as $50. I've currently lent out $500 via Prosper and have received about $15 in payments - not bad considering the loans have been active for less than one month. As soon as I've reached $50, I can immediately lend that money out again, giving close to no idle time for my funds.