take the time to respond in more detail (all my other posts were done during Sunday School).

First, the reason you can't ignore the cost of the property is because you're calculating the IRR of the investment in the property. If you don't include it here, then you have to also calculate the IRR of the other transaction (the loan) which would be an infinite loss using your reasoning. An infinite loss offsets an infinite return; thus your way of calculating it means you neither gain nor lose.

Of course, that's wrong, so how we really do it is that we count the investment in the property (regardless of how leveraged it is) when figuring the IRR of the investment. Your way is claiming that you got the property for free. Think about it this way: How does the person/bank loaning the money record the transaction? It's an asset on their books (a receivable). How do you record it on yours? It's a liability. How does one generally create a liability? By receiving an asset in exchange for a promise to pay later. THAT's why you MUST include the cost of the property or your IRR calculation is completely wrong. If you got the property given to you as a gift, you'd be correct that you paid nothing for it. Since you paid for it (again, it doesn't matter how you got the money you used to pay for it), that cost must be included. This is why I originally hinted that you might not quite understand the difference between cash flow and investment returns (because you're conflating the two things).

Secondly, you completely changed the story in this post to which I'm responding. The whole thread, you talked about "infinite return" and "returns in perpetuity." In this last post, you claimed that it now is just a quick flip of a property (which is about as finite of an investment as you can get). Sure, if you could buy a property and flip it months later for nearly 4 times what you paid for it, that would give you a very large IRR (such as the 280% you calculated in your example). Of course, that's not at all what you were talking about before. You said you bought the property and then would earn rental income in perpetuity. Also, putting 40K of upgrades into a 250K property doesn't suddenly make that property worth $1M. That tells me you're either using made-up numbers that are just plain silly, or there's something else going on here you haven't told us that is affecting the purchase and sales prices.

So, to sum up, what you describe is far from an example of infinite returns (unless you count a gimmicky slogan used by glorified MLMers). Just because your cash flows don't involve specific dollars that were under your control before the investment began, you are still taking all the risk so that means that it's your capital that is invested. If the property turned out to be worthless, guess whose money would be used to pay back the loan. That's right, yours. Wait, so that means that, even if you leveraged it, you still made a capital investment. Wow, crazy how that works. Again, capital and cash flows are two separate things.

It's a good thing you weren't actually my manager and told me to "go out and do it right" because you'd have been fired and maybe even faced some severe punishments from the SEC if you had actually reported your "infinite returns" calculated the way you want to do it. Haha, you think Madoff was fraudulently reporting returns? What you're proposing makes his numbers look "close enough."

Now for a little peacemaking: I understand where you're coming from and you're completely correct that leveraged returns are a very real thing and can have a very real multiplying effect on your actual investment returns. The flipside, of course, is that leveraging can also multiply losses so leveraged investing has higher risks. Leveraged returns are real, but infinite returns are not. As I stated earlier, the term "infinite returns" is just a gimmicky sales pitch that takes something real, twists it just enough to make it sound better than it really is, and then is packaged and sold as if it were something only a few know about. My guess is you first heard about it at a "Rich Dad" seminar or something like that. Is that right? There's a reason those guys have been sued, investigated by attorneys general, the founder filed for bankruptcy, etc. They play fast and loose with their math and other concepts and make their money off of selling those questionable ideas rather than off of investing in real estate.