Wow…It has been a while since I have posted an article here! I’ve been a bit busy with life and being a Real Estate Agent.
I just wanted share an update on how my real estate sales business did this year.
This was my first full year as a real estate agent, so it has allowed me to look over my numbers and performance to establish a baseline to grow from. Here are the highlights.
In the past year, I added 398 contacts to my database. What is the big deal about that? For every fifty people that you market to at least 12 times a year, you can expect one sale. So that allowed me to add four potential additional sales a year going forward.
Out of those contacts, 275 were potential buyers or sellers. That lead to a total of 87 sales opportunities, with 24 being listing opportunities and 63 being buyer opportunities.
I closed 16 total units with a production volume of $2,464,390. That was 7 listings at $880,500 and 9 buyer sales at $1,583,890. The average sale amount was $154,024.
I ended the year with 5 pending deals carried into 2022. 4 listings and 1 buyer. As of today, 17-Jan-2022, one of those listings has closed and buyer sale should close this week.
Remember, if you have a real estate need, whether buying or selling, give me a call or shoot me an email. It doesn’t matter if you are outside of my area, I can connect you with a Rockstar Real Estate Agent!
Now for the business breakdown…I had a Gross Revenue of $81,468. This included $68,581 of Gross Commission Income, $9,574 in referral Commission, and $3,308 of sales of oilfield testing equipment liquidated for a client.
Out of that, I paid $20,502 in “Company Dollar”, (split of my commission to the brokerage), $4,115 in Royalties to Keller Williams Realty International, $1,624 COGS, (client split of testing equipment sales), and $9,397 in operating expenses. OPEX includes advertising, training, dues, professional fees, etc.
Overall, I had a Gross Profit of $37,720 before taxes.
Not a bad start for my first full year! AND, this was while also serving as the Market Center Tech Trainer, in addition to the whole area shutting down for the whole month of September due to Hurricane Ida.
If you are interested in becoming a real estate agent, get in touch with me. It’s a really cool career and much more enjoyable than my previous career.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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Clint C. Galliano, a native of Lafourche Parish, has lived in the Houma-Thibodaux area for over 36 years and is currently a REALTOR® with Keller Williams Realty Bayou Partners in Houma, La. He has been involved with real estate investing since 2017 and hosts the local Real Estate Investment Association. Real Estate is his passion. Clint previously worked in drilling fluids and drilling fluids automation for 28 years. He lives in Bayou Blue with his wife and two daughters.
Welcome back! I was talking with Kevin@DeliberateConsulting.com about things we should do differently in our business (disclaimer: Kevin & I are partners/investors, along with others, in a high-end door manufacturing business). One of the things he brought up was that all of the partners should have read Michael Gerber’s “The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It” [http://a.co/d/5JhEnwk] before we decided to invest in a business. Kevin also suggested I write a blog post about it and how it can help you in business.
The E-Myth Revisited
The E-Myth Revisited is a wonderful book that provides guidance for individuals having an “Entrepreneurial Seizure” as the book’s author, Michael Gerber, puts it. It provides a mix of case history, told as an on-going narrative of a client, and guidelines for successfully organizing an entrepreneurial idea into a business operation manual. It tells how you should work ON your business before you work IN your business. AND, your goal should NOT be an employee of your business, doing things yourself.
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Business Buying, Two Years Post-E. Seizure
I did not read the E-Myth until after we had already purchased the business and were off to the races. I shared it with the other investors, indicating how important it was that we follow its recommendations. Kevin read it and as indicated by the prompt for this post, he feels the same.
Looking back, I have to agree with Kevin. We should all have read the book before deciding to buy a business together. We did not understand how to operate the business. What little “processes” we received from the previous owner were a jumbled bag WTF? and Huh? And, on top of that, the partner directly involved in the business adopted everything wholesale, becoming too mired in the day-to-day to view anything strategically.
This is exactly what the book is designed to avoid. If we had spent more time understanding how the business operated and put in systems & processes to optimize its operation prior to purchase, we would be a lot further ahead.
We are slowly getting things on track and working to bring efficiency to the operation. Only time will tell if we will be successful.
Lessons Learned
Kevin and I are starting to collect lessons learned so we can apply that to future business endeavors, investment advice, and consulting efforts.
Below are some, in no particular order:
Read the E-Myth Revisited
Put together your operating manual
Understand you costs
Create an operating agreement defining who will do what
Stick to your operating agreement
Understand Cash Flow
Please email me, comment below, contact me on LinkedIn, Twitter, or my Facebook page to share your Lessons Learned in operating a business.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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This week we are talking about different types of investments that you can utilize to better your personal finances. I’ll briefly touch on traditional investments (stocks, bonds, etc.), investing directly into a business, and various forms of real estate investing.
Traditional investments are what most people usually think of when they think of “Investing”. This can be stocks, bonds, Exchange Traded Funds (ETF), etc.
There are three main approaches you can use:
Investment Advisor
Robo Advisor
DIY
Investment advisors usually handle clients’ money for a fee. In most cases, that fee is a percentage of the total portfolio balance. Additionally, unless the advisor has a fiduciary duty to you, the investor, they may push you towards investments where they get better or additional commissions, as opposed to investments with less fees and/or commissions involved. Also, you need a sizable balance to start your account, say, in excess of $500,000.
Robo Advisors are basically algorithms that select the best investments based for you based on many criteria. They usually invest in ETFs and can automatically do things like rebalance portfolios, automate tax loss harvesting, etc. They tend to operate on a fractional percentage commission, meaning that they are usually cheaper than a full-blown human investment advisor. Robo Advisors will also allow you to start an account with a much lower balance than a traditional financial advisor, with some allowing you to open an account with no money, though you will need to put money in to invest.
DIY or Do It Yourself is another approach you can take. It costs you no fees other than trade fees and you don’t need a large balance to start. But, you will have to spend a lot of time researching your investments and deciding where to put your money. You can start with as little as the price of a single share of stock and the trade fee.
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Direct Business Investment
You can invest into a business outside of stock. This can be in the form of buying a franchise, buying a share of an existing business, or even taking your non-retirement account money and opening a business. A word of caution: Be sure to perform thorough due diligence into any business you invest in like this and if investing with partner(s), ensure you have a sound operating agreement in place and that everyone abides by it.
If you only have retirement account funds available, either from a 401k from an previous job or an IRA (Individual Retirement Account), you have the option to buy or start a business using those funds through a Rollover Business Startup (ROBS) transaction, also known as Business Owner Retirement Savings Account (BORSA). This allows you to utilize the money you have saved to start a business without incurring taxes or penalty. There are specific restrictions that go along with it and it has to be administered by a qualified group. Companies like DRDA and MySolo401k can help you deal with this type of thing.
Real Estate
The last type of investing option I am going to talk about is real estate. As I have talked about before, I like investing in real estate, in addition to other types of investing. Real Estate has options that range from very hands-on and intensive involvement to very passive hands-off approaches.
Direct Investment – Real Estate
If you have money sitting around, or you decide you want to follow the Tim Ferriss approach and dreamline a muse to support real estate investing, you have lots of options.
You can wholesale, which is finding people with a need or desire to sell a property that doesn’t qualify for traditional financing or need the funds in a short time period (need a quick closing).
You can Fix and Flip. This involves buying a distressed property at 30% or more below market value (where market value is considered the after-repair value or ARV) and rehabilitating the property, then selling it at or near market value.
You can also buy and hold, the term for investors that buy property with the intention of renting it out over the long term. Generally, these investors like to acquire their properties in a similar state to the Fix and Flip investors, but do not sell the properties.
A less well-known approach is to invest in Notes. These are mortgages that the banks sell off at a discount to get their capital back & re-deploy it in another loan. There are note funds in addition to you being able to buy notes directly.
Most note funds require that you be a sophisticated investor. No, that does not mean that you have to drink your tea with your pinky out and wear a three-piece suit every day. It is a category defined by the government as having an income of $200,000/year if single, $300,000 if married, OR $1,000,000 in net worth, not including your primary residence.
Self-Directed IRA – Real Estate
Like the ROBS/BORSA methodologies mentioned above for direct business investments, there is a self-directed IRA (SDIRA) that can be used to invest in real estate. They can be used to buy investment properties or, in some cases, to actually BE a “bank” of sorts.
Some caveats with using an SDIRA to buy investment property: You cannot take advantage of depreciation on the property, so you lose out on some tax benefits; You cannot receive any immediate benefit from the investment. All returns from the investment belong to the SDIRA.
Another option is to become a private lender. Basically, you are becoming the bank, lending money on a short-term basis, to a real estate investor. They benefit from quicker and usually cheaper closings and you as the lender benefit from the interest earned by lending the money, which usually is more than you will make in the bank or other investments.
Hopefully giving you this overview of different types of investing will help further your knowledge and be a starting point for your own investigation into how best to invest your money.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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This week I am going to go over how NOT to spend your money. There are lots of good things to spend money on, but I continually observe people spending money so they can feel like they are keeping up with the Joneses or because they “deserve” it. And avoid misunderstanding, I am not advocating frugality, just better decision-making when spending money.
Everyday Observations
Bad spending habits observed recently:
Withdraw money from an old 401k account to go on vacation
Spending money to set up a business, but with no initial business activity
Early 401k Withdrawal
If you have money in an old 401k, use it for the intended purpose: Savings for retirement! It is understandable if you have a hardship and need the money to help deal with that, but just pulling the money out to go on vacation is a bit ridiculous. In addition to diminishing the amount of money to be available at retirement, you also have to pay a penalty on the money you withdraw, in addition to taxes at your current rate.
Amount needed to withdraw from old 401k to get $8000 for a vacation.
As an example, assuming a 24% tax bracket, if you want to use $8000 to go on vacation, you will need to pull out almost $13,000 to cover the $1,290 penalty and approximately $3,097 of taxes to end up with $8000 to go on vacation.
Not only do you lose 34% off of the top of your money, you also loose any additional earnings by not having that total amount of money still invested.
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Setting Up a Business Entity with no Business Activity
I understand the desire to get out of the rat race, to start your own business, and not have to work for someone else. I am right there with you! But take a practical approach. Take a practical approach. I see people starting up LLC entities, putting up websites, and paying for business infrastructure before they have any business activity. That is definitely putting the cart before the horse. If you spend that money, but do nothing in the way of generating business, then that is a wasted expense.
You would do better spending money on actual business-generating activities than paying for infrastructure before you need it.
Suggestions
Vacations
Plan your vacation as inexpensively as possible. Don’t skimp, just don’t pay $1200 a night for a room when you can rent a whole condominium or home for $110 per night in the same area.
Carry snacks and drinks with you so you don’t have to pay $4-$5 a person for snacks and $3-$4 per person for drinks. No need to carry enough for the whole day, but if you can save $28-$36 for one round of snacks & drinks a day, that cuts your total expense.
Save money until you have enough to go on vacation.
Businesses
Start your business on minimal infrastructure. Start conducting business now, then add infrastructure as you really need it.
Have a detailed realistic business plan. Plan out costs, expenses, margin, target audience, etc. Know these things before starting your business, much less spending money on infrastructure.
Hopefully these suggestions helped you out. Please comment here with any questions or suggestions regarding tips, tricks, and ideas for judicious spending.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
I would like to know more about my readers. If you could spare about 2 minutes of your time, please take a survey to tell me what you like about the blog. Just click here to take the survey.
Welcome back to another installment of Things I Think About! This week I am going to go over a few books that I have read recently that have had an impact. While some of them cover a mix of topics, to me, they mostly fall into one topic. Because of this, I will break them out by topic and detail the crossover topics, and why I feel that way, for each book I also have them listed separately on my Recommended Books page, HERE.
Business
The E Myth Revisited by Michael Gerber
This book speaks to my soul! I “read” the Audible version, (as I do most books due to my 3-hour plus daily commute), recorded by Michael Gerber himself. This book details why a lot of “Entrepreneurs” find themselves overworked, underpaid, and without the ability to grow. It is an interleaved mix of example stories with lessons explaining about each story. The main focus of the book is to explain why developing processes and systems for operating your business will allow you to employ other people to work IN the business so you can work ON the business.
The 4-Hour Workweek by Tim Ferriss
A young Tim Ferriss relates how he figured out how to not be locked into common misconception of the American Dream…go to school, get a good job, work like a slave for 20-30-40 years, then retire at an age where there is a good chance that you will have trouble enjoying life. In the 4-Hour Workweek, he details the concepts of mini-retirements, becoming effective and efficient in whatever you do for work, and ideas for small businesses that require little to no maintenance to support you on an ongoing basis.
Granted, as even pointed out in the book, the goal is not to be able to lay on the beach drinking mai tais, it is to free you up to do the things you want to do, including world travel, learning languages, and/or working with non-profit organizations.
This book also qualifies as a personal Improvement book, because a lot of the recommendations for efficiency and effectiveness while working have helped me to reduce a lot of stress at my main job.
Rich Dad’s Cash Flow Quadrant by Robert Kyosaki
This book breaks out the different classifications of people earning money. ESBI stands for Employees, someone who works for someone else to make money, Self-Employed, a person working for themselves to make money, Business Owners, owning a business & employing other people, and Investors, those who employ their capital to buy assets. It promotes the idea to be either a business owner or, ultimately, an investor, as this usually provides the best returns on time & money.
Personal Improvement
The Obstacle is the Way by Ryan Holiday
Ryan Holiday is a devoted Stoic. He has multiple books and a website dedicated to Stoicism. This book is kind of a manual for achievement. I really enjoy it because it basically lays out my philosophy on life. The short version is “Do what you can to change the things you don’t like in your life…Ignore the things you can’t change.” The Obstacle is the Way takes it a step further in that it guides you to figure out how to change either the situation or your thinking about the “things you can’t change”.
Rich Dad, Poor Dad by Robert Kyosaki
Robert Kyosaki tells the story of how he grew up a poor kid, but due to the tutelage of a friend’s father, learned to become a businessman. The book is a simple read but puts forth important concepts…assets are only assets if they will make you money, don’t spend foolishly, and educate yourself to grow. There is also a good bit of advice on real estate investment as a vehicle to become wealthy.
Principles by Ray Dalio
Ray Dalio is one of the richest men in the world and got that way by building one of the top hedge fund management companies, Bridgewater Associates. In Principles, he relates his lis life and how he got to where he is, developing his principles for business and personal life as an operating system along the way. This is another Audible entry where the author reads the book to you. It works.
Real Estate Investing
Long Distance Real Estate Investing by David Greene
While I don’t invest in real estate outside of my back yard, (for now), this book is incredibly useful as a guide of how to do things. The methodologies and techniques laid out here will work even in a local market. It’s a mix of strategies, tools, and tips to be successful.
The Book on Rental Property Investing by Brandon Turner
This book is a thorough primer for anyone wanting to get into rental properties as an investment. It covers everything from finding properties to rehab tips and beyond.
The Book on Managing Rental Properties by Brandon Turner and Heather Turner
Hmmm…the title sounds a bit familiar…YES! This is the follow-up book to The Book on Rental Property Investing. It picks up where the previous book left off and takes a deeper dive into what you need to do to manage properties successfully.
Loopholes of Real Estate Investing by Garrett Sutton, Rich Dad Advisor
Another Audible author read, Loopholes covers the benefits of and hazards to watch out for when investing in real estate. I have probably listened to this book at least 6 times…right up there with the 4-Hour Workweek and The E Myth revisited. Lots of great advice.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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This week we are back to business basics. I am going to go over Business Processes, specifically, and why they are important to people running small businesses, better known as entrepreneurs.
Growing up, I yearned to run my own business. I was exposed to lots of people running their own businesses and it was seductive…do your own thing, be your own boss, make as much money as you wanted to (I was a poor kid and idolized the idea). But as I grew older, I would observe these various entrepreneurs’ businesses fail and disappear. Some of it was from bad financial practices, (as covered in this story: My History with Money, Pt. I), some of it was from just bad business ideas, but as I have come to realize, all of them were due to not having documented processes & systems in place to operate their business.
What is a Business Process?
A Business Process is a map of the steps needed to be taken to achieve a goal or result. This can be the process for generating a price quotation or making a Big Mac. It is the set of step-by-step instructions to complete that task.
It can be as simple as the process detailed below:
PB&J
Lay out 2 slices of bread
Spread PB on one slice
Spread Jelly of the other
Put the 2 slices together to complete the PB&J Sandwich
Or it can be extremely detailed, for quality control and efficiency:
Peanut Butter and Jelly Royale
Lay out 2 slices of bread that conform to the QC shape on the QC chart on the wall next to your station
Evenly spread 1 oz. of premium natural peanut butter on the right slice of bread
Evenly spread 1 oz of locally-sourced hand-made strawberry jelly on the left slice of bread
Align the peanut buttered slice of bread over the jelly spread on the other slice of bread and lower it to complete the sandwich
But What About Systems?
Some mistakenly refer to the processes and systems interchangeably. In reality, processes are part of a system. A collection of similar processes make up the system. Let’s you are running a fast food restaurant and you want to ensure that the food presented to the customer is the same, every time. You would document a set of processes for each item on the menu, similar to the PB & J examples above. This collection of processes would be your Food Prep System. You would have a separate system for taking orders and another for inventory, and so on.
Another point about systems is that a system does not have to involve technology. There have been lots of technology systems designed to ease and automate manual systems. An easy one to bring to mind is for accounting. You have many options available for electronic accounting systems, but it is still something that could be done by hand. Not that I am advocating to accomplish your accounting by hand. In most cases, using an electronic accounting system is much more cost-effective than doing your accounting by hand. In our real estate rental business, the accounting is handled using a Google Docs spreadsheet, because the complexity of what we are doing and the time it takes to do it does not yet justify actually paying for an electronic system.
Why do I Need Business Processes?
You may ask yourself “Why do I need business processes?” Well, if you are a sole proprietor, who plans to never expand, hire personnel, step back from working in the business, or sell the business, then you probably don’t need to worry about business processes. Even though you are most likely following business processes already, if the above description fits you, you can probably get away with not documenting your business processes.
If you don’t fit the description above, these are the main reason to document your processes:
Precision and Consistency – You want to ensure that things are being done the same way every time. Borrowing from the Peanut Butter and Jelly Royale example above, if you don’t specify how much of each material to use, then you are left with each order resulting in varying quality AND cost to you as the business owner or operator. While using more peanut butter on a sandwich sometimes seems like a small thing that can be overlooked, it affects your Cost Of Goods Sold (COGS) for that sandwich, and throws off your inventory, which could result in your running out of peanut butter before your next order. This could affect your sales of the Peanut Butter and Jelly Royale until you get more product in.
Even if you are able to go out and source a spot supply of peanut butter, it will most likely further impact your cost.
**For the purposes of this example, the peanut butter sandwich and it’s ingredients are a metaphor for whatever you happen to sell in your business**
Redundancy – It is a good idea to document business processes as a kind of back-up. The reasoning behind this relies on the “Hit By A Bus” theory…If the business process is not documented, how would someone else be able to accomplish the task if the person(s) who know how to do it should get hit by a bus?
Efficiency – By having the detailed steps laid out in a business process, there is less chance of deviation of how to accomplish the task, allowing it to be completed faster. The caveat to this is that the process must already be efficient. One way to ensure efficiency is to review processes periodically to make sure they are the optimal way to achieve the task.
Scalability – Another reason you need to have documented Business Processes is to achieve scalability. Let’s say your company builds a widget and you have an opportunity to lock down a sales contract to deliver 25 widgets a month. Your business historically has only delivered a maximum of 10 widgets a month. How do you scale up your business to be able to produce 150% more product? By bringing in more employees. How do you train the new employees to be able to accomplish those tasks? By having detailed Business Processes for you Widget Production System so that employees can get up to speed faster on how to do their job and allow you to produce that increase in widgets almost immediately.
I hope I have been able to make a compelling case for why you need to have documented Business Processes and helped you to understand how it can help your business.
Here is some recommended reading on Business Processes:
Today I want to go over Cash Flow and why it is critical to business finance.
There are four basic reporting metrics for business finance:
Balance Sheet – Statement of financial position, reporting a company’s assets, liabilities, and owners’ equity at a given point in time.
Income Statement – Statement of revenue and expense or profit & loss.
Equity Statement – Statement of changes in equity or retained earnings.
Cash Flow Statement – Statement of a company’s cash inflows and outflows during a given period of time.
I will cover the first three in more detail with later posts because I want to talk about Cash Flow and the Cash Flow statement.
Cash Flow
Cash Flow is the total amount of money coming into a business (revenue, income, investments, loans, etc.) and the total amount of money going out of a business (bills, expenses, wages, capital purchases, etc.) over a given period of time. It can be a year, a quarter, a month, or any time period you want to look at. For my purposes, monthly reporting is preferred, as it coincides with other regular monthly financial reports.
Doesn’t the profit & loss report show you the same information?
While reporting similar information, Cash Flow & Profit & Loss Reports serve different purposes. The Cash Flow report gives you an understanding of how you are bringing money into your business and how you are spending it while the P & L report shows you revenue earned and expenses paid.
OK, that still sounds similar, you say.
It may be easier to understand if you look at it from the perspective of different accounting methods. Businesses use either the Cash Basis or the Accrual Basis methods.
If you are operating on the Cash Basis method, your revenue and expenses are recorded into your accounting system when they occur. In this case, your P & L and Cash Flow Reports should show almost the same information for a given period, with minor differences like loan principle repayments not showing up on a P & L.
In the case of the Accrual Method, you might earn revenue in a given month, but you won’t see the money from it until the invoice gets paid, which may be a month down the line. As for expenses, you may be paying for supplies immediately, but can’t show them on the P & L until the revenue is earned. So, you are potentially paying for supplies in one month, showing revenue in the next month, and not actually getting paid until the third month. In this scenario, the P & L would show the expense & revenue in the second month, but the Cash Flow would show the outflow of the expense in the first month, no activity (with respect to the subject order) in the second month, and would show the revenue inflow (invoice being paid) in the third month.
Because of this, you should be looking at both reports to better understand what is going on in the business.
Why is Cash Flow important?
To be a successful business, you want to have positive cash flow…that means that you have more money coming in every month than you are paying out in expenses, wages, and bills. This seems like a “DUH!!!” statement, but without looking at both your P & L AND Cash Flow reports, it would be hard to make sure you are able to bring in more cash than pay out in expenses.
Without regularly reviewing the Cash Flow statement, you might think you are breaking even or close to it, until you realize that your bank account has steadily been dropping and you really were not even close to breaking even.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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Saving Money…Maybe you should think of it as Rescuing Your Money!
This week I am going to cover saving money. There are many differing thoughts about this topic these days, some of which have valid points. I will also lay out my thoughts on the idea.
Saving Money – Why Should You?
Why should you save money? You can save money for an emergency. You can save money for to buy something special. You can save money for a dream vacation. You can save money for retirement. Your reasons are valid for you.
Tim Ferriss advises that you set dreamlines…goals you want to achieve and figure out how much it will cost, both per month and one-time charges, so you can figure out how to get your retirement now rather than delaying and saving for “one day”. There is also this whole part about coming up with a muse, or business idea that will provide the extra income to cover the costs of achieving that mini-retirement. The other thing is that they should be frequent.
Robert Kiyosaki says “Savers are Losers!”. His reasoning is that no matter how you are saving money, be it in a bank, in a Certificate of Deposit (CD), or in a pickle jar buried in the back yard, you are losing money, at least at this point in time, because of monetary inflation.
Why under the mattress, In a savings account, or In a Certificate of Deposit Costs You Money
Currently the rate of inflation is approximately 2%. Based on the definition above, that means that your money loses 2% of its purchasing power. If your savings account is paying 0.25% interest rate, your money in that account is losing 1.75% with this rate of inflation. If your CD is paying 0.3%, you are losing 1.7%. And if you have it in a pickle jar, you are losing the full 2.0% of purchasing power by not doing anything with it.
Ultimately, as far as I am concerned, instead of just saving money, put your money to work in an investment that will earn you more than the rate of inflation. Historically, the S&P 500 has provided positive returns over the long term, but in some years, like 2008, it had a negative 37% yield.
Overall, accounting for inflation, the market seems to average about a 7% return, but you will be advised to leave your money in the market and let things work themselves out. We have money in the market in the form of traditional & Roth IRAs, regular managed investments, my 401k, and various individual stocks that I play with (not very much).
I, personally, don’t want to devote my time to attempt to master the market.
Why you should make your money work for you
We also are investing in real estate. So far, those investments are working out to about a 9% return. Real estate has many options from flipping, to buy and hold (rentals), to lending, to investing in notes (becoming the mortgage holder for other borrowers). As stated before, BiggerPockets is the best free education on real estate investing you can find.
Additionally, we invested in a high-end door manufacturing business. It is not currently providing a return on investment, but it is improving and still self-sustaining, in addition to providing me and my fellow investors with some of the best business management lessons we have ever run across.
The bottom line, make your money work. To paraphrase the old adage, if your money is not moving forward, it’s falling behind.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
Welcome back to the Things I Think About Blog. This week I am going to talk about what assets are, with regards to personal finance.
“as·set /ˈaset/ noun
General Definition
a useful or valuable thing, person, or quality.
property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
military equipment, such as planes, ships, communications and radar installations, employed or targeted in military operations.
Accounting definition.
Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles.”
The definition we are going to focus on is “Property owned by a person or company…”.
Depending on how you look at things, you can call almost any property an asset. But the real question is will it make you profit? Does it earn you more money than it costs to keep it or can you sell it for more than you paid or are paying for it?
A phrase you will hear people say is that “your home is your biggest asset”. It can be, but only in specific situations. You can have a large percentage of equity in your home, meaning the difference between what you home is worth versus what you owe on it, but you will only realize that equity if you either sell the property for a gain (if it has appreciated since you bought it), or if you refinance it and harvest the equity, then use that money to invest in something that will make you profit.
While I don’t have the numbers to back it up, I would bet that a lot of people are not in that situation.
Robert Kiyosaki even goes as far as to say that your home is never an asset because it is never bringing in cash flow. He makes the case that overall, you are better off renting and letting someone else worry about repairs, taxes, homeowner’s insurance, etc.
Personally, I tend to agree with him on that front, but I feel that if your goal is to own a home, then you figure out how to make that happen. Make investments that pay for the home you want.
Stay away from buying property that does not bring you profit…like boats, RVs, ATVs, etc. You do not need to spend all kinds of money on shiny objects, especially if they will not make you a profit.
While we are talking about assets or not assets, let’s look at buying a car.
Here in the USA unless you live in a larger metropolitan area, you need a vehicle to get around.
If you are in that situation, remember this interesting statistic, that new cars lose approximately 11% of its value. or what you paid for it, as soon as you drive it off of the lot.
Let’s look at this scenario, you buy a $25,000 car and you are able to get 1.9% financing through the dealership. Taking into account the “drive-off depreciation”, your first 8 car payments will be used to pay off that depreciation. Additionally, it will take another 6 months of payments to cover the rest of the first year of depreciation for that new vehicle.
You would be much better served buying a slightly used vehicle and saving the extra costs associated with buying a new one.
Invest in things that will make you money. Invest in things that provide cash flow. Don’t speculate on appreciation.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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This week’s topic is knowing your costs for your business or the Break-Even Point (BEP).
Before starting a business (or buying one), you should understand what your Break Even Point is. The BEP is where you have enough revenue coming in to cover all of your expenses. It means $0 in profit, but also that all expenses are covered.
Knowing what your BEP is can be beneficial in evaluating how much of your product or service you will have to sell to begin generating profit. It is always better to have this information before engaging in a business rather than trying to figure it out after you are already involved.
Direct Expenses When determining the BEP, there are some differences between how to calculate this information for a Service Business and a Manufactured Products Business.
Service Businesses are fairly easy in that you only need to tally up your direct expenses. This could be done on a monthly basis, but if you have expenses that come up at different times of the year, it is easier to estimate a total annual expense and divide it by 12 to give you a monthly expense amount. (At least that is what I have found when analyzing rental properties).
Manufactured Products Businesses are slightly more complicated in that you need to understand what the Gross Profit (GP) on the products are. Gross Profit is the Total Sale Price minus the Cost Of Goods Sold (COGS – materials, labor to assemble). Once you know what your GP is, you will be able to calculate the BEP for the product.
Indirect Expenses
The next step is to gather all of your indirect expenses. This can include rent, utilities, sales, and distribution expenses. Anything that is not directly involved in the provision of a service or the manufacturing of a product.
Once you have all of your numbers, you can calculate your BEP.
For Service Businesses, your BEP is the sum of your direct and indirect expenses. If you bring in enough revenue to cover just those expenses, you have broken even.
For Manufactured Products Businesses, you simply divide your indirect expenses by your GP % to arrive at your BEP.
As I stated above, it is a good idea to have this information before you are involved in a business. Once you understand where you stand with reference to a BEP, you can start to work on optimizing you costs & methodologies to increase efficiencies, lower costs, and lower the overall BEP for that business.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
