The Investment Hierarchy: Where Smart Money Goes First | 354

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Transcript

SPEAKER_00 0:00

Welcome back to the Business of Beers podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_01 0:16

So to start, I think it's important to say that there is no better investment than your own business, right? Something that you can put in and like you have direct control over. So for me, uh the best investment I can always make is back into it. So for example, in 2018, I put in $50,000 to in my auto repair business to acquire one of my shops. And the next year, that shop produced $400,000 in cash flow and pretty much every year since. Now, it takes a lot of work, right? And like we're in the business, we're full-time. This is not a pass, that is not a passive investment at all. Like tons of hand-on work. But from purely like I can put money in to create money out, there's no better investment than your own business. So that would be the first thing that, you know, anything, anything I'm looking at, I always go back to can I put more cash into my stores? And for us, like there creates this snowball effect of all right, and we're, you know, we made a lot of money at this store. Instead of like going and spending on dumb stuff, take that money, and that became the seed to to buy 10 more shops in 21, and maybe those stores are doing 14 million plus in revenue, and um, you know, it's it's it's snowballed ever since. And besides when you think about like an investment, right, in your in your especially in your own business, the easiest way to think about it is in I'm buying another location. But there's other ways to grow the business as well. For us, it's also can we invest in more marketing? Like right now, I am diving into um our direct mail. Like we get a we get like a 20, anywhere from like a 15 to 20 dollars of sales for every one dollar that we were spending on direct mail. So like I'm thinking, all right, like why don't I just double it? Like I spend 700 grand on direct mail. If I doubled that to, you know, could I get another 14 or 15 million dollars in revenue? Uh maybe, maybe not, like it maybe it could dilute it, but like, but I think about that as an investment, right? Technology, payroll, all that stuff. So before I make any investment, the first place I'm gonna look at is can I put the money back into my own business because I trust myself as the operator more than anything else. And so so before you get distracted and say, I want to like go put money on all this shit, like your own business, all right? Then I'm gonna look to like real estate. So if we can buy real estate that we occupy, uh, you know, you can turn your rent payments into mortgage. Like I'm literally buying one right now, same thing, where my mortgage payments could be higher than what I pay in rent. But you know, every instead of money that going out the door, it's paying down principal at the end of the day. Um, you know, I'm gonna build equity. There's also some really great tax benefits if you I don't want to go down a tangent here, but this thing called real estate professional status, or where if you have that, you can buy investment real estate, you can like you can basically depreciate, you can full you can expense a bunch of the building uh over instead of over 39 years, you can do it in one year and um basically help reduce your taxes. Uh but if you're not a full-time real estate professional, that still works if it's if it's a building that you occupy. So um, all right. So when I'm looking at a deal, it's gonna be there's really two, there's two types of deals I'm gonna look at. One is a cash flow play, like I'm putting money into something because I want to generate uh just a return on the cash. Uh the other one is an equity play. So on a cash flow deal, so like I'm gonna invest in in an opportunity, I I want it probably minimum 10% is like minimum. Because you think you could put money in the stock market and get, you know, on average, I think it's like 10 to 12 or for the long term. Now there's like taxes and whatever. There's there's maybe that number gets diluted, but something in that range. So like if I'm gonna take it out of the stock market, I'm looking for something that can get at least 10. Uh so we do like hard money loans, short-term capital, stuff like that. Uh, I've done some that have gotten me 20 to 30 percent that are obviously higher risk, but uh in businesses that I know. Now for equity plays, so ones where you know there's potentially zero cash flow, but we're we're looking to um you know make money in a couple years on it, I'm looking to at least double. So anytime I put money into something, my goal is to at least double it in three to five years. And those are kind of the two um the two angles it goes into. And so I want to do for this the ice cream business is I'm gonna go through this list and then I'll show you kind of how this uh applies. So then then there's this whole investment class of taxes. Uh taxes are my number one like expense as as like a as like a person. And so I'm always looking for strategies to reduce them. There's a bunch of uh ways that you can reduce taxes through oil and gas deals and some other things. Um, but I don't want to get too down that rabbit hole. I like this idea of tangible assets, right? Can I invest in something that I can touch that I like has physical presence? It's one of the reasons I invested in the in the ice cream business. It's a franchise. I'm you know, I'm really familiar with franchises, is all I do. Uh, you know, I'm also an investor in this brand Waterloo Turf. I did a video a couple weeks ago about that. I'm also a partner in that as well. We own we own Houston. Uh I'm I'm invested in this coffee business that's um pretty interesting. They're like rolling up coffee uh uh land in uh Colombia and they have a roaster now and they're they have U.S. distribution, and you know, their goal is like to have an IPO one day, and you know, should do pretty good if we have if that happens. All right. Do I trust the operator? So if you're gonna invest into something that's outside your business, the operator is more important than the business model in a lot of these because the you know, the business anybody can have great ideas, right? But like how you make money and how you win is execution, and it all comes down to that operator. And the best business model can be ruined by bad, and good operators can make almost anything work. And so that is the number one thing if you're gonna look to invest in or partner with somebody or any anywhere, like you're you're letting go your money, coming down to who is operating and trusting it. And it's you know, I I have this thing, it's it's not just who it is, but like it's control, what happens if things go sideways, if they get hit by a bus, like you know, how what does their team look like? Like all the things related to to that are are super important. Understanding how it makes money, there's so many people I've been pitched so many things, and it's like I don't understand how they make money. Or like, or I just like don't I just don't see it, right? Uh and so I think for me it's like it's it's simplicity in the ice cream business, obviously. How long shall I get my money back, right? And so the longer your your uh your money's gonna be tied up, the bigger return, you know, I'm gonna I'm gonna look for personally. But then once your investment return is returned, everything else is upside. And so if I was looking into a deal that was like like hard money loans, for example, like private lending, you know, you're getting interest-only payments, and then it, you know, you kind of expect that principle to come back in like nine to 12 months. And then it allows you to recycle it or use it for something else. So we'll do those just you know, just to keep money moving, and then you know, as it comes back, we'll say, all right, we we got like a bigger deal that we can go and get it on. There's risk in all these deals. That's kind of why you have to like you really want to know what you're doing, and there's so many scammers out there. Um, and so anyway. So who else is investing in deals? So anytime I'm looking at and making an investment, I definitely want to know like how did you find it? Where did you come in from? If you heard about on the internet from some dude on Instagram, probably not a great opportunity. Uh, you want to know people that are in it or like that there's some sort of track record in it. Uh, and it's the kind of thing where like the more you do these types of investments, the bigger your kind of radius gets. And then so people like pull you into other things. And some of the best deals I'm doing now like are ones that uh I met through, you know, I met through doing other deals that then turn into bigger ones. Downside, right? So could I lose all my money? Uh are there any hard assets that would that would cover if a portion could be paid off? Um, could this business be like some sort of fat or timeless? So I really want to understand like the downside is it of it. Uh here's for an example, like uh, you know, me and a partner went 50-50, we invested $300,000 to help this guy buy a junk removal uh franchise in exchange. We're getting 5% of the revenue until we double our money and then it drops to 3%. And so right now, like the trucks and the other assets could be liquidated for at least $300,000, if not more. Uh they were used and stuff, but uh good, great, great deal. So for us, like we have like really good, really good protection on the downside because that there's hard assets behind the deal. So I would look for that. Uh and then how much to invest. Uh so I'm I'm conferring, I'm preferring now to do less deals, but like higher check sizes, and to double down on the existing ones. So like if something's going well, rather than say no, I'm gonna do another like random, I don't know, 50,000 into something, uh, I'd rather just like put that money into something that's already doing well. And you also have to be prepared to lose it. Like, I would never risk money. Um, that would negatively alter my life if I lost it.