L.A.W.: The Wealth Formula That Transforms Debt Into Financial Freedom
In a previous article, I shared how my upbringing in NYC taught me to fear debt. The neighborhood wisdom was clear: “Stay out of debt. Buy everything in cash. Don’t let the system own you.”
Fast forward to today, and I’ve developed an entirely different relationship with debt. Rather than avoiding it, I’ve learned to harness its power to build my financial empire. This transformation occurred when I discovered what I now call the L.A.W. formula: Leverage/Arbitrage = Wealth.
Here’s how I’m using debt to create lasting wealth, and how you can too.
The L.A.W. Formula Explained
Leverage: The Power Multiplier
Leverage is using borrowed capital (other people’s money) to acquire assets that generate returns exceeding the cost of borrowing. This is strategic debt at its finest.
When I purchase a million-dollar asset with $150,000 down and finance the rest, I’m controlling an asset worth nearly seven times my initial investment. If that asset appreciates at just 5% annually, I gain $50,000 in equity growth, compared to only $7,500 if I had purchased a $150,000 asset outright.
This multiplication effect is how I’ve been able to build a portfolio far beyond what my personal savings alone would allow.
Arbitrage: The Cash Flow Engine
Arbitrage is where the real magic happens, it’s the profit generated from the difference between an asset’s income and its financing costs.
Let me show you the math on my typical acquisition:
• Purchase price: $1,000,000
• My investment: $150,000 (15%)
• Annual income: $300,000
• Annual debt service: $165,000
• Arbitrage (my profit): $135,000
This arbitrage represents a 90% cash-on-cash return on my investment, far beyond what traditional investments could deliver. It provides immediate cash flow that I can use to fund my lifestyle, acquire additional assets, or create reserves for future opportunities.
Wealth: The Freedom Threshold
The final component of the L.A.W. formula defines wealth not by a specific dollar amount but by the relationship between your arbitrage and your lifestyle costs.
My personal wealth threshold looked like this:
• Annual arbitrage from leveraged assets: $135,000
• Annual lifestyle costs: $80,000
• Annual surplus: $55,000
When your arbitrage exceeds your lifestyle expenses, you’ve achieved true financial freedom. Your assets work harder than you do, and your income is no longer tied to your time.
This is how I’ve built my empire. Not by avoiding debt, but by using it strategically to acquire assets that generate income far beyond their carrying costs.
Applying the L.A.W. Formula in Your Life
The L.A.W. formula works across various asset classes, from businesses to real estate to equipment leasing. Here’s how to start applying it:
1. Identify assets with strong cash flow potential that significantly exceeds operating costs
2. Structure strategic leverage with favorable financing terms and adequate reserves
3. Maximize arbitrage opportunities through operational improvements and tax strategies
4. Scale systematically using proven arbitrage to qualify for additional financing
Managing Risk
I don’t use maximum leverage, I use optimal leverage that balances opportunity with security. My risk management includes:
• Maintaining 6-12 months of debt service in liquid reserves
• Basing purchase decisions on current performance, not projections
• Using fixed-rate financing whenever possible
• Properly insuring against property damage and liability risks
Your Empire Awaits
The path to wealth isn’t through working harder at your job, it’s through the strategic application of leverage to create positive arbitrage that ultimately exceeds your lifestyle needs.
I’ve transformed my financial reality by changing my relationship with debt. I no longer fear it, I harness it. And with the L.A.W. formula as your guide, you can do the same.
Want to know what type of asset gets you this type of return? You’ll have to stay tuned.
In our next issue: “The P.S.T. Cashflow System: The Secret to Buying Your Financial Freedom”