Will stocks carry you to your financial goals? How about bonds? A diversified portfolio?
Not even close. There are four assets that will make you rich, and if you don’t invest in some of them, your retirement planning is likely to be slow, tedious and disappointing. But if you master even one of these four assets, it can change the game with your wealth and finances.
I speak from experience, having allocated money in several types of investments over the past 25 years: car detailing, mutual funds, oil and gas and hard money lending. I even looked into storage units at one point. None of it made the difference that these four assets did, so let’s get dig into each one.
I’ll note upfront that I’m talking about private businesses here. In his book Buy Then Build, Walker Deibel talks about acquisition entrepreneurship, which means buying an existing business instead of starting one from scratch. The rationale makes sense: most businesses that start from scratch and follow the “Silicon Valley tech startup” approach of raising money and burning through it—well, they usually end up failing before they make any money.
Acquisition entrepreneurship stacks the odds in your favor. When you buy a business and take an entrepreneurial approach to building more value, you quickly improve cash flow or even have it from day one. The combination of an existing small business’ profitability and sustainable infrastructure with new innovation and drive by an entrepreneur is a magical recipe.
Existing businesses are already established with customers, brand awareness, employees and most importantly, revenue and profits—all the things that a startup doesn’t have. You don’t have to go out and raise money for months or even years, all while trying to build sales from scratch with a new product. That’s because you have a profitable infrastructure from which to begin and an established market in which to operate. You’re not worried about being early to the market, having to create a market from scratch, or racing other startups to grab market share.
When you buy a business, typically with greater than $1 million in revenue, you remove a lot of the risks that are inherent to entrepreneurship. While brokers typically want to see a few hundred thousand dollars in available cash, the nature of buying an existing business makes it’s much easier to gain access to capital. As Walker points out, banks will offer loans to buyers for up to 90% of the purchase price using the assets of the business as collateral.
The financing of these deals is typically done in one fell swoop: you bring the down payment or some type of equity infusion, and the bank provides the balance. The advantage of going this route is that you own 100% of the company. You’re not giving up equity to partners.
Look for businesses that have recurring revenue because that revenue can provide cash flow now rather than waiting 30 years for retirement to get here. Also, target those businesses that can operate without your daily involvement. That said, you still want to know the metrics that matter and how to manage them. That’s the secret sauce you can bring: being able to monetize the business better than the previous owners, whether by reducing inefficiencies, leveraging technology to cut costs, or developing new product lines that attract new customers.
#2: Real Estate
Real estate is an asset that could be a good investment for some… and a bad investment for others. It all depends on you. The risk, after all, is in the investor, not the investment.
These assets are more active than many people are comfortable taking on. They’d rather hand their money off to someone and bank on that passive income, but the reason that model has failed so miserably is because people don’t truly know whether it’s working or not. They’re just trusting and hoping it’s all going to work out. Real estate doesn’t really work like that.
It requires hands-on involvement. I wrote extensively about real estate investing in my book, 5 Day Weekend, which I co-authored with Nick Halik, so I won’t make this post a deep dive into the subject. What I will offer are ten points to keep in mind with real estate investing.
First, focus on cash flow so that you can be profitable and lower your risk from day one. Second, the profit is in the purchase. When real estate is done right, you make money not when you sell, but when you buy. Third, look for multi-unit properties. With those, you do one financing deal but get multiple properties, and if you have one vacancy, you’re still producing cash flow.
Fourth, get your financing in place before you buy. Get pre-approved, meet with the bankers and planners beforehand and make sure you understand the ins and outs of your loan. Fifth, know your market and your numbers. Collect solid data, set parameters, educate yourself and only invest once you find something that makes sense according to the numbers. Sixth, don’t get impatient or emotional. You might look at bringing people onto your team who can check your excitement when the rose colored glasses are on. Be careful and logical in your analysis.
Seventh, buy in the right location. Your profit depends on the location, so study market trends and learn where the deals—and the demand—are wherever you want to buy. Eighth, find properties where you can build sweat equity. Are there older properties available where you can increase their value through upgrades that you put into them? Ninth, be smart about your renovations. What’s worth the money and what’s not worth the money? Keep your budget expenses to 15% of the purchase price. Tenth, leverage technology. Screen the tenants, create systems for receiving the rent and automate the process of building an emergency fund. Things are going to break down, so you want to have enough cash on hand to handle repairs.
#3: Intellectual Property
Intellectual property is everywhere, even if you don’t realize it. Think about the books you read, the podcasts that keep you company on your commute and the standup specials you laugh at on YouTube. That’s all intellectual property. Ask yourself: where do you have expertise?
Maybe you’re a great cook or love doing crafts. Maybe you’re handy with tools and can fix anything that’s put in front of you. Whatever your area of expertise, can you improve the industry that you’re in? Can you educate people on a product or process that solves a problem or improve someone’s life? If so, you can turn that intellectual property into a product.
So much of the game is won when the team is picked, and one of the most important teams you can have is a good tax team. Why? Because most people are tipping the government.
Like it or not, the government is your partner as you work to build your income. They’re not the most welcome partner, but the good news is: unlike other partners, you absolutely don’t want to pay them more than the bare minimum. For that, you want a good tax team on your side.
So many people are paying more in income tax than necessary because they don’t know the options they have available to them. For example, do you know about the Augusta rule? It allows you to write off your home 14 days a year. What about R&D credits? Or picking the right corporation so you can differentiate your income and avoid self-employment tax?
I bring these up to illustrate a crucial point: you’re almost certainly overpaying on taxes. That’s the value a standout tax team can offer you. At www.wealthfactory.com/tax, you can download resources that will show you how to do what I have mentioned.
Pixar put it well. If you give a brilliant idea to a mediocre team, they’re going to screw it up. If you give a mediocre idea to a brilliant team, they’re either going to fix it, or they’re going to throw it away and come up with something even better. You don’t have to go it alone on your journey to financial independence. I encourage you to utilize the expertise of others along the way.
Don’t Wait for Retirement
We’ve all been sold a bill of goods when it comes to financial independence. We’ve been told to invest in assets like stocks and bonds that will hopefully one day deliver us to the financial promised land. But why take the risk inherent with those investments? And why turn your hard-earned money over to someone else to manage something you don’t understand?
Most of all: why wait until retirement? You can enjoy financial independence now. Utilize these four assets and they’ll make you rich in a period of time that is much shorter than 30 years.