17 Mar Wealth Building through Land Flipping: Re-investing your profits:
But then I realize that there is more to it than just making deals. The proper mindset also needs to be there in order to consistently make money and in order to build that Fortune up over time.
And this is when I usually get blank stares from my students. All many want to do is do a deal that nets them 20K or 10K or 50K and then go and use that money to buy the Doo-dads and toys they were craving for. While I own a lot of toys and “doo-das”, this is not what I recommend any starting investor do.
Instead of taking the profits from your first deal and spending it on that new car, you should take that money and reinvest it in your business. By doing this, you effectively and massively SUPERCHARGING your pool of money to work with an with time can go after more and more and bigger and bigger deals and make more profits.
Did you know that $10,000 invested with a 30% return (something easily available in the Tax Delinquent Investing World) over only 10 years leads to over $137,000, whereas if you take the even only 20% of the profits each year off you will only end up with less than $2600? That is the power of compound interest. Use it and you will succeed, work against it and it will KILL you.
So if you goal is to buy that new car for $40,000 you should not use the first profits right away to buy it but instead you should re-invest it into your business, continue driving that old car you have until you have made enough money that taking a chunk out for that new car barely affects your portfolio.
That is how the rich get rich, and how they drive their cars. Most rich people actually don’t drive big cars, because they know what it will do to their future earning. Taking out $50,000 of your investment pool today could translate to “missed earnings” of several million down the road.
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