What’s better than a high return on investment? An infinite return on investment.
As compelling as the concept is, it has its detractors. Make sure you understand not just how infinite returns work, but also the arguments against pursuing them.
What Are Infinite Returns?
If you recall your middle school math, any return on a $0 investment is infinite (e.g., $1 divided by $0). You didn’t invest any money, so even a single dollar represents an infinite return on your nonexistent investment.
“Well, that’s all well and good, Brian, but hasn’t anyone ever told you that it takes money to make money? You can’t own something for nothing.”
That’s only partially true in this case. You do need to invest some money initially—but then you can pull it back out later through refinancing. And no, it does not take money to make money, as delivery drivers earning $170,000 a year can tell you. Unimaginative people are quick to tell you what can’t be done. But I digress.
How to Invest for Infinite Returns
There are two traditional ways to pursue infinite returns in real estate. You can invest actively in single-family rentals or passively in real estate syndications.
The BRRRR method
I started my real estate investing career following the BRRRR strategy.
You buy a fixer-upper, force equity by renovating it, rent it out, and then you refinance it based on the after-repair value (ARV). In the refinancing, you can pull out some or all of the money you invested initially.
If you pull out all the cash you invested, congratulations—you now have $0 invested in that property. Every dollar you earn on that property is gravy and represents an infinite return on your (lack of) investment.
Syndications with infinite returns
Real estate syndications can follow the same strategy, just on a larger scale. The sponsor buys an apartment complex or other commercial property that needs significant renovations, creates equity by…