Access Wealth Strategies

As Bill Gates’ mother wisely reminded him, with great wealth comes great responsibility (and complexity). While we all aspire to creating more wealth (whatever your definition of it is), it’s important to understand the impact of our wealth for our own sake and for future generations long after we’re gone.

Perhaps you have a successful family business built over a lifetime of hard work that you’d like to someday pass on to the next generation. Maybe you have a significant asset base to transfer to your children and give to charitable causes.

We’ve all heard that teaching a man to fish for himself is preferable to giving him fish for a day. So how about transferring your financial assets to the next generation? Do you have a plan to transfer your values as well?

Traditional financial planning is woefully lacking in addressing the need to transfer more than just money to the next generation, especially when the succession of a family business is involved.

Listen to my recent interview with my friend Korbett Roberts from Benefit Concepts, Inc. as he explains what “values based integrated wealth planning” means, and how his firm helps clients navigate the plethora of choices for business succession planning and inter-generational wealth transfer based on their individual values.

Note: the interview is about 34-min. long.

You’ll hear some great examples from Korbett, including why one family rejected a $1.6 billion cash offer for their family business and sold it for $400 million less!

You’ll also learn about:

• The 3 most common threats to inter-generational wealth planning
• The issue of equitable vs. equal transfer of wealth to the next generation
• What your “financial independence number” means
• Some strategic and unique uses of life insurance policies, including one that leverages your tax deduction and charitable giving

Please add your comment and let me know which parts of the interview you found the most helpful and what topics you would like to learn more about.  I will do follow-up interviews to cover these topics in more detail.

You may remember my recent post “Should You Own a Laundromat?” where I briefly mentioned the merits of owning a coin laundry business.

If you are intrigued by the prospect of owning a cash flow business like a coin-operated laundromat, you might want to listen to this recorded interview of Brian Brunckhorst, a friend of mine who owns several laundromats and has developed a system for acquiring, operating, and optimizing the performance of a coin laundry business.

Click below to listen to my interview of Brian Brunckhorst on the in’s and out’s of the coin laundry business and why you might consider it as a “wealth vehicle”.

Note: the interview is about 45-min. long.

For more information on how to acquire, operate and optimize a laundromat to create income and wealth, please visit: www.LaundromatSecrets.com.

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In Part 2 of this series on achieving a 10% or more consistent cash flow on invested capital, we established that this type of cash flow is difficult to achieve passively – i.e. with the investor outsourcing the selection and management of the underlying asset, whether it’s a business venture, real estate or something more “unique”.

At the end of my last post, I outlined a few things that investors could do “semi-passively” to get closer to the dream.

The good news is, if you are willing to “front-end” the work of asset selection and management, and learn to identify and hire good asset managers, you could be living the investor’s dream in a few years.

Here are some examples.

Franchises

Franchises have a very high success rate of over 90% and the return on investment is typically double digit. However, a franchisee probably needs to take an active role in the business in the first 2-5 years to build up the business, implement the systems, and hire and train the right staff. Later on, the franchisee can pull back and enjoy the passive cash flow from his business while periodically checking on his management team.

Distressed Assets

A big opportunity in today’s economy is to identify and buy distressed assets at a significant discount to their current market value.  This typically requires access to a channel (deal flow) for buying these assets at a big discount.  The investor then needs to assemble a management team capable of “improving” the asset and realize its full retail value (or close to it).

We are seeing more and more businesses specializing in distressed real estate (foreclosures, short sales, REO’s) in certain markets and taking investor capital to turn these assets multiple times a year.

Alternatively, some “long term” investors are holding these distressed properties after they are “fixed up” to rent them out while waiting for the rebound in valuation.  In this case, they get break-even cash flow or better while they wait for what is hopefully a significant capital gain.

You can do the same thing to distressed businesses (brick-and-mortar or online), though it would probably require even more work and expertise.

Self-Renewing Assets

I have heard of someone buying land in the California central valley and planting a pistachio orchard. While it requires about 5 years of start-up time with no income and only expenses (water, maintenance, mortgage etc.), eventually it will become a self-renewing passive income source for quite a number of years.

The investing principal here works for orchards, fruit trees, forests, etc.  Once the trees or plants mature, it takes much less maintenance to keep up and you could literally “eat the fruits and reinvest the seeds“.

Laddering and Annuities

You’ve undoubtedly heard of CD or bond laddering - the practice of buying a pool of assets with different “maturity dates” (when you get paid back principal plus interest or gain) so that eventually you will have regular (say, monthly) maturity events, simulating “cash flow”.  Note that this strategy also requires a start-up period with no cash flow while you build up your income ladder.

Most investors use this laddering strategy with mainstream products like CDs or corporate bonds that pay low interest rates (3-4% at best).  Similarly, you can pay a lump sum to an insurance company and get an annuity (cash flow) yielding about the same amount. Obviously this is far below the desired double-digit return of 10% or more.

You could apply the same laddering principal, however, to higher-yielding assets such as private notes secured by some underlying business or real estate (see “Hard Money Lending” section below).

Hard Money Lending

Instead of buying publicly traded bonds or bond funds, you can create your own bonds by lending to private parties (usually businesses) who use your capital to generate a return exceeding the interest rate you charge as the lender.

In some markets today, private lenders are able to get double digit interest rates and the note is secured by some hard asset like real estate or equipment.

As a hard money lender your primary concern is the safety of your principal. The key to protecting against loss of principal is to make sure the collateral value far exceeds the amount you’re lending. The lower the LTV (loan-to-value ratio) the safer it is for the lender, who has the option to foreclose and own the underlying collateral should the borrower default on interest or principal payments.

When done well, hard money lending can be a win-win deal for both the lender and the borrower.  You can even structure your hard money lending deals to include back-end profit participation in addition to regular interest payments.  For example, this arrangement can work in distressed real estate flipping deals.

Of course, there are countless other ways to achieve good cash flow by investing a bit of sweat equity up front, limited only by your imagination.  Can you come up with some more examples?  Please comment and let us know.

Note: please do not advertise your investments or solicit investors in your comments – all such comments will be removed.

This post is a continuation of our discussion regarding consistent 10% passive cash flow (Part 1).

We’ve already discussed that many investors want to turn their nest egg into a predictable stream of cash flow that can replace or supplement their active income.

So why is it so difficult for investors to achieve a satisfactory double digit return on their capital (after management expenses and preferably after taxes also) if they do NOT wish to take an active role in running a business?

Remember, all investments are ultimately tied to some underlying business which tries to generate revenue that exceeds the cost of capital invested.

We’ve all heard the overwhelming statistics of business failures, so a truly successful and profitable business is not something to be taken for granted.  It is truly a remarkable feat for a business to take on investor capital, pay investors a good yield for their money, and still remain a consistently profitable business.

Active vs. Passive Investing – What’s the Difference?

A savvy entrepreneur can build a successful business with very little start-up capital and reap the highest reward for that investment.  However, this requires talent, sweat equity and favorable market conditions, etc.

Now imagine a passive investor who does not want to be working in the business or on the business.  The investor would need to hire someone else to do the management work required and pay them reasonable compensation. In this case the passive investor would get a lower return on his investment in the business than the entrepreneur who works in or on the business.

How about having yet another layer of indirection? Perhaps some “fund manager” that chooses businesses to invest in for you?  Or, buying stocks (ownership) or bonds (debt) in the business on a publicly traded market where pricing for these “paper” derivatives of the business can be somewhat independent of how the business is actually performing?

You get the idea – chances are investors in “business derivatives” don’t do as well or don’t have as much visibility into the assets they indirectly own.  All the layers of management will have to be paid off before the investor gets his return. As you all know by now, Wall Street is notorious for charging high fees regardless of the success (or most likely failure) of your investment.

Generally speaking, investment return decreases as more layers of “management” are added between the investor and the underlying asset (business).  The investor also has less control over the underlying asset the further removed he is from the asset.

So, what does this mean for the passive investor’s quest to achieve consistent cash flow?

• Get as close to the underlying asset/business as possible without working in the business.  Have a straight line of communication to the manager of your asset.
• Often, it is better for management to have vested interest in the asset and not just a “hired hand”.  In other words, make your management team your partner, not your employee.
• Invest in distressed assets and partner with someone who knows how to “improve” the assets and realize their full potential, or be a lending partner (i.e. become a hard money lender).
• Consider investing in a proven business system (i.e. a franchise) to short cut the learning curve and outsource most of the management gradually.
• Allow the business to “incubate” before reaping the reward of consistent cash flow.  You may need to invest more time and energy in the business during the incubation period.
• Ladder into fixed income type assets with different maturity dates.
• Invest in self-renewing assets (e.g. orchards, forests, producing oil wells, etc.) that can produce income for years after an initial setup period.

We will discuss some examples in more detail in Part 3 of this series.

Meanwhile, please share your thoughts, questions, and opinions by commenting below.ve

Many of us have a substantial amount of our net worth and investment capital in our retirement accounts: IRAs, 401Ks from previous and current jobs, etc.

Most of the time, funds in these accounts are invested in just a few mutual funds and maybe some stocks and bonds approved by your plan administrator, typically a stock brokerage firm or mutual fund company — not surprisingly, these firms have conflicts of interest in restricting your investment choices to products they sell.

After the recent stock market turmoil, you may be wondering:

Are there better options than the typical stocks, bonds, mutual funds that I can invest in through my retirement account?

If you already love alternative investments (such as real estate, notes, private equity business ownership, etc.) or buy alternative assets with non-retirement money, you may be missing an opportunity to purchase these same assets with money in your retirement account.

What you might not know is that the IRS allows you to invest in many other types of assets in your retirement accounts – you just have to work with a truly “self directed” account administrator.

Interview with Kaaren Hall, President of uDirect IRA Services and Self Directed IRA Expert

Today, I interviewed Kaaren Hall, who knows all about investing through self-directed IRAs.

Listen to this 29-min. interview and find out how you can take control of your retirement, because “no one cares more about your money than you”!

This interview is jam packed with valuable content and will answer many questions you may have regarding self-directed IRAs. Please comment and let us know what topics you would like us to cover in future interviews.

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