My goal is cash flow within the first month. For some investments, that goal isn’t realistic. The first distribution might not be for a quarter or longer. (Location 468)
My end goal for each of my investments depends on the specifics of the deal and how collateralized the investment is—meaning how secure and safe the principal investment is. (Location 470)
For me, the ideal scenario is that I get the principal back in one to two years. Certain real estate investments might not return the principal as quickly, but they still could be inside a three-year window. (Location 474)
Real estate and debt investments are two of my favorites. I’ll touch on them briefly here and in much greater detail later. (Location 476)
Do you want to know how to double your return on investment (ROI) with zero risk? Learn how to structure a better deal. Structure is the relationship between the specific investment terms in an agreement. (Location 512)
What you’ll discover in the chapters ahead is what I call my Strategy Stack—a way of combining multiple, non-obvious approaches to earn an even greater return with low risk. (Location 515)
I’ve developed sophisticated filters and decision trees to determine whether an opportunity meets my criteria and should be acted upon. These filters often help me spot invisible deals (more on that later) and avoid overwhelm. The better my filters are, the more time I can spend evaluating high quality investments. (Location 520)
As an entrepreneur, I schedule two uninterrupted hours each week for technology-free thinking to proactively create the life I desire for my business, family, and personal life. (Location 634)
I love what I do because I get to choose what to work on, including who I work with and when those projects happen. I get a sense of fulfillment and satisfaction from learning and then teaching others. (Location 638)
I try to be intentional with my family time instead of working first and then trying to juggle everything else. I used to do what I needed for work and then tried to fit in everything else, including family time, working out, and relaxing. (Location 641)
Here’s another way to look at it. You don’t have to have a job that provides income to live your lifestyle, and you don’t have to have a lifestyle that meets or exceeds the income you’re earning. (Location 648)
I want you to experience autonomy and the liberating feeling of living your dream life. I want you to find the passion to create your ideal lifestyle now, not when you’re retired. Retirement, Social Security, investments, nest eggs, and your health—none are guaranteed. (Location 658)
In my case, it wasn’t until my investment income replaced my earned income that I could see how to buy my time back to focus on what I enjoy most in life. The abundance of time I bought back then allowed me to redirect my energy and focus into creating more income, all the while enjoying my personal life. (Location 667)
It’s not about accumulating millions of dollars in a nest egg approach. Instead, it’s about investing into assets one at a time that produce the amount of passive income you need to cover your lifestyle, whether you invest in these assets directly yourself or you invest through a partnership as a limited partner (LP) with an experienced team that professionally manages and operates these assets. (Location 677)
Yes, the goal is to build up that nest egg, never touch the principal, and live off the interest. That goal, however, hinges on the belief that you have investments that will continually generate enough interest to live on—something that in fact can change at any given moment. Your returns could change, the market could change, and the cost of living will certainly change. (Location 788)
As you start to create your passive income, take the necessary steps to diversify your cash flow across many different asset classes, sectors, and industries. (Location 807)
Starting out, I was conservative with the investments I made. I focused entirely on investments that produced cash flow. Once all our expenses were covered, I became more liberal with my investments. This strategy has allowed us to live a great lifestyle, and it also has given us the ability to be generous with our income as well. (Location 813)
Those investments are riskier than highly vetted real estate rentals (directly or through a fund) or senior secured credit funds that produce predictable cash flow. (Location 821)
I now like to use the extra cash flow that I earn above and beyond my lifestyle expenses to invest in equity investments, stock market indexes, other stocks I like, and other options I consider to be riskier than strong cash flow producing assets. (Location 822)
One option besides investing in index funds is to invest in real estate. I like real estate in general because intrinsic value is built already into real estate and it won’t go zero like stocks can. (Location 941)
Investing in real estate rentals is attractive to a lot of people because it often produces cash flow right away. It includes investing in single family homes, mobile home parks, apartment complexes, industrial distribution centers and warehouses, and self-storage units, as well as other real estate options. (Location 944)
Senior credit funds are another interesting option. You can have a first-lien position on real estate or other collateral, so it is much less risky than other investments. These funds also produce consistent and predictable cash flow, typically on a monthly basis. (Location 948)
Here’s the moral of the story. Never let your ego and fear of losing money cause you to do illegal things that can land you in jail or ruin your relationships, reputation, or marriage. You can always earn back money, but you can irreparably destroy your reputation in minutes. (Location 1066)
My goal is to help each Lion build a portfolio of investments that mirrors my own, providing cash flow with the least amount of risk that is lifestyle compatible. (Location 1081)
And he has an abundance of time to think, which he uses to listen to inspiring podcasts that help him strategize for the long term and then journal his insights. (Location 1097)
The first benchmark to financial freedom that he set for himself was to make it possible for his wife to stop working. (Location 1107)
One of the most exciting and wonderful parts about being a Lifestyle Investor is that you can live life on your terms and by your design. The Freedom Formula allows you to create the life you desire proactively rather than going through life on autopilot. Being intentional with what you want your life to look like is the first step towards becoming a Lifestyle Investor. (Location 1121)
Wealthy people think like wealthy people. They have the disciplined behaviors and thinking processes, and they practice the habits of wealthy people. People without wealth are the opposite. They’re stuck in a cycle of undisciplined behaviors, wrong thinking, and bad habits. They don’t see or understand the nuances and distinctions that wealthy people do. (Location 1195)
The Lifestyle Investor mindset includes believing in and acting on the discipline that each investment must truly represent passive income in which your earnings don’t depend on the time you spend working. (Location 1199)
One example is learning how to structure loans properly. Instead of going for a conventional bank loan where I put 20% down and the bank covered 80%, I actually negotiated a deal with the owner/seller of a mobile home park to finance it. (Location 1208)
which is relevant because my first goal was to have twelve months of living expenses saved just in case we ever needed it. (Location 1213)
As a Lifestyle Investor, I often tried to prepare mentally for worst-case scenarios so I would have a good plan in place in case my family needed it. (Location 1218)
Let’s talk about the concept of wealth optimization. When I look at wealth, my mindset is to take a holistic approach. First of all, I don’t look at wealth as only money. Money is one component of wealth. (Location 1222)
When I first started investing, I was willing to invest a little time at the beginning to get a higher return. Now, my investments don’t take any time—they are truly passive investments—and I’m willing to take a lower return in exchange for my time. (Location 1238)
Starting out, it made sense for me to spend the five extra hours a week it took to run the rental business myself. I needed to learn how to do everything anyway so at some point I could replace myself. (Location 1242)
If your objective is the highest rate of return, and you’re willing to invest a small amount of time in the beginning, investing into some sort of real estate rental like mobile home parks is one of the easiest ways to start lifestyle investing. (Location 1248)
If you have more money and don’t want to spend time in the beginning, here’s an example of how you can leverage both your time and money to create true passive income as a lifestyle investor by using hard money loans. The example shows how each of my principles of investment comes into play. (Location 1251)
A hard money loan is a loan that is secured by real property. Often it is considered a last resort loan in the event that someone can’t get bank financing. Many people use these loans as a short-term bridge loan or construction loan before they refinance a property with long-term financing. (Location 1254)
I like the short duration of the hard money loan with a high interest rate and points (or fees) charged on the front of the loan. (Location 1261)
Good investments are not that difficult to negotiate once you’re educated. You can’t just hope for the best results. You need to do enough due diligence to feel comfortable with most investments out there, and then you need to structure your investments properly. (Location 1335)
I liked my first mobile home park deal because it was a seller-financed situation. It was a non-recourse loan, which means if I defaulted in any way, the seller didn’t have the right to come after my other assets. (Location 1337)
I like seller-financed deals because of this non-recourse aspect. But I also like them because the process is much cleaner and quicker. You don’t have to go through all the underwriting and jump through all the hoops that you would with a bank. (Location 1340)
One of my favorite investments right now is a senior secured credit fund that specializes in lending in the cannabis, CBD, and hemp industries. (Location 1355)
Also, these industries are uncorrelated to the overall economy, which means it is expected to grow for many years to come even if the overall macro-economic conditions enter into a recession. (Having non-correlated investments in your portfolio is important so that you have defensive positions that do well even if the stock market or your other investments go down.) (Location 1368)
The Warren Buffett quote that opens this chapter perfectly sums up the concept of Reduce the Risk: Don’t lose money. If you can set up an investment with my Strategy Stack, you can generally negotiate great terms and reduce the risk at the same time. (Location 1400)
Many of my students and clients have successfully shifted their investing mindset from being equity investors to becoming cash flow investors. An equity investor is someone who risks capital for an eventual payout, but most of the time, the deals are basically zero-interest loans for an indefinite period of time, which is incredibly risky. (Location 1404)
I had an opportunity to invest in American Airlines’ former headquarters in Dallas, Texas, through a commercial real estate company in Austin that I have done several investments with. (Location 1409)
Its estimated construction cost in the late 1980s of almost $490 million can be contrasted with today’s replacement value of over $400 million. (Location 1412)
The founder and president of the commercial real estate company personally guaranteed the investor put option with his own assets, so even if this investment failed, he’d still own the liability and pay investors with his own money. (Location 1445)
The best way to find an invisible deal, instead, is to find a distressed business that’s unprofitable because it hasn’t been able to get rid of dead weight, baggage, or a part of the business that’s obsolete. (Location 1459)
Through my investor network, I negotiated an amazing invisible deal that even industry insiders didn’t know was happening until the deal was done. It consisted of breaking apart the online from the brick-and-mortar retail and acquiring the brand. I was able to negotiate amazing terms for myself and a group of other investors I helped assemble. (Location 1468)
As an outside investor, one thing I’ve learned that drives me is to make sure I have a significant amount of consistent “deal flow.” (Location 1481)
I listen to many podcasts, and one of my favorites is, “How I Built This.” It stimulates my thinking and causes me to think deeply about entrepreneurial endeavors. (Location 1553)
In each of these scenarios, your money is not being fully utilized; it’s just sitting idle. You hope you get a good return, but you won’t know for a while. (Location 1633)
Instead of having money tied up in one investment for ten years and waiting to see how strong the return is, a better strategy is to take that same money and invest it in five or more deals with one-year and two-year terms that produce cash flow immediately. (Location 1634)
Now let’s look back on the Dressbarn deal from the previous chapter. The business was sold in a fire sale, more of a liquidation event. The deal was structured around a one-year note paying a 20% interest with a monthly distribution. (Location 1643)
Private multifamily syndication deals are often difficult to get into, so I worked hard to move myself to the front of the line by developing relationships with the best general partners and operators to have access to their exclusive deals. (Location 1677)
When you think about mobile home parks, what’s the first thing that comes to mind? If wealth isn’t one of your first thoughts, keep reading. (Location 1694)
My clients and I are in several deals right now that return our principal investments at the one-year mark. Some are real estate deals, and some are debt deals. Some of them are unique structures investing in operating companies. (Location 1616)
Notice the outcomes, especially as they relate to the velocity of money. You have earned cash flow the entire time, you have de-risked the investment because you have your principal out of the deal, and you have been able to get some equity even though all your money is out. (Location 1637)
Successful investors realize that having an experienced general partner and strong operator is just as important as having strong financials. One without the other is not a good deal. You really need to have each. (Location 1818)
Mobile home parks and industrial warehouses are perfect examples, and these assets are often purchased in private real estate funds. At first glance, they may be unattractive and perhaps even just weird sounding investments; however, they often require a small down payment, and have minimal risk (especially if you are buying them cheaply enough). (Location 1820)
In an up or down economy, low-income housing such as mobile home parks is a great investment. Everyone needs a place to live, and they are the most affordable housing in a town or city. (Location 1824)
For a lot of deals in which people invest in a seed round, which is an early-stage investment in a company before it’s typically profitable and showing signs of sustaining business, they invest in it for a certain amount of equity and hope the company makes it. (Location 1866)
When I stack multiple deals like this one together, investing gets really exciting. If for any reason one of the deals does go bad, I would have others that perform really well and give exponential returns, which means I’d be way ahead. I actually like to structure these deals so that even if five deals go bad and only one deal goes according to plan, I still come out ahead. (Location 1920)
I use sidecar agreements often to guarantee that I get preferred treatment when I invest. If I’m investing with a group of investors, I make sure that they also get the same preferred terms that I get. Here’s how I stack sidecar agreements: (Location 1929)
Last, I often negotiate preferred terms on an opportunity to co-invest in additional investments. For example, let’s say I’m investing in a fund, and that fund has additional investments that don’t fit the criteria or would represent too large of a single investment for the fund. (Location 1939)
One example of phantom income is the appreciation you may see in a rental property from one year to the next or over a longer period of time. (Location 1964)
I use a specially designed whole-life insurance policy (much different than off-the-shelf policies) to finance my investments and operate like a bank, but with much better terms, as I discussed in the previous chapter. I use this same bank replacement strategy, taking loans against my whole-life policy, to earn multiple returns on the same money. (Location 2052)
The life insurance company that you want is one that uses a non-direct recognition dividend structure. What that term means is that the company will pay you the same dividend regardless of whether you have a loan against your policy or not. (Location 2060)
Look for investments that allow tax-free growth. This is the best type of growth that exists. These vehicles allow your money to compound faster than any other vehicle. Nothing interrupts the compounding, so these returns have the strongest velocity. (Location 2093)
First, let me say that some lending institutions specialize in lending money at lower percentages than a life insurance company and will use your policy as collateral for that loan, just like your life insurance company does, when you take a loan against it, saving you an additional couple of percentage points. (Location 2098)
At any given time, other franchises might resemble an opportunity like this—high demand, proven record of success, low risk and high profitability, with operators who may be stretched to their credit capacity but have access to deals unavailable to the general public. (Location 2127)
In my case, a great opportunity opened up for me to get involved as an investor with two operators who didn’t have access to enough credit but were willing to put in sweat equity. (Location 2130)
They found the opportunity to invest in this organization through one of their connections, but they didn’t have the capital to open it by themselves. (Location 2133)
If you’re a collector of rare or treasured items, you know the value of a highly connected person who searches far and wide, makes phone calls, finds what you want for you, and saves you 40% on a deal. (Location 2181)
When you find these resources, you add the highest quality, precision tools of all to your investment toolbox—relationships. When combined with your other tools, they can give you access to big deals, more leverage, better terms, and ideas and concepts that you would never learn anywhere else. (Location 2198)
Find partners who will do performance-based deals instead of fee-based services. An exception is if you’re working with fiduciaries, for example—professionals with decades of experience who charge a simple fee for services and are completely transparent with any commissions or additional fees they receive. (Location 2227)
It was an invisible deal because it was an off-market deal where the buyer cold-called the owner of the property to see if he would sell the park. The two parties signed a contract. They avoided the unnecessary fat of a broker or realtor. (Location 2273)
Alternatively, if they perform well, I make sure the middlemen get some profit that they typically don’t earn. (Location 2297)
That is when I first learned that a tremendous amount of misinformation and manipulation are the norm in the financial services industry and conventional investment world. (Location 2312)
Besides learning how to cut out the fat, it’s really important to be intentional about who you are spending time with—and focus on spending quality time with people you admire most and want to do life with. (Location 2319)
You can make a lot of money investing in businesses with little or no capital by increasing the value of that business and getting paid while you do it. (Location 2336)
mouth. An operating company is any business that produces goods or services and has regular operations, revenues, expenses, and a team, even if it’s just a one-person team in the beginning. (Location 2346)
The size of the operating companies I invest in generally ranges from small to medium-sized businesses with gross sales of $500,000 to $30,000,000, although I have had a few much larger as well. (Location 2348)
Sometimes the businesses just need some sort of loan to help scale the company and hire more people. (Location 2351)
I am always “sharpening my axe” and reinventing myself to offer the maximum amount of value for anyone I work with. Often people work with me just to gain access to my network, which I am happy to offer. I think it’s a great idea for most business owners. (Location 2357)
At this point in my career, my favorite deals revolve around just giving a loan with some additional kickers and connecting the business owners with my network of professionals and experts so they can scale their company without even needing any of my time. (Location 2359)
Some of these companies had been in business for over twenty years at the time I invested and had a strong track record of consistent revenue and profit. (Location 2378)
I like investments where I can cap the downside risk but have the opportunity to also participate in a big upside return. (Location 2381)
Other times I structure equity in the company, especially if there is plenty of opportunity for distributions or the company has the potential to grow quickly with an extremely high valuation in the future. Sometimes we agree to both a revenue share and equity. (Location 2385)
In Commandment 1, “Lifestyle First,” I talked about hard money loans, which is another example of being in the first lien position. (Location 2389)
The more deals you do, the faster you’ll grow your value and gain experience, which gives you more leverage. Every business owner becomes a mentor to you. (Location 2393)
Finally, keep in mind that the biggest mistake new investors make is not asking enough questions to find out where the fat actually is and how everyone makes money. (Location 2403)
Once you start making a lot more money and have more assets, you’ll find that you’re willing to pay a little extra to work with these experts in some deals because you can do even more deals, which more than makes up for the increased expense. (Location 2405)
If my Lions Network doesn’t earn a minimum of a 2X multiple on our investment by the end of that five-year term, the portion of the agreement specifically related to earning warrants on any additional portfolio companies automatically renews for another full year until the 2X minimum is hit. (Location 2436)
If my investor group doesn’t like the direction the company is headed, we can get our investment back at any time with a 20% interest payment for the duration the money was invested. (Location 2451)
That’s a total myth. You don’t need to have the money. I’ve learned that when you have a good deal, the money shows up from a variety of sources. Investors want a good deal. If you can find one, it’s really easy to raise money from them. Sophisticated investors will recognize a good deal and want in. (Location 2469)
In some instances where I’m buying real estate or investing in other assets, I’ll use a bank. Traditionally banks use a recourse loan, which means if I default for any reason, they can come after my assets. (Location 2473)
If things go south, hopefully the bank will take the asset and you can move on. Legally, however, the bank has the right to come after all your assets until they get paid back in full. (Location 2475)
Another reason some people don’t invest in real estate is because they think it is too great of a risk. That is a total myth as well. The truth is, they don’t invest because they don’t understand it well enough and haven’t committed the time to learn it. I don’t buy anything based on the hope that it appreciates; I buy assets because I know for a fact that the cash flow starts today. (Location 2484)
When I do, I often realize, I can get in this deal for virtually no risk and negotiate better terms because all those people who looked before me looked at the first offer someone made to them without any negotiations. (Location 2488)
Another successful Lifestyle Investor strategy is to buy assets and hold them forever and never sell them. If you need cash, you can just borrow against these assets and pledge them as collateral. You can pledge your real estate, your stock, and your whole-life insurance as collateral, among other assets. (Location 2522)
This example shows what every sophisticated real estate investor does. As the government continues printing more money, your real estate will continue to increase in value because as the supply of money expands, so will your assets. (Location 2543)
That’s because when you prepare for the worst, it never happens. (I’ll tell you what this investment is at the end of this chapter.) (Location 2628)
I also only hire professionals who are the foremost experts at their craft. I want to learn what they know so I can draw upon that knowledge in the future. (Location 2636)
I take great joy in paying for top-notch legal and professional services. I used to be bothered by paying so much in legal and professional fees until I understood how much work and effort it would take me to figure those things out on my own. Now I see that I earned an incredible return from hiring the best and brightest minds to help me. It is the happiest money I spend when it’s the right fit. (Location 2644)
I had invested in a maintenance supply company with two business partners through another business we owned together. (Location 2694)
During this time, a conflict arose between my two partners who ran the operations of the parent company and the owners of the maintenance supply company. (Location 2699)
The royalty agreement was based on top-line revenue on gross sales; however, I reduced the overall amount the maintenance supply company would pay to help create a better cash flow scenario for those two owners and their company. (Location 2704)
I invested time with my attorney, analyzing my investments and cash flow. He connected me with many of his colleagues at his law firm to get expert recommendations on several of my current ventures. (Location 2707)
I negotiated a percentage of top-line revenue with a monthly distribution, which is always one of my favorite investment structures. I was able to negotiate additional warrants if they choose to sell in the future, and that right is based on gross sale proceeds rather than net sale proceeds, which is a very important distinction. (Location 2725)
My goal is cash flow within the first month. For some investments, that goal isn’t realistic. The first distribution might not be for a quarter or longer. But for new investors, it’s optimal to invest in a way that provides some amount of cash flow immediately. (Location 468)
What matters is actual rate of return and your actual dollar return because that’s real money. (Location 780)
Focus on passive income first to cover all expenses, and then diversify that passive income to have multiple income streams so you aren’t reliant upon just one asset for income. (Location 830)