WEBVTT

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My mentor sold his company for $3 billion and I asked him how should I set up my wealth?

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Welcome to the game where we talk about how to get more customers, how to make more

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customers, how to keep them longer, and the many failures and lessons we have learned

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along the way. I hope you enjoy and subscribe.

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My mentor sold his company for $3 billion and I asked him how should I set up my wealth?

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In this video, when I talked about it, is one of the many components that he broke down for me

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in terms of how I should set up my wealth and my investment as an entrepreneur, all right?

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And so everything I'm going to break down is based on what that conversation was and what he

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explained to me, all right? So right off the top, he was like, listen, there's only two things

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that you can do with your money. You can either buy stuff with it or you can lend it to people

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and get interest on it. That's it, all right? And so once you understand that those are the only

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two things you can do, then you can start analyzing your decisions appropriately. He's like,

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from a risk perspective, all right? These are the ways that we decrease risk for the investments,

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especially if you're lending. The first is that we make sure that you are the top of the capstack,

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all right? Capstack just means the stack of capital. So if you have multiple people who are lending

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or own something, who gets preferential treatment, all right? So a preferred creditor or somebody

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who's preferred stock means that if something goes bad, that person gets paid out first, right?

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You can even have liquidation preferences. I don't even get into that stuff. But if you're top

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of the capstack, so for example, if you lose your job and you can't pay your mortgage anymore,

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the bank is the one who gets your house because they are the preferred creditor. So you don't get your

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house, your bank gets your house. Even though you put money into it, the bank put money into it too,

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and they are the preferred creditor. So they get your house even though you lost the money, right?

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And so that is the first element of risk. The second one is like, you want to be able to see at

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all times what's going on. And so that's called transparency, all right? So that's what kind of

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reporting do you have? What kind of relation do you have? How clearly do you have access to the

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books? This is why publicly traded companies, for example, you have lots of transparency, right?

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So the second way you decrease risk is through transparency. The third is through liquidity,

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all right? So this is speed to money or money transferring from money to money, right?

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Is liquidity. And that means that you can get in and out of position very easily or very quickly,

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or you can translate one asset into money and back into it very quickly. And that also is an

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element that decreases risk. If you have to hold on to something and you want to get rid of it and

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you can't, that means it's not that liquid, which means you're at higher risk, right? And so he's

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like, so this is what I'm thinking about when we're lending money. Now the second thing is what are

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we going to look at for the investment, right? There's four pieces to what you need to look at for

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for all your investments. The first is what is the yield, right? Is this thing going to pay me

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month over month or month? So for example, if I bought crypto, that's not going to pay me anything,

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right? What that's going to do is increase in value or our hope is that it's going to increase

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in value. That is one of those, the greater full theory, which is you buy and then you hope that

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there's somebody else in the future is going to buy it from you for more money, right? And that's

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appreciation. So you have equity growth. The next is the yield, which I mentioned earlier, which is

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do I get cash flow? So if I had a real estate property that would give me cash flow or if I owned

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a business that would give me cash flow, whereas if I'm buying an asset and hoping it appreciates

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like crypto or like gold or whatever, those would be things that were hoping the increase in value.

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The next is is it tax advantaged, right? And what I mean by that is if you have two different

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investments and one of them has a better tax structure based on laws, then that would be a better

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investment. So this is why it's a variable because if you can have two things and one of them

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has its characteristic, then it would make it a better investment, right? And is there a ways that

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we can structure our investments so that we get a better tax treatment? And the answer is yes,

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right? And then finally, is a preservation of capital, right? Which is how likely it might

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have lose my money, right? And what I was, what I can tell you is of all the guys that I know who are

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worth half a billion, a billion, this, this individual who sold his for three billion or more is that

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they are far more far more and they just repeat it over and over and over again. So if this is

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repetitive, then take it in because I've been dealing with it, you know, on their side too,

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is that it's way more about return of capital than return on capital. They're far more concerned

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with making sure that they keep their money than that they grow the money. And I think that having

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this defensive first strategy has been something that I've seen over and over and over and over and

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over again and you listen to Charlie Munger and you listen to Warren Buffett, it's always never lose

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money, right? It's always never lose money. And that's always the first and second thing that

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they're thinking about because any number, no matter how big it is multiplied by zero is still zero.

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So you can erase an entire, you know, lifetime of excellent decisions by one very poor decision,

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which is why mitigating downside is so important. And this preservation of capital kind of

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relates to these three things that I mentioned earlier, all right? So now that he laid this

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as the foundation, he's like, you're an entrepreneur, all right? And so you're going to have buckets

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of wealth. And this is how we're going to set it up for you, all right? So the first is iofacquisition.com,

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all right, which is our portfolio company. That's where all of our companies sit in, all right?

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And so for those you don't know us at the time of this making, we're doing about $85 million

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year between our portfolio companies, all right? And what happens is that cash, then cash flow is

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generated, right? Every day, every week there's positive cash that's being generated from these

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businesses because those are the types of businesses that we like to work with. So we're not,

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there are businesses that generate, you know, losses for long periods of time and then they try and

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sell later like software companies tend to be in that we own one software company. But the vast

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majority of our portfolios is asset light, high cash flow generating businesses, all right? Now

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there are three buckets that this cash goes into, all right? The first and simplest bucket

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is indexes, all right? And the reason we do this for us specifically is that they are passive,

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all right? And they are truly passive, all right? I don't have to worry about Coca-Cola and how it's

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going to run. I don't think about it. I'm not on their board meetings. I'm not giving them insight,

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right? I let Uncle Warren do that for me. But indexes are the first, probably first, and 50% bucket

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for us in terms of where our wealth is. And there's some advantages to indexes that I'm going to share

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in a second that you get that most people don't know about, all right? Especially people who don't

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have as much money yet, all right? And that's what we're trying to solve with this channel here, all right?

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So indexes, and the reason we do this is because A is super passive and B is because I'm bullish

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on the long run that I think the economy is going to go over the long term. And so I want to just

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preserve my capital and not have to think about it so I can immediately allocate the cash. And

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this is something that people don't talk about. So if I can allocate all my money almost immediately,

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every single month, then I get so much more growth over my portfolio over my entire career because if every,

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let's say I only did real estate, for example, well, there's a time, there's a time delay to allocate

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cash flow in real estate. You have to go find deals, you have to review the deals, and then you have to,

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you know, make your offers, secure the deal, negotiate, and then you have to fund the deal,

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and there's the whole escrow period. There's all this, there's time delay, right? And so during

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that period of time is when that money could have been growing, but it's not, right? And so just from

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from a context of perspective for you, like the speed of allocating capital also can increase the

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returns. Now I'm not saying do things in rush because one of our money rules is mistakes, love,

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rush decision, all right? So we don't want to do that. But it's just that there is a mathematical

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component to allocating capital quickly, all right?

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Hey guys, love that you're listening to the podcast. If you ever want to have the video version

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of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff,

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sometimes it can help hit the brain centers in different ways. You can check out my YouTube

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channel. It's absolutely free to check that out if that's what you are into. And if not, keep

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enjoying the show. So indexes is our first big bucket here. The second big bucket is multi-family

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real estate, all right? And the reason we do this, multi-specifically, people are like, why don't you

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do single-family home? Because I have to buy like two houses a day if I was going to do single-family

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homes, like just from the amount of cash that we generate and I'm not saying that to posture,

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I'm just saying realistically, like it would it would become an entire business and we could do

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that. But then it would become a business, but that's not my main business. This is my main

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business over here, running our portfolio company. So that's what I need is spending my time doing,

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not trying to buy, you know, homes and bird dogging and things like that. That's just not my

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thing. So I'd rather buy 300 units at a time and an allocator capital in that way. Now here's

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the specific reason for us, why we use multi, is that if you can designate yourself as a real estate

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professional, which is 750 hours or more per year, then you're able to take your depreciation of

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your assets, like buying a big, you know, real estate thing and depreciating its your regular income.

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So let's say I buy a building for $10 million. All right. And let's say I make $10 million

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this year. I'm just using simple math numbers. Okay. Now I might be able to take an accelerated

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depreciation of about 40% on this against my income. So this now I only get taxed on $6 million.

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All right. Here's why this is cool. Because the four million, right, that I'm saving is probably

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going to save me about $1.1 million, $1.8 million in taxes and that goes straight to my net worth.

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That's $1.8 million that I can now put into indexes or I can put into building, you know,

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whatever it is, right? And so because of that, I actually am able to grow my wealth at even

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fast rate because this is tax advantage if you remember this guy, right? And so that is why we like

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multi-family. Now here's something cool that you may or may not have known about. But when you're

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looking at indexes, for example, one of the things that's awesome about indexes is that you can

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actually loan money or get loans on your indexes at about one and a half percent. All right. That's

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crazy low interest rates. And the reason is because it's a secured loan. And typically you can take

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about 50 to 60%. There we go. Of your indexes. So let's say I had $10 million here. I'm just using

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simple math. All right. Then it means that I would be able to take five to six million dollars of

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this and only pay one and a half percent on that. And I could buy real estate. I could buy whatever

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I felt like doing using that money and basically paying nothing on it. And so for context, you know,

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one percent of five million dollars is 50 grand. All right. So you have five million dollars.

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But I can't make $50,000 a year or $75,000 a year if it's one and a half percent on that money

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in a year. Then I probably suck at investing. And that's okay. But like you get the idea, right?

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Like if I can make even 10% right on my five million dollars, then I would make five hundred

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thousand dollars. And it would cost me 50 to 75 per 50 to 75 thousand dollars per year to carry

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that money, right? It's a great deal for me. And that is why I like indexes a lot too is because

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it actually allows us to still reinvest in the other things with super, super low cost low risk

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money. All right. Now the third bucket here is cash slash spec. All right. And technically,

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cash and spec are different things. But I'm just going to put here for sake of explanation.

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And the reason he told me to put this here is like, there's always going to be things. He's

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like, you're entrepreneurial, right? He's like, you're always going to have little deals that come

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up and you want to have some drive powder, which is the term that you use on the sidelines so that

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you can deploy that opportunistically, right? And like for example, I think I recently told you guys

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about a $2.5 million debt note that we wrote that will probably make three or four hundred thousand

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dollars on in about 90 days, right? So I'm going to give $2.5 million and then they're going to hold

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it for 90 days and then I'm going to get three or four hundred thousand dollars back plus my

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original money. And it only that I only get those types of deals because I always have cash on me.

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And so people know that I always have decent amounts of cash. And so they will hit me up and be like,

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hey, can you fund this deal? Can you, can you, you know, underwrite this, this, this, this note or

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whatever it is? And because they know that I have a lot of capital on hand, I have these opportunities

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that come towards me, right? And so with that, I can, I can generate, you know, pretty good returns

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on having this stuff. And I just like having me personally for my peace of mind having a certain

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amount of cash on the sidelines, right? And so this was the investment strategy that he outlined

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for us. This is kind of our wealth strategy in terms of big picture of how we allocate our money.

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So the money gets generated. Boom. It goes here. We basically split it between indexes and multi-family.

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We can always use our indexes to generate more. We can usually take loans against that if we want to,

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if we want to deploy stuff and get even better returns or whatever. And then finally, we have our

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cash and speculative stuff. And I tend to have a little bit more cash because I am an entrepreneur.

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And because I am an entrepreneur, I like to have that liquidity available to me at all times.

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All right? And you'll notice here that this is not a very high risk portfolio. And the reason

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for that is because all of my, my real net worth is being generated here, right? We've

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all my net worth is being generated in this bucket, right? This is where the vast majority of my

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net worth has been created and that is where all my risk lies. Now, you could make the argument,

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and this is what you know, he made, I mean, he's like, it's not that high risk because you know what

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you're doing, right? He's like, and that's the easiest way to decrease your risk is to know is,

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like diversification is the hedge against ignorance as Uncle Warren says. And so he's like, you know

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what you're doing here. And so it's not actually low risk, but it's still the vast majority of your

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net worth, which is why we can, quote, beat the market by a big, by a big amount because we're

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actively involved in each of these companies. We have niche expertise in these industries and we

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know how to grow them at a much, much, much faster rate than what the market does. But this is much

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more a preservation of wealth strategy than a, especially these three buckets here, than a true

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true growth strategy. But this is how we set it up for me because I'm an entrepreneur and this is

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kind of how my risk, you know, looks in my life. And so I hope you enjoyed this video. The reason

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that I make this video and the reason this channel exists is because we're trying to grow a portfolio

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to a billion dollars a year in revenue. And the only way we can do that is by reaching more entrepreneurs

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and helping them out. And then hopefully getting the opportunity to invest in their businesses. And

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for everyone else who is an entrepreneur, my goal is to help you grow your business and not sell

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you anything at all. So I've got something really cool that's coming out soon. Then really excited

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about it. So I don't want to time on it. But I hope you guys got value in this video. I'll see you in the

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next vid. Keep being awesome. Bye!