The Velocity of Money in Action

The Velocity of Money in Action... Posted: 06 Mar 2008 05:42 AM CST Recently, I included a 4 part article on the Velocity of Money. You can read these posts in order by clicking on these links: The Velocity of Money - Part One, The Velocity of Money - Part Two, The Velocity of Money - Part Three, The Velocity of Money - Part Four. The Velocity of Money Strategy is to invest your money into an asset, get your money back and then re-invest the same money into additional assets. In some cases you keep control of the original asset. In other cases, you sell the original asset. But in all cases, you reinvest the money into additional assets. As each investment provides gains or profits, your wealth compounds at astronomical rates. Most folks simply invest into mutual funds. This is fine and dandy. However, it does not allow you to use the Velocity of Money to your advantage because you don't get your money back until you retire. You are unable to compound your money in the same fashion as when you apply the Velocity of Money. Recently, I wrote an article, in the Income for Life Member's Only Newsletter, about billionaire Wayne Huizenga. Mr. Huizenga has applied the Velocity of Money to his investments. He started out buying a very small waste hauling company. As the company grew, he used income generated by the business to acquire additional waste hauling companies. Imagine how the business's income compounded when he acquired additional waste companies... Ultimately, he turned his little company into Waste Management, a 3 billion dollar company. When he retired from Waste Management, he bought the Blockbuster Video chain. Back when he purchased Blockbuster, the chain only had 19 stores. He implemented the exact same strategy with Blockbuster. He used the companies income to build new Blockbuster stores. In 1994, he sold Blockbuster when it was a $4 billion dollar company. Wayne was quoted as saying, "I like recurring revenue..." He focused on businesses that provided month to month income from the same customers. In his waste hauling business, this was achieved through weekly dumpster rentals. In Blockbuster, this was achieved by renting the same videos out week after week. He used this recurring revenue to acquire additional income generating assets. Or in other words, he applied the Velocity of Money. You can do this exact same thing with your real estate investments. Use the income generated by your first property to acquire additional properties. This is the Homes Buying Homes strategy. You can see the Velocity of Money in action, in this chart, which was designed by Joe Mercadante: Notice how the first three investment properties lead to multiple investment properties? This is accomplished through the Velocity of Money. If you take some time to study wealthy people, you will consistently see the Velocity of Money in play. This isn't unique to Wayne Huizenga, although he is a master in application. It can be found in the majority of people listed in the Forbes 400 list. Now, touching on my last post titled, "Are you lucky", will you use this strategy to your advantage? The "lucky" people always seem to take action on opportunity. The unlucky people don't. Rob Minton