How to Make Your Private Money Partner a Millionaire

by | BiggerPockets.com

Too many times real estate investors only care about how they are going to become a millionaire in this business.

But quite honestly, it is so much more important to focus on how you are going to make your private-money partner a millionaire first. If you make your private-money partner a millionaire, it is inevitable that you will also become a millionaire.

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So How Do You Make Your Private Money Partner a Millionaire?

Answer: Compound interest (what Albert Einstein called the 8th wonder of the world).

Related: How I Find Private Money Lenders to 100% Fund My Deals (& How You Can, Too)

In simple terms, compound interest is the action of taking the interest you earn on an investment and rolling it back into that investment. This is known as earning interest on your interest. Compounded interest will grow an investment exponentially—and even more so when the investor is not paying taxes each time they take an interest payment.

Einstein discovered a rule around compounding interest, called the Rule of 72. It goes like this: If you take an investment which is compounded annually and divide the interest rate into the number 72, the result you will get is how many years it will take that money to double.

Related: Investors: Don’t Be Intimidated by Private Money! Here’s What You Need to Know.

Compound interest is a very powerful concept that will help you make your private money partners millionaires (and even multi-millionaires!)

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Let’s get some discussion going!

How have you been able to help your private money partners increase their wealth by compound interest?

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area.

One of DeRosa’s mantras is “to make money while making a difference.”

5 Comments

  1. Kevin Sapp

    “If you make your private-money partner a millionaire, it is inevitable that you will also become a millionaire.” – Very true, As a lender it is my goal to enable my borrowers to become self funding and no longer need my funding.

    @Matt Faircloth – are you really paying 10% regardless of term? If I give ya 100k, project lasts for 3 months, you’ll payout 110k? How about a six month term with a renewal clause?

    Kevin

    • Matt Faircloth

      Hey Kevin,
      That’s a great perspective. Most likely, your borrowers are going to continue to build their businesses with more and larger deals and will continue to need you as an ally, lol.

      No, in the scenario I gave in the video, the “rule of 72” only works on loans compounded over 1 year. I oversimplified the loan in the example to make a point about the power of compounded interest. I also note that the actual loan may pay off sooner. On my deals, and most other borrowers, we pay an annualized interest rate so if the deal pays off in 6 months, the interest is halved, or 5% on a 10% deal. Make sense?

      Thanks again for the comment!

      Matt

  2. Tate Watson

    Very nice video & explanation of the Rule of 72. I’m thru chapter 7 of your new and excellent book – thanks for writing that one. BTW – you can get that curve on the graph you were looking for if you just flip flop the Age and $$ – then it does go up like a hockey stick. And semi-annual compounding shortens the 1M, 2M, and 3M milestones by one year each. Either way the compounding affect is tremendous.

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