I am a huge proponent of getting your initial investment out of whatever investment vehicle you are using. I use this tactic in real estate, stock trading, and business. I want to use this technique with cryptocurrency trading but I need to make sure it will be a non-taxable event before I do so. Here is what I mean by getting your initial investment out.
When I do a cash flow analysis on a property, one of my main metrics I am looking for, is my cash on cash return. If I have a cash on cash return of 20% or higher, I will most likely do the deal. This means, it will take 5 years for me to get my initial investment out of the deal. Once I have my initial investment out of the deal, I am into an investment for free. Another way I do this with real estate is cash out refinancing. I will buy a property undervalue, the key here is purchasing undervalue. I will get the property, rehab the property (typically new floors, paint, kitchen, bathroom, trim, doors, light fixtures), then I get new tenants in place with a minimum of a 1 year lease. Once this property is stabilized, I will bring my new analysis to the bank, to show them how I increased the value of the property. I then get a cash out refinance, get a higher mortgage amount, but get most, if not all of my initial investment back out in tax free proceeds.
I use both of these ways with real estate investing to get my initial investment back out. I do this so I have working capital for my next projects. If I did not do this, I would not be able to do the amount of deals I do. I would have to save up for a year to purchase one property, then I would have to do that again, and again. It would take me 10+ years of this to become financially free. Instead, I focus on deals to get my initial investment out, which has allowed me to become financially free within five years. I know people can do this way faster but doing it in half the time for me, was still worth the process.
I have done this same method with my business. If I have to put X amount of dollars in, how long will it take for me to get my owner contributions back out? Then I weigh the pros and cons of doing so, if it makes sense, I invest. Most recently with my flipping company I did this. I calculated if I upgraded my truck and got a dump trailer, how long before it paid for itself. What I came up with, was not favorable for me making this decision. I decided to wait until the business produces enough cash from our business dealings and I need a tax write off, to make those purchases. It did not make sense for me to put my personal money into the company as an investment for these items because my return would be around 5%. I would have the asset at the end but I factor in how long it would take to get my money back in my pocket and it happened to be around 9 years.
Another way I have done this is with stocks. For example, if I bought 100 shares of a company at $20 a share. When the stock his $40 a share, I would sell 50 shares, allowing me to get my initial investment of $2000 back out, while keeping my gains, $2000 or 50 shares in the trading platform. This allows me to be in the asset/stock for free (zero risk) and use my initial investment for more investments when a bear market occurs. This method works phenomenal for me and allows me to sleep peacefully at night.
I am currently researching this method for cryptocurrencies. I want to find out if I do this method, if it will be a non-taxable event because I am only taking my initial investment out and not my profits. This would be a game changer for me because I love investing in cryptocurrencies but I do not want to be stuck with the tax implications that come with buying and selling on a daily/monthly basis. I will keep working on this and update you guys with my findings.
I highly recommend considering getting your money out of your investments, if you do these types of investments. Always consider how to leverage your money.
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-Shaun Tutor
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