Hey, everybody.
So today we're going to talk about five and best ruled forever white.
And as you guys know, I've been investing for 40 years, So these five
I really thought through and I have examples of each one and please
pay attention because all are very important.
So the number one rule is to understand that.
And that, of course, is to understand the deal.
Now, I have been burned on this so many times.
I can't even tell you.
I invested in an oil well that actually didn't exist.
And of course, I invested in a tech company that just went bust
and I lost almost a million bucks.
So what are the lessons that I learned from those things?
I have to look back on my own investments and say, what actually
could I have done differently?
And number one, never invest in anything that you do not understand.
a lot of times ego is at play.
And a lot of times when you're making a lot of money,
you just are throwing money around.
But I'm telling you from a lot of friends of mine do not invest in things
you do not understand, Invest in things that you understand.
Your success rate will go way up.
what are the risks and what are the questions that you should be asking?
If you don't know, then find people who do know or go on the Internet
and make sure that you're very prepared for when you're giving somebody
your hard earned money that you know what the risks are
and you know what the questions that you should be asking.
because when you're being sold
something, people will never tell you what the risks are.
You need to look at the risks.
Number three, what is the overall experience of the investor?
This is really important.
We're starting to see it now with a lot of people
that raised a lot of syndication money on real estate.
If Bester doesn't have at least 5 to 10 years of experience
or a team of people around, then if I were you, I would pass.
You're going to want to invest with people
that have done this before and have a track record.
That's what the lenders are looking at right now
as they start to resize some of these commercial loans.
They're starting to look at the experience of the syndicator and they're actually
making better concessions for the ones that have a longer track records for
what is the end goal.
So is this a cash flow play or is this a capital gain?
Now, of course, the difference is cash flow is passive income.
Capital gain
is just like buying a house low and selling it and scooping the equity.
And now, of course,
you have fees and capital gains tax and all those kinds of things.
This is very, very, very different.
In my thirties, I had a cowboy of a strategy
and then by the time I hit 40, I said, Enough is enough.
I'm tired of continually having to find deals.
and start to park money and make it more of a passive income
so I can have the reoccurring revenue and not have to work so hard.
Number five Can you afford to lose the money now?
Just like when you go to Vegas?
I go with a certain amount of money.
I always go with the mindset that if I don't come back with any, I'm fine.
When you invest, you need to have that exact same mindset.
Now, I know you're not investing to lose money,
but you need to be in a position to where if it is lost, it doesn't set you back.
Financial in other areas.
The second big rule is, of course, leverage.
this is a huge one that businesses and real estate has over stocks and ball
in those kinds of things.
So obviously with leverage you can do more with less.
And what is leverage?
Leverage is simply finding your property, let's say 4 million bucks
and going and finding a bank or pension fund or a life insurance company
or somebody that will lend you 50, 60, 70, 80% of the money.
And then you only have to come up with, say, 20%.
this is very important because you can have $1,000,000 of cash
and buy $5 million of real estate simply by putting 20% down
on five different deals and having somebody else
take care of the leverage or the debt on that exact same business
or property or whatever it might be.
what leverage does it?
It increases time, it uses other people and other people's money.
so leverage is really OPM or other people's money.
So when you guys go to the bank or park your money in a pension
or a life insurance company, then whoever is handling that actually has a problem.
That's an expense for them
and they actually have to lend it out to people like us in the form of leverage.
And that's what I'm talking about.
There's no reason that you can't participate in that.
So a third thing is good debt versus bad debt. good.
That, of course is money that's invested in something that's paying you back.
In other words, there's a stream of income coming in from that investment.
Bad debt, of course, is credit card debt or even perhaps school loan debt.
You've got to be careful what you're doing
because credit card debt right now is somewhere over 20%.
on the good debt side
you might be able to borrow in a for a business at five, six, seven, 8%.
So a huge difference all the cost of the debt number four,
you're going to get greater results with less effort.
And what that means is you're going to get the depreciation expense
or the tax benefits on the entire asset, even though
you might have only put 20 or 30% down, that's huge.
You're not going to get that if you pay cash for everything.
and then five you're going to get paid multiple times of course,
if you're using leverage correctly, you're going to be able to be invested
in many things over a period of time as opposed to just one and saving again.
And you're also going to have a tatted
in there or somebody like a business that's going to be paying you
and you're going to have tax benefits and you're going to be paying down
that debt over time And so you get paid multiple times if you use leverage.
the third one, which isn't talked about a lot, is compounding.
And this is a simple concept.
compound, simply earns you interest on interest or money on your money
If you have $10,000 and you are earning 10% on that money
at the end of one year, you would have $11,000.
If you still made 10% on the $11,000,
then of course you would make more money
on the 11 you're actually earning interest on your interest.
the good thing is
Einstein called compound interest, the eighth wonder of the world.
If you can start to learn how to do this in a lot of people, what they do
is they make money and then they pull it back
and they make money and they pull it back.
And then they always have to reinvest.
Compounding means that you're in for the longer haul
and you're making money on your money.
As your money is growing,
your interest rate is actually making your more money because your principal
is growing along with it.
so number three is the actual formula for the compounding.
have the final which is the end result.
But then you have your principal interest rate number and time periods
and all of those things work with you
as opposed to just investing in something,
letting it go up and scooping it back and having to reinvest.
what is the rule of 72?
The rule of 72 is simply a calculation that estimates the number of years
that it takes you double your money at a specified rate of return.
It's actually simple.
For example, if your account earns, let's say, 4%, you simply divide
72 by four to get the number of years it will take your money to double.
So in this particular case, it's 18.
So if you're making an 8% return, then of course it takes nine years to double.
and the way that it would double, of course, is if you kept the
and it was compounding.
and number five and probably one of the biggest lessons
that I've learned from compounding is time is on your side.
And I think a lot of times, especially with early investors,
they see the equity, they scoop it, they put it in the bank account
and they're fighting inflation.
But really, time is on your side, especially if you have inflation,
especially if you're a renter or your business owner
is actually paying off your debt.
The fourth thing, of course, is diversification.
Now, this does not have to be in gold and oil and real estate
and all kinds of things.
It could actually be inside of real estate.
So, for example, one of the ways that we diversify
is we're invested in Oklahoma, we're invested in Texas, we're invested
in Arizona, and of course, we're invested in multiple areas of Texas.
So in Texas, Austin is the state capital.
Houston's more oil and gas.
Dallas is more finance. So you get the point.
So you have different cities that you can actually diversify.
And each city operates independently.
But what you're trying to do here is you try to minimize risk.
So I've had situations where we've had, let's say, a military base
move out of an area and it severely impacted a property.
But I also had multiple properties in other areas.
So I had one property that wasn't doing great,
but other properties that were doing a lot better and therefore
the positive properties were covering the ones that had the losses.
And obviously you don't want to have any losses
when if you have all your money in one property,
then of course you have a little bit more risk and you're not diversified.
number two.
Of course, you're protecting against future losses
on some of these other assets.
So markets are fickle.
They do go up and down.
And if you spread your risk out on multiple properties,
you can have some doing really well one year and others doing really poorly.
Another and it'll average out for you and hopefully minimize your return.
Three you're actually going to find new opportunities.
I find that a lot of people that invest in one thing and try to hit a home run,
they often are very disappointed.
We just saw this in crypto and some of the bitcoin stuff.
So this is a problem. What you need to be doing.
There's nothing wrong with investing in those things.
I actually did as well,
but I had a little bit in there, I had a little bit in gold,
I have a little bit in oil and gas and a little bit
in real estate, up a little bit in tech.
And so I've had to learn those other things.
And so therefore you're actually opening your mind to new opportunities.
And I think this is one of the biggest issues that Wall Street
has as they try to take your money invested for you
is they keep you in stocks and bonds and mutual funds and those kinds of things.
And they're not even open to real estate,
even though the tenant pays down your debt, you get massive tax benefits
and you can grow tax free through cash out refinances.
number four and mitigates short term mistakes.
So what I mean by that is you can make a small mistake.
That's okay. Sometimes it's market timing.
sometimes gold will go down or sometimes oil goes up.
These are short term things. You can look at it that way.
You have to look at it from a long term standpoint.
and if you have other assets that are doing really well
and you invest in something that actually takes a dive initially,
it's not going to be a big deal because it will be a learning lesson.
and your other investments are actually covering it for you.
And number five, it preserves capital Again,
just spreading risk, preserves your individual capital.
And these are long term strategies which the majority of people do not do.
Most people go in for the kill it upside,
grab the equity, they buy a new car, they go out, buy
a new cars, and then they go raise money for the next one.
Trust me, from personal experience, that strategy does not work.
And then the fifth one, of course, is hold.
and I've been talking about this through the whole video.
but people that whole get massive tax advantages.
If you want to take a look at
what the IRS wants you to do, just open the tax code and take a look.
They actually tell you
and every one of their tax strategies are long term tax strategies.
They want you to invest in solar.
They're going to give you tax credits for a long haul for solar.
number to grow with inflation.
I always tell everybody, what was the cost of your house?
You grew up. And just think about that for a minute.
my mom still owns the house that I grew up she paid about ten grand for it,
if you can believe it.
And now it's worth somewhere between seven and $800,000.
Let inflation grow with whatever you get, because even the Federal Reserve
has said that they believe that they should be at 2%.
So 2% over ten years is 20%.
So just let inflation work for you. Three.
If you do that, you'll have less time and work and you'll have more freedom.
Trust me, guys, it's really, really fun to chase the golden ring and hit home runs.
I get it. But focus on hearing singles.
and in a very short period of time, you're going to have a lot more free time.
You're going to have a lot more freedom
to be able to spend on your health and your family, etc..
number four, or you got to have lower costs on a whole strategy.
I'm telling you, think about the transaction cost
both on the beginning and at the end that you have.
When you're just churning money.
The velocity of money can happen lots of ways.
And as velocity of money moves through different assets
and different transaction, there's fees and commissions that everyone takes.
The cost will be significantly lower if you just hold for the long term.
And five.
And the last thing is use the banks to cash out tax free.
And this, my friends, is the best strategy on the planet.
Most people know this.
If you you're a home, you do it through a cash out.
Refinance That money is not taxed.
It's a tax because it's in the form of debt.
So if you could take anything, it doesn't really matter what it is.
It could be a business, it could be real estate.
And you grow the value and you use and you grow that value.
You can actually go get more leverage The bank is always going to look
at the asset as collateral, and they'll lend against that collateral
if you create the value.
So the value that you create, you can actually pull back out tax
free through a tax free refinance because of course it's in the form of debt.
foreplay.
You guys enjoyed the five investment rules forever.
One, we'll see you next time.