The above equals means if: 1) Auction price plus fees equals to mortgage amount; and 2) rent covers mortgage plus other running costs; then the intial cash P2 + c1 can be had back once the bank isssues a mortgage. This initial cash then can be used the second time, then the thir time.
Or, what is even better, if the first equation becomes P2 + c1 For example, if a property is worth $150K on the market, and one can buy it in auction for $100K fees included. After the purchase, the buyer goes to the bank to apply for a mortgage, the bank isssues a mortgage of 80%, that is $120K, $20K more than the $100K initial cash. The buyer suddenly have $120K cash in hand!
The cash in hand becomes $140K after the second property; $160K after the third. And $200K after the fifth!
After the fifth property, the buyer suddenly has the cash to buy two properties at a time!
This works only based on the assumption that bank continues to issue mortgages. For the bank to do that, there must be enough cash flow, either from the rent itself, or the rent plus the cash flow from other sources, such as from a job.
So the assumptions are: 1) the buyer has enough cash to buy first property in auction; 2) there is enough cash flow; and 3) the bank is willing to issue mortgages.
Then the cycle goes on or growes after each purchase, thus this process creates a 拍卖永动机!
Am I dreaming here? Is there a better way to do this?
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Now (Sept. 2016) you look back, and realize what you were talking about is not a dream, at least I did this 4 years ago. In Chinese, it is: 空山套白狼!