Investing for infinite returns (or money for free)

When most people consider investing or speak to a financial planner, the typical spiel is that the market returns 8% on average per year.

Property investing is similar - 4% gross rental income, 4% capital growth per year on average.

Imagine if we could instead achieve infinite returns. To the moon!

My idea of infinite returns is having none of your own money invested, but still profiting from an investment forever.

It’s not easy to achieve, but here are a few examples of how you could make it work:

No money down asset purchase

When you have enough security elsewhere (generally equity in your home), it’s possible to borrow 100% of the purchase price of an investment property.

Where the rental income covers all expenses and loan repayments, you’re making money without ever going to work.

It’s even better where the asset appreciates in value. That way, you’re receiving rental income plus capital appreciation.

In theory, if this asset appreciates in value enough, you could potentially use this strategy multiple times to purchase income producing properties without using any of your own money. That’s money for free if you ask me.

Identifying undervalued shares

From time to time, shares become undervalued. If you are able to identify this opportunity, you could purchase a parcel of shares, and later withdraw your original investment when the share price increases.

The remaining parcel of shares didn’t cost you anything, and can be held indefinitely to provide dividends and capital appreciation.

Here’s an example.

Joe Bloggs identifies that his favourite share has been undervalued by the market. He decides to pick up $10,000 worth of shares. Six months later, the shares are back to their usual price and worth $13,000. Joe decides to sell $10,000 worth of shares, leaving him with $3,000 worth of shares remaining. How much did he pay for those shares? That’s right, $0. But he will have the benefits of regular dividend income and capital appreciation for as long as he wishes to hold the shares.

As there would be Capital Gains Tax payable when you withdraw the original $10,000, some people may wish to cover any Capital Gains Tax that may arise on the appreciation of your original investment. Or you can just fund the tax payable out of your own pocket so that you hold a larger proportion of shares. Up to you.

Using other people’s money

It may happen in life that sometimes you have an idea, but don’t want to, or don’t have the means, to use your own money to realise your dream.

This is where utilising other people’s money might come in handy.

You provide and execute the idea, the other party provides the cash to get it up and running.

Perhaps after the idea is realised, you both retain an ownership in the business, generating passive income forever onwards.

Effectively, provide ‘sweat equity’ to own an asset in the future.

Subdividing land

While utilising no money down can be a strategy for infinite returns, it can also be possible to identify an undervalued piece of land that has the potential to be subdivided.

It may be undervalued for a number of reasons - the owner doesn’t understand the value, the land is undesirable in its current state, or the market might be about to move.

One way to achieve infinite returns is as follows:

Joe Bloggs finds a large parcel of land with a house on it. Joe decides to buy the property using borrowed money, and starts subdividing the property into smaller parcels.

Over time, he sells all of the land except the original parcel with the house on it. The profit from the sale of the other parcels is enough to pay off the loan on the property and then some. He decides to keep the proportion of the property with the original house on it. It ended up costing him nothing, as the profit from subdividing the block into smaller parcels was enough to pay off the entire original loan.

Joe believes that over time, the people that bought the smaller parcels will build modern houses, leading to an increase in land value. Joe puts the house on the market for rent. Joe receives rental income and capital appreciation, and ultimately it didn’t cost him a thing.

Generating infinite returns is not easy. If it were, everyone would do it.

It’s about identifying undervalued assets, working smarter not harder, and having the confidence to execute.

Investing for infinite returns will not come naturally to everyone, but it can be achieved.

Personally, I think it is easier to achieve infinite returns in the sharemarket, due to the volatile nature of shares.

Investing for infinite returns is something I’m interested in learning more about, so if you have any other ideas, please feel free to share in the comments below!