I want to teach you how to double the impact of a single asset. Because for every asset you own, there is potential to acquire an additional cashflow producing asset. The key to this strategy is collateralization.
According to Investopedia, collateralization occurs when a borrower pledges an asset as recourse to a lender in the event that the borrower defaults on the original loan.
Basically, you can take an asset that you already have, place it up for collateral, an in return you’re approved for a loan that is made secure by the asset itself. With your loan, you can secure another asset, that will in turn increase your earning potential, and down the road may be able to be collateralized as well. This is a powerful, powerful strategy.
Businesses, by the way, do this all the time. For example, someone in our network (a business owner) went to a financial institution and got a business loan that was secured by the receivables and the assets of their business. With that loan, they were able to purchase the building from which the business operates.
The first time I heard this strategy, was from a wealth coach I had in the early 2000s. They shared with me that in the 1970s, when interest rates were incredibly high (we’re talking double digits) people would actually go into banks and open certificates of deposits. Often, they’d do so with large sums of money, buying maybe $100,000 CDs.
For the sake of ease, let’s just say they would earn 10% on that CD. Then they’d go to that same bank and request a loan using their CD as collateral. The loan, for 90% of the CD’s value, could then be used to buy real estate, which produces cashflow. That cashflow could then be used to pay down the loan. Rather than using the initial $100,000 to purchase a single asset, they’d be able to acquire two assets — the CD and the real estate property.
Below, I’ll offer a few ideas for assets that could be collateralized. As always, make sure you fully understand the game before you play. There’s a particular collateralization strategy that I personally use, and if you’ve followed Cashflow Ninja for long, you can likely guess what that is. My goal, however, is to get your creativity flowing, not to endorse a particular strategy over another. This should instead help you to identify resources that you may already possess, that could be doing more than one job.
When you collateralize stock portfolios, it’s called asset based lending. Some financial institutions will give you a loan secured by a stock portfolio, which can be used to acquire new assets. As anything in related to the stock market, this strategy involves a lot of risk, and requires more in-depth research. Regardless, this form of collateralization is good to know.
Most people are familiar with a HELOC, or a home equity line of credit. So if you own real estate, you can access the property’s equity to then purchase more real estate. This can be done without selling the property, because of the equity, enabling you to collateralize even your own home. Again, there’s risk involved, so I recommend researching thoroughly.
Commodity Backed Finance
This means collateralization of gold, silver, art, or other commodities. Certain financial institutions will accept your commodities as collateral, allowing those assets to be used in the purchase of income-producing assets. This could be a legitimate means of creating cashflow as an art collector, or otherwise.
There’s a company in the Cryptospace that actually allows you to place your Bitcoin as collateral with them, in exchange for a loan. This is a great way to actively use Bitcoin and merge it with other strategies. That loan can then be used to purchase a new asset.
One of my personal favorite strategies is collateralizing a permanent life insurance contract. More specifically, the cash value of a dividend-paying whole life insurance policy with a mutual insurance company. This, in essence, is the infinite banking concept.
I’ve shared the infinite banking strategy on Cashflow Ninja a couple of times. Essentially, you can receive a policy loan, using the cash value of your account as collateral. You can then take that policy loan to buy real estate, which produces cash flow. This particular strategy is powerful, because it allows you to be your own banker, in a sense.
A Step Further
Beyond the simple applications, collateralization is a great way to hook investors if you’re raising capital for your own project. When you’re working with potential investors, have a conversation about their assets and what they might be able to collateralize. They could utilize the assets they already own to acquire other assets, and invest in your own project.
My hope in all of this, is that you’re now thinking about the assets you have, and how you can better put them to work. This strategy of collateral allows you to get the most out of a single transaction, essentially doubling the effectiveness of a single asset.
You can listen to my new podcast, Cashflow Investing Secrets here.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
770: Mike Fallat: How To Multiply Your Business With The Million Dollar Book
My guest in this episode is Mike Fallat. Mike is the author of many business-related books. He has a goal of helping 1,000 entrepreneurs publish books and teaching them how to use their books as a gateway to generating 7-figures. His company, Dreamstarters Publishing, offers ghostwriting, cover design, automated funnels, and book fulfillment. They have…
769: Steven Bowles: Advanced Family Office Strategies
My guest in this episode is Steven Bowles. Steven founded Catalyst Advisory to take the experience he gained by working in a family office advisory firm and apply the best practices learned there to other families under an independent umbrella. Catalyst works with the best insurance professionals, wealth management firms, and trusted advisors to solve…
768: Dave Zook: Real Asset Cashflow Strategies
My guest in this episode is Dave Zook. Dave is a successful business owner and an experienced real estate investor active in Multi-Family Apartments, Self-storage, and ATM space. Dave has acquired more than $100 million worth of real estate since 2010. At the time of this writing, he and his investors own approximately 3000 Multi-family…
Leave a Comment