Wealth creation depends on value creation and leverage. The rich have understood this and they are taking advantage of it to build their empires.
The one percent of the world’s richest individuals have shown that they never used their own money to build their empires.
However, they convinced people of the value they can get in return for giving them their money to invest in lucrative ventures.
In most cases, they understand how these lucrative ventures will work out and they invest other people’s money and rake in huge profits that they use to grow their businesses.
Most rich people borrowing money to make money. The principle behind this is that you will borrow money from either the bank or other people and then turn the loans into equity over time.
Another way rich people use other people’s money is through investment banking opportunities. They take other people’s money, facilitate the movement of large amounts of the money, and take a percentage through transaction costs and commissions.
In some cases, rich people will leverage their connections. They can get a commission for connecting people with businesses. For example, if one has a large following, he can connect them to business and he gets a commission from the revenues realized by the business.
Rich people are coming up with training programs (consider Rich Dad training program) that are showing other people how to get rich. With everyone looking towards creating more wealth, these programs offered by the rich are very popular. This means the rich get money from other people and continue growing their empires.
To illustrate how rich people are using other people’s money to grow their empires, I will give four examples with stories from rich people.
Commercial and Residential Real Estate Investing
The real estate industry gives the billionaires a great opportunity to use other people’s money to grow their empires.
Real estate investing requires huge amount of money, it is prudent, therefore, for any person willing to invest in this industry to think of how to pool money to finance such endeavors.
There are two main ventures that billionaires are involved in –commercial real estate investing and residential real estate investing.
Commercial real estate involves investing in commercial buildings such as office complexes, retail buildings, and warehouses. Most billionaires are using other people’s money to construct such buildings due to their lucrative nature.
You might be asking how.
Well, let me explain
Commercial contracts involve triple net leases. These type of leases require the investors to pay the mortgage only since the company signing the lease, controls the design and the look of the building. Such a company is responsible for the building’s repairs and upkeep.
Residential real estate investing is another avenue billionaires use other people’s money. With lucrative and long-term loans available for financing residential real estate construction, the rich are using this opportunity to create more wealth.
Residential real estate investments also attract a tax break that helps the rich make more money for themselves.
However, the question may remain on how billionaires use commercial and real estate investing as an avenue to use other people’s money.
Let me explain
Banks and other financial institutions are willing to give out mortgages. They only require an individual fund a percentage of the cost of the house and they will give you the mortgage that you can pay over a period of several years.
The key point being the money borrowed is paid over a period of several years. That means that you have the time to pay the loan using the rental money you get from the tenants.
This way one is able to use other people’s money to repay the loan and eventually he will own the house.
Hedge Fund Management
Hedge fund involves pooling capital from individuals and institutions with an aim of investing the same in several assets. This is done through portfolio creation and risk management.
Hedge managers can earn compensations of up to 1 billion depending on the performance of their portfolio.
Rich people are using the need to grow wealth to make more money using other people’s money.
They take money from institutions and individuals and put it in viable investments such as real estate, the stock market, and any other venture that may make money.
The hedge manager makes a commission from the interest accrued. Due to the large amounts of money involved in hedge funds, a hedge manager will make large sums of money.
With the right investment, hedge fund management has continued to create billionaires.
One such person is George Soros.
George Soros is one of the world’s richest people.
But looking back at how he has made his billions gives us a peek at how billionaires use other people’s money to grow their empires.
Soros was once an investment bank employee. After learning how to use other people’s money to grow wealth, Soros quit his job and started the Soros Management Fund.
Managing over $30 billion, Soros Fund Management has succeeded in turning the biggest profits among hedge funds. George Soros is now estimated to be worth $24.2 billion.
In 2013, turned over 22 percent in profits from his hedge fund, making him one of the best hedge fund managers. From this, George Soros received a commission of $4 billion.
From this story, billionaires are using other people’s money to invest in lucrative opportunities and they take a certain percentage, growing the empires even more.
Using Bank Loans
Bank loans are one of the ways billionaires use other people’s money to grow their empires.
It is said that poor people go to the bank to save their money while the rich go to the bank to borrow money.
Therefore, the rich use the poor people’s money to build their businesses.
Through bank loans, the billionaires are able to create their businesses.
One of the epic examples of how to use bank loans to grow your empire is Donald Trump.
He is currently the President of United States and he is estimated to be worth over $4 billion.
After inheriting a real estate empire, Donald Trump found himself in a crisis forcing him to file for bankruptcy four times.
However, in 1990, he was bailed out by four banks through a $65 million deal.
Using this money, Trump has been able to create enormous wealth for himself and his family.
From this story, billionaires use loans (other people’s money) to fund their ventures. Once they repay the loans, they are left with a stable empire. What a way to create an empire?
Listing Company on the Stock Exchange
Another way billionaires use other people’s money is by listing their businesses on the stock exchange.
After creating a successful business, the rich then look for ways to sell it to recoup their investments and make a profit from it.
By listing their companies in the stock exchange, they get money from the people and they give them a share of the company.
One of the people who has created a great empire through this is Dhirubhai Ambani.
Dhirubhai Ambani, an Indian businessperson, convinced 58,000 Indians from Gujarat village to invest any amount of money they had into his polyester textile venture through the Reliance Industries Limited.
His business grew, creating enormous wealth the investors and Reliance Industries.
Reliance Industries Limited become a big name in India. Ambani took advantage of this enormous growth to list the company in the stock exchange through an initial public offer of over 2.8 million shares.
Reliance shares are among the most lucrative in India. The company has since ventured into petroleum, telecommunications, and mining. In 2014, the company raked in $62 billion in revenue and the Ambani Empire continues to grow.
Conclusion
From the examples given in this article, it is clear that billionaires do not use their own money to create wealth. Instead, they leverage opportunities and use other people’s money to capitalize on those opportunities.
Over time, they are able to make more money from those ventures.
Those people who want to create wealth for themselves must, therefore, look for opportunities that people are able to buy into and be willing to give their money.
Once you receive such money, then you should invest it properly and make sure you make a profit for the capital owner as well as making a commission for yourself.
However, one major thing the runs through all those people who use other people’s money is that they are trusted by the people who give them the money.
As such, it is always important to create trust among the people as well as being knowledgeable in the industry you are trying to invest the money.
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