Patrick Souiljaert

Consider this hypothetical scenario:

1. Adam owns a music CD he wants to sell for £5.
2. I know Bob is willing to pay £10 for the CD.
3. So I go and buy the CD from Adam and give him £5 out of my pocket.
4. I then sell the CD to Bob for £10.

• Hence I have made £5 profit.
• In this case the Return On Investment (ROI) = !00% because I invested £5 of my own money and made £5 profit.

Now consider the same scenario with a slight twist:

1. I’m still going to buy the CD from Adam for £5 and sell it to Bob for £10.
2. However rather than giving Adam £5 out of my pocket, I’m going to first get the £10 from Bob.
3. I give Adam the £10, he gives me the CD and £5 change.
4. I then give Bob the CD.

• Hence I have still made £5 profit – but I didn’t use any of my own money.
• In this case the ROI is infinite – because I haven’t invested any money.
• This type of transactional is called a No Money Down (NMD) deal.

Professional investors tend to buy property (and other assets) using NMD deals.

In the next example I illustrate how to calculate the ROI on a buy-to-let house:

1. I invest £5,000 of my own money and purchase the house.
2. I rent the house out for £1,000 per month.
3. My expenses are £800 per month.
4. My cash flow (income minus expenses) is £200 per month (£2,400 per year).

The ROI is based on the annual cash flow and the amount invested:

(Annual Cash Flow ÷ Amount Invested) X 100

eg:

(£2,400 ÷ £5,000) X 100

ROI = 48%

There isn’t a bank in the world that would give you an interest rate of 48% – and you own the house! 

Even if you only got £100 cash flow per month on a £5,000 investment, the ROI = 24%

There are many ways to purchase buy-to-let properties without using your own money but I’m no expert yet. 

Property investment experts are not stupid! They don’t put how to do everything in their books. They write books to sell books – and to entice readers onto their courses!

In my next post I’ll detail how to use financial intelligence to save money and to make money.