I once heard a successful woman on a Podcast discuss what she looks for in an investment. She said the first thing she looks for is how quickly she’ll get back her investment or original capital. At the time, this was confusing to me. I understood making a “return on one’s investment,” 10% for example; and I understood getting a “return of one’s investment,” meaning you don’t lose your capital. The concept of getting my capital back quickly; however, was not familiar to me, or a criterion I used when making investments.

Think about getting a 10% return on your investment. That means you’re just getting your original investment returned to you over ten years. After that (year eleven) is when you’re really making money!

I am now solidly now in her camp; how quickly I get my capital back is now one of the most important criteria in selecting an investment, and it leads to something called INFINITE RETURNS, and I make these types of investments regularly.

Let’s say you invest $100K in a real estate asset. It could be a shopping center, apartment building, or office space for example. Additionally, you could do this on your own or with other investors.

Let’s also say that each year the asset is going to generate 5% ($5K) in positive cash flow. Additionally, each year you’re going to receive 25% ($25K) of your original capital back. That means that in four years, you will have received $20K in cashflow and all of your original $100K investment back. And, you still own the asset or your $100K share if you did the deal with other investors. This means you’ve more than doubled your money in four years.

Saying it differently, you received a 5% return on your investment in each of the four years, and received a return of your investment in four years.

In year five, since you no longer have any capital in the deal anymore, what is the return on your investment? It’s INFINITE because you no longer have any cash in this deal. If you really want to grow your wealth, you would take the $100K that was returned to you and invest it again, and repeat as necessary.

Infinite returns are typically done via real estate where property improvements and better management increase rents, which in turn increases the asset’s value. The property is then refinanced allowing equity to be pulled out and returned to the investors. While this is the goal of many deal operators, the company I use, which has this down to a science is Western Wealth Capital.

I was recently visiting my friend and realtor Ray Henson in Elk Grove, California and was attempting to explain infinite returns to him. We hadn’t seen each other in a while and were at dinner, so I was using beer mugs and shot glasses as props. As might be expected, the demonstration left a bit to be desired, so I’ve created a video to go along with this blog in hopes of making this super clear and easy to understand.