Category: Investing

Investing musings.

Categories
Books Business Investing Philosophy

Skin in the Game: The Hidden Asymmetries of Life

Author: Nassim Nicholas Taleb

My Rating: 4/5

Summary:  A thought-provoking book that challenges conventional thinking on risk-taking, accountability, and decision-making. It highlights the importance of having personal stakes in the game and not relying solely on abstract concepts or incentives.

My Takeaways

A loud vocal minority actually dictates the majority.

There are conflicts of interest in virtually every situation. aka “asymmetric risk”

Markets react to the most motivated participants 

Society doesn’t evolve by majority – only a few people motivated people with soul in the game can create a hidden asymmetry that affects the collective whole.

Rationality is systemic avoidance of ruin.

Lindi effect

Any asymmetry of information between buyer and seller is morally wrong.

Many people fail to understand that the minority rules the majority.

Companies condition their employees to accept a loss of freedom.

Society loves rich entrepreneurs and resents wealthy bureaucrats.

Success is based on your competence or your image, depending on your profession.

Rich people care less about their spending and are exploited as a result.

Categories
Books Business Hacks Investing Philosophy Technology

The Almanac of Naval Ravikant: A Guide to Wealth and Happiness

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Author:Eric Jorgenson

My recommendation: 5/5

Summary: Naval Ravikant is someone who’s views on the world I greatly respect. This books organized his thoughts and views on life, business, generating wealth, happiness and philosophy..

My Takeaways:

Wealth is a skill that can be learned

Do not trade time for money, you should own a piece of a business (equity) to generate true wealth.

You will get rich by giving society what it wants, but does not know how to get it at scale. 

Pick an industry with long term games with long term people. 

The best skills to learn are selling and building.

Arm yourself with specific knowledge accountability and leverage

Specific knowledge is knowledge that you can’t train for. If society can train you, then they can train someone else and replace you.

Embrace accountability and take business risks under your own name. Society will reward you a specific equity responsibility and leverage

Fortunes require leverage. Leverage can be capital, people and product with no marginal cost to replicate, code and media in the context of business leverage

Reading is faster than listening and doing is faster than watching.

There are no get rich quick schemes, those are just others getting rich off of you. 

Productize yourself.

The internet enables any niche interest as long as you’re the best person to scale it out.

Escape competition through authenticity.

The most important skill to becoming rich is becoming a perpetual learner.

Foundations are key. It’s much better to be a 9/10 or a 1o/ 10 on the foundations then to get super deep into things.

Follow your intellectual curiosity more than whatever is hot right now. If you like it now but will be bored with a later, then it’s a distraction.

Set a very high aspirational rate for yourself and outsource any tasks that are below your rate for your time.

The only way to build wealth is to build a business that is leveraged. Leverage comes in the form of labor capital, code and media.

Those attacking wealth creation are playing an old status game that is a zero sum game. Avoid status games as much as possible such as politics.

The way to get out of the competition trap is to be authentic. This is by doing something you love. 

Apply specific knowledge with leverage and eventually you will get what you deserve.

You get rich by saving your time to make more money. 

Lean into the short term pain for the long term gain.

Read books on the foundations first. The order in which you acquire knowledge through reading is important.

The best way to retain information from books is to teach it to others.

Happiness is there when you remove the sense that something is missing. 

Easy choices, easy life. Hard choices, hard life.

Don’t build your checklists based on what someone else thinks.

The harder the workout, the easier the day. 

Meditation is fasting for the mind.

Accept everything. Choice-less awareness.

All benefits from life come from compound interest. Long term decisions instead of short term decisions.

Resources:

  • https://www.navalmanack.com/
Categories
Books Business Investing

Building Wealth one House at a Time 

Author: John W. Schaub

My Rating: 3/5

Summary: Practical advise for building wealth by investing in single family homes.

My Takeaways

Buying houses let’s you diversify your investment across price ranges, locations 

Commercial building’s value is tied to the cash flow it generates, a well located house will appreciate at a greater rate.

When investing in commercial buildings, you are negotiating with other sophisticated investors as opposed to homeowners.

Starter houses rent well and rent fast. During hard economic times, tenants often downsize to these houses to save money. 

Larger houses will produce larger capital gains, but can reduce taxable income. 

If income is important, start with lower priced houses in a good neighborhood.

Buy in the best neighborhood you can afford. 

Majority of renters prefer 3 bedroom two bath house. Demand is higher than 2 bedroom house. 

Find a house with a garage or basement. Tenants need storage. 

Yards are a big selling point. Look for an average sized yard

An investment house should be big enough to attract a normal-sized family with their belongings, but not much bigger.

Buy a house that is functional and well located, then keep in good operating condition. Don’t buy houses with fancy items like trim and elaborate landscaping

Don’t get houses with pools or hot tubs. 

Avoid lots on busy streets or odd shapes

Avoid corner lots

Before you buy a house, research propert taxes to see if they will change when you buy the house. 

Tenants can be too rich or too poor.

There are six reasons why single-family houses make better investments than any other asset class:

  1. Houses can make more money with less work.
  2. Houses provide cash flow, but their value doesn’t depend on the income generated.
  3. Homeowners sell because they have to and aren’t experienced investors like those found with commercial real estate.
  4. Lenders prefer to make loans on single-family houses because they’re lower risk and easier to manage.
  5. Diversifying is simplified with individual houses, leading to increased investment safety and higher profits.
  6. Easier to identify trending factors that make a market good to invest in: population growth, demographics, local government regulations and zoning laws, and inflation.

The first step is to set a goal for the number of free and clear houses that you want to own. Work backwards into this goal by first setting an income goal and then asking how many free and clear houses you will need to produce that target income.”

  1. Set a goal by deciding how much monthly net cash flow you want and determining how many houses you need to get there.
  2. Buy one good house at a time, at the right price and terms, and hold while it appreciates in price and cash flows.
  3. Own your houses free and clear by using the cash flow to pay off debt quicker, strategically sell some houses to pay down the debt on others, or refinance some houses to pay off other.

If you have two houses, it’s better to have a debt of 80% on one and 0% on the other, rather than a 40% LTV on both. 

That’s because as a real estate investor, you have more negotiating power with the lender with a conservative 80% loan-to-value. Conversely, the more equity you have the less likely the bank is willing to work with you, because they know you’re highly unlikely to walk away from the property. 

Categories
Books Business Hacks Investing Marketing Technology

Tools of Titans

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Author: Timothy Ferris

My recommendation: 5/5

Summary

Insightful book that deconstructs how world-class performers across different industries and professions are able to achieve success. I skipped around this book and read the chapters that seemed most interesting to me.

My Takeaways

  • Raise prices. (Marc Andressen)
  • Stress test ideas with a red team. Bash the sh*t out of an idea and if you still believe it, then commit to that idea. (Marc Andressen)
  • “Be so good, they can’t ignore you.” (Marc Andressen)
  • Wear something unique so people remember you. (Chris Sacca)
  • Try to trade the short term gain for the long term upside. (Arnold Schwarzenegger)
  • It’s often the tiny detailed things that grow your business rather than the large things. (i.e. Derek Sivers’ funny CDbaby email.)
  • Give lots of damns. (i.e. Alexis Ohanian’s example of making the copy on Reddit’s error page funny.)
  • Being busy is a form of laziness and often used as a guise for avoiding the few critical important but uncomfortable actions. (Tim Ferris)
  • On commonalities of famous investors interviewed by Tony Robbins:
    • Always cap the downside.
    • Find investing opportunities that have asymmetric risk and reward. 
  • Daily vlogging leads to massive growth. (Casey Neistat)
  • “Tell me something that’s true that few people agree with you on.“ (Peter Theil)
  • First Ten Principal:. Tell ten people, show ten people and share with ten people who already trust and like you. (Seth Godin)
  • Generate a list of 10 bad ideas as a daily exercise to refine the creativity muscle. (James Altucher)
  • If you can’t be first in a category, set up a new category you can be first in when launching products. 
  • Think categories, not brands when marketing a product or service. 
  • Everyone wants what’s new, not better. 
  • When you’re first in a new category, promote the category. In essence you have no competition. Tim applied this concept by coining the term “Lifestyle Design” in his book ‘The 4 Hour Workweek’. 
  • Don’t be afraid to do something you’re not qualified to do. 
  • Rainy Sethi sends simple text emails to make a more personal connection. 
  • Focus on acquiring 1,000 true fans (super fans) who will pay you directly for anything and everything you sell. 1,000 true fans are your direct source of income and chief marketing force for ordinary fans. 
  • Take “the coffee challenge” by asking for 10% off your cup of coffee at a coffee shop. This gets you in the habit of asking for what you want in life. 
  • Have a backup plan. (Jocko Willink)
Categories
Books Business Investing

Tax Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes

Author: Tom Wheelwright

My Rating: 4/5

Summary: Practical advise to legally pay less in taxes and grow your wealth.

My Takeaways

  • Include tax planning on your wealth strategy, because taxes are the largest expenses.
  • The fastest way to make more cash is reduce taxes
  • The tax is primarily written to reduce your taxes legally
    • 99.5 of the tax law exists to save you money on taxes
    • Stop being average by doing what Congress incentives in tax subsidies
  • The Tax law is a stimulus package for entrepreneurs and investors.
    • Want to encourage job creation.
    • Affordable housing for real estate investors
  • Change your facts to change your tax
  • Invest where you travel because almost any expense can be deductible
    • IRS says you must spend at least half the time (4 hours working) on business
    • Meals are business expenses that can be deducted. 20-30%
  • Learn how an LLC can be whatever it wants to be for taxes, gives best of asset protection and tax reduction. (S-Corp, C-Corp, LLC or LLP)
    • Make sure to select which tax entity you want to be on the IRS Entity election form.
    • You can change the entity form at any time. (i.e from Sole proprietor to C-corp to reduce employment taxes)
  • Everything you do increases or lowers your taxes.
  • Change your personal expense to a business expense.
    • Expense must have a business purpose
    • Must be ordinary – typical of what would be spent in your industry (i.e. price)
    • Must be necessary. Make more money for business
  • Make your business a family business.
    • Families’ travel is deductible when traveling for business
    • Shift income from higher tax bracket to lower business.
    • Shift income to children by having them work in the family business
      • Tax deduction at higher tax bracket for payroll for Dad
      • Kids report income at lower tax bracket
      • No social security tax for dad
      • Educational benefits for kid
    • Keeps money in family and business going
  • Shift income to “Big Business” and “Investor”
  • Almost any expenses can be deductible
    • Must be business or investment
    • Purpose must be to produce more income
    • Business expenses are best, then real estate
    • Must be entrepreneur or investor
  • Must be an “active” investor that invests for passive income, not earned income.
    • Income from dividends, rent and business. Taxes at a lower rate than earned income.
    • Actively involved in creating wealth
  • Make sure bookkeeping is up to date. Document everything!
    • Think about your business as a big business the way Microsoft does.
  • Depreciation is Magic and can be applied to assets in a business
    • For real estate – you can a deduct the entire amount of the building over a set period of time. This includes your money and the bank’s money.
    • Get money as quickly as you can with more deductions as soon as possible.
  • Tip: Properly document all values of the depreciated items in a cost segregation or chattel appraisal.
  • Portion of house that use for office.
  • Amortization is used for intangible business assets that depreciate. Such as software. .
  • You must elect to deduct amortization in your tax return
  • Cost Segregation must be done by a professional engineer or CPA
    • Can catch up on previous years depreciation
  • Most income on the B and I side of the quadrant is from business or investments, not salary since that’s taxed at the highest rate.
  • Think of your income in 5 buckets 
  • Earned income (wages that have high tax)
  • Ordinary income (pensions, 401k)
  • Investment income (cap gains, interest and dividends, 1031 exchanges)
  • Gift or inheritance tax
  • Passive income. (Business or real estate income)
  • The more money you make, the more concerned you should be where it’s coming from
  • Ordinary income is taxed higher than passive income. 
  • In kind exchanges are a way to minimize taxes
  • It’s not how much you own, but control
  • Leverage Tax credits to lower taxes. Refundable and non refundable 
  • When you want to reduce your tax, reduce the base on which it’s measured. 
  • Set up a LLC company so that you are the owner and employee of the company and set your salary to the lowest possible, and dividends and distributions of the companies earnings to the highest possible. 
  • Must be reasonable salary and rate in your industry. Don’t pay too much or too little so you don’t get audited. 
  • Get rid of assets to avoid state tax
  • Create a trust and a will 
  • Limiting your estate tax through limited partnerships
  • Collect sales tax
  • Combine tax strategy with asset protection strategy. Minimize ways you can get sued. 
  • Have assets protected from financial predators in an LLC.  
  • You should not contribute to government approved retirement accounts because they don’t keep up with inflation and assume you’ll be poor at retirement age
Categories
Books Business Investing

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth

Book cover image of Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth
Go to Amazon page

Author: T. Harv Eker

My recommendation: 3/5

Summary

Although this book was a bit preachy, I found that there were worthwhile tips and tricks that one can adopt to develop a wealth mindset. This book is the kick in the pants you need in order to start transforming your thoughts and habits around money.

My Takeaways

  • People’s past experiences subconsciously influence money decisions 
  • People who blame others and act as victims self sabotage themselves. 
  • Choose to think and play big. Thinking small will get you a comfortable living. Thinking big will help you get wealthy. 
  • Wealthy entrepreneurs solve people’s problems on a large scale. 
  • Don’t be afraid of self promotion. If you’re confident that your product can help people, then share it. 
  • Rich people focus on solutions, poor people focus on problems. 
  • Wealthy people should be open to receive in order to give to others. 
  • Get paid based on business results. Not hourly wages.
  • Take advantage of tax write incentives as a business owner
  • Rich people think in terms of abundance instead of scarcity. 
  • Learn how to manage money by properly saving and investing. 
  • Have a “spend” account to balance the savings account. 
  • Be comfortable with being uncomfortable.
  • Rich people learn from other rich people who have real world results. 
  • Rich people are constantly learning to grow and don’t think they know everything.
Categories
Books Business Investing

The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors

Author: Ken McElroy

My Rating: 3/5

Summary: A book packed with actionable tips for how to properly invest in real estate.

My Takeaways

Unlike residential property, commercial property like apartments is based on the cash flow of the property itself. 

Apartments are also less risky because you spread the risk of occupancy across the units.

The money is made in the management of a property.

No money down is risky because you pay higher interest, which eats into your cash flow if you don’t improve the management operations. You are banking on appreciation which is risky because of timing the market. 

Set SMART goals, they will be the foundation of the roadmap.

Have someone hold you accountable to your goals.

Communicate your specific goal to everyone.

Set milestones 

Business to do list

Find your team

Evaluate the market

Find a great property

Assign a valuation to that property

Establish a property plan

Develop a budget

Manage the property

Find your team. Start out with an attorney, an accountant, real estate broker and property manager. 

Talk to an attorney about setting up the best corporate structure to protect assets and provide tax advantages 

  • Use an accountant for your own tax advise. 

Property search team

  • Use a real estate broker to help find properties and understand the market. 

Property managers will help asses the properties you are considering from an operational perspective 

The offer team. 

Attorney – help you wade through letters of intent and purchase on sale agreements.

Lender or Mortgage Broker – find someone who understands property investing. Could also provide leads on other properties. 

Investors – sources of equity open to investing in rentals 

Contractor / Rehab specialist – before signing a deal, have a contractor perform a detailed inspection and file a report of all critical and non critical repairs. 

Accountant – to help with your finances but also put together profit and loss projections for properties you are considering

Appraiser – specializes in your market and the types of properties considered. Help determine value of property before and after sale. 

Architect

Insurance Agent / for proper protection 

Property tax consultant – to help determine if property taxes are being assed fairly. 

One tax consultant – to keep up with complicated tax laws 

Estate planner – help shelter assets in the event of illness or death 

Environmental company / industrial hygienist – mold, asbestos or other hazard

Surveyor – help asses boundary lines, elevations etc

Structural engineer – often recommended by contractor. Will analyze a problem related to structural integrity and recommend a solution. 

How to find a property

Level 1 Research

  • Google the markets and overall trends in employment, housing, economy etc

Level 2 Research 

  • Go to the markets and assemble your team face to face. 
  • Met with local contractors and communicate goals. Ask for referrals to build the team in that market

Level 3 Research

  • Call every referral in markets and asked same questions of initial contacts

Become familiar with local newspapers, business trade publications, gov’t website and trade organizations

Realize that employees work for you and meeting you is part of the job

Research your own market online, through face to face meetings and follow up calls. 

***The market is more important than the property 

The most important thing is to evaluate your market and sub market. 

Get an accurate read on supply and demand in your market – make your broker do the research. What is the supplier of available rental properties. 

Estimate occupancy rates to get an understanding of demand 

Focus on employment. Population follows employment 

Places that have clearly defined personas (like Venice beach) 

Consider investing in markets with population drivers such as infrastructure updates like highways trains, master planned communities, sports stadiums, universities, redevelopment areas, casinos, military bases, regional airports, company relocations, major events like the world fair, Super Bowl good indicators of growth

Don’t invest in markets reliant on one thing like one large employer

Make sure there is economic diversity

Look for markets where the cost of home ownership far exceeds the cost of renting. The closer the two are, the harder to find renters and keep them.

Location has to be evaluated related to supply and demand

Look for places with good drive by visibility 

Great locations are low in supply and high in demand

Steps for finding a property

  1. Select your market in your state, preferably close to home
  2. List every submarket or neighborhood 
  3. Define and describe the employment picture in the area
  4. Define and describe the unique persona of the sub market 
  5. Determine supply and demand, by asking your team 
  6. Check your findings
  7. Rate the sub markets based on the criteria. 

Don’t pick the property before assembling your team, developing your goal and targeting a market. 

Join a business networking group to hear from people in your market

Find brokers in your target market and can make calls to property owners to save you time

Reach out to owners of properties you want to buy in your market that aren’t for sale

Narrow your property parameters further in your area. 

Find real estate associations and join them

The sellers asking price is irrelevant 

You determine the property value, which becomes your offer

With multiple units, the property value is based on the current cash flow of the property

5 Step property evaluation 

  1. Verify property income
  2. Verify expenses
  3. Determine net operating income
  4. Find the capitalization rate and valuation 
  5. Calculate the loan payment and your profit (cash on cash)

Buy a property on actual income, not future potential income

Trust but verify all numbers on the proforma for a property

Sign up for a mailing list to secure several real property pro formas to practice the 5 step property evaluation process. 

Use the numbers on the proforma form to calculate offer price 

When you go through these numbers for real, verify with your team. 

Make calls to property owners you see interested in. 

Perform this valuation process on an actual property with real data

Once you’ve established the valuation of the property, create a letter of intent with the deal points. 

Send the letter of intent via email and have your broker prepare them. That’s where the bulk of the negotiation happens

Review sample letters of intent and purchase of sale agreements

During due diligence, walk through every unit and inspect every detail. 

The goal of due diligence is to find out 100% of everything there is to know about the property and generate an operating plan and budget from that information. 

Any contracts you do not want to continue that were under the previous owner need to be spelled out in the completion of due diligence.

Need to verify current rent roles. 

Review the detailed due diligence checklist and use as a guide when inspecting the property 

Leverage your team to complete the due diligence process in a timely manner

Take notes and analyze the books

Categorize income and expense items as you discover them for your operating budget

If you discover issues during due diligence, those expenses will not come from your wallet. 

When hiring a property management company, ask the following questions. 

  1. What are the fees? 8-12% for rent and single family. 4-8% multi-unit properties 
  2. How long have they been in business? Look for at least 3 years. 
  3. How big is their accounting department? How do the deliver reports and when. What is their banking relationships. Check their banking references.
  4. Get a reference list of the properties they manage and call and visit to verify. 
  5. Ask to see their policies and procedures manual. Reveals company culture 
  6. Professional affiliation last and associations. CPA AMO, CAM,CAPS
  7. Tracings program. Sales, Service, etc
  8. Real estate license. For verification and gov’t protection
  9. Legal and background checks. Ask for the name of the firms that the company uses for eviction last and background checks. 
  10. Vendor negotiations. Need to tell me how they negotiate with vendors to save money on maintenance, advertising, supplies. Economies of scale
  11. Employees. Know the individual running the building. Run background checks and drug tests

Fire the property management company for the following:

  1. The company doesn’t have a partner mentality and doesn’t communicate market conditions that affect supply and demand. 
  2. Neglects physical condition of property 
  3. High employee turnover
  4. Inconsistent or incomplete reporting. 

Enforce the policies and procedures in the lease with no exceptions 

Respond quickly to your residents