Other People’s Money (OPM)
Investing in Private Offerings
December 27th, 2009
What you should expect as an Accredited Investor
One of the advantages of being an “Accredited Investor” is the ability to invest in “Private Offerings” or “Private Placements.” I have seen a lot of this happen, and I would like to share with you what you need to know and do.
Let’s start with a simple explanation of an “Accredited Investor”: Someone that makes $200,000 or more per year, or as a couple $300,000 per year (and has made that in the last 2 years), OR has a net worth of $1 million or more. (By the way, the rumor is that might be changing soon).
As far as “Private Offerings” – this is a private method for entrepreneurs to raise money for their businesses. When you “invest” in a “Private Offering” – you are buying shares in that company.
So here are SOME things to recognize:
- Accredited Investors invest in these things because they are hoping that a SMALL PERCENTAGE will hit big while the rest will fizzle and/or die. What that means in plain English is the Accredited Investors recognize that with a big percentage, they will LOSE MONEY! It is a fact – look at the statistics – most businesses go out of business. Savvy investors recognize that.
- Given the above, most savvy investors will invest a SMALL PERCENTAGE of their net worth into a whole bunch of private offerings – because they recognize it is a numbers game. Some make big money, most will go out of business.
- As a savvy investor, do your DUE DILIGENCE!!!
- Savvy investors do not invest in “ideas”, but rather they invest in the “people”. Find out everything you can about the MANAGEMENT team. Then, and only then, should you look at the “idea” and the demand for the product/service.
- Read ALL the documents you receive; At a minimum, read the PPM (private placement memorandum) and the Operating Agreement.
- Have experts review those documents – your attorney, your CPA, etc.
- I have heard many complaints that originate from misaligned expectations. In my opinion, the overly positive expectations of investors are their own fault for not doing enough investigation and due diligence. Also many of those investors expect to be paid within a short period of time when most small companies need a good 5 year run to be able to “make it.”
- The PPM lists specific RISKS that you need to read carefully. Spend time reading these carefully. It is under a specific “Risks” section.
- Make sure to ask a lot of questions – it is your right to do so.
- According to my mentor, NO ONE hits 1000 batting average. Recognize that you are taking a risk as well. THE WORST thing you can do is blame the entrepreneurs. I have seen it over and over again. People hear about someone that has done REALLY well over the years, making millions of dollars, then suddenly they want to invest with this “everything she touches turns into gold” person. The economy turns around like it did (beyond her control), and she loses that deal and the investors money, and suddenly this person now is EVIL and a CROOK when all she tried doing was the absolute best for the investors. This is all to0 common!
That’s why SEC prefers Accredited Investors invest in this. This is a game for the RICH – not for anyone.
So here is my message to everyone that is thinking about investing into such deals:
RECOGNIZE THAT THERE IS A HIGH PERCENTAGE OF LOSING YOUR MONEY INVESTED.
So either get in and shut up, or get out and stay out. Really!
The fact is that most people should NOT be doing this!
Network Marketing – My Observation So Far
December 7th, 2009For years, I had been approached by students involved in network marketing. I have been asked to join various companies to do with juices, drinks, pills, telephones, websites… You name it, I have been pitched to join it.
I was sick and tired of it. For years, I did not think much of “Network Marketing” or “MLM’s”, and I was very open about it. “Stay away from me – I do not do MLM’s” was my motto!
Along the way, I had met some very successful people, some students, that were making a killing with this business model. I found it intriguing, but never wanted to get involved.
Deep inside, I felt guilty that I was shunning this business model without having it tried it.
Then I was challenged by a speaker. This gentelman had made millions in network marketing. He questioned why I would say the things I said about network marketing without having it tried it.
He also explained to me that now more people were getting involved in network marketing then ever before. This is were the money was for now.
So I decided to try it. That was almost 10 weeks ago. I figured I can “try” it and tell people how much I hated it.
Boy was I wrong!
Here are my observations:
- Network marketing teaches wealth builders the FOUNDATION of owning a business. How to communicate with people. I noticed that many people cannot communicate effectively – they don’t have a chance to run a business. So become an effective communicator through network marketing first before you even consider running a business or RAISING CAPITAL. Yep, raising capital is all about communicating!
- Network marketing teaches people to handle rejection. Whether you are running a business, raising capital or buying a building, do you think you will not have rejections. One of my mentors once told me jokingly that every bank in town has a photo of his in their bank for the most rejections for loans. Yet, he made it big! He always said to me, “if you can handle rejection, you can overcome fear!”
- Network marketing teaches you to make DECISIONS. Ever since we have been kids, we have never had to make decisions. Our parents, then teachers, and eventually our bosses have told us what to do. Suddenly, when people have to make decisions, it is EXTREMELY uncomfortable. I sometimes challenge students to dedicate a week of making decisions without sitting on the fence. Also notice people around you, very few people can make decisions. This leads to my last point.
- Network marketing teaches people to become LEADERS. With the ability to make decisions, handle rejections, and have good communicating skills, now you have the foundation to become a leader. Anything is possible now!
10 weeks ago, I was challenged by someone about my views on network marketing. Today, I think it is a great business model for most wealth builders to consider. It is hard to believe I have become a proponent of it. I finally “get it” – I also see why most people quit doing this so fast. It builds character, and anyone that cannot handle it cannot handle building a business, raising capital, or become an active wealth builder.
By the way, I have made money EVERY single week since I started. My last WEEKLY check was approximately $2250 – in just 10 weeks!
That is my 2 cents on the subject.
Your Pitch For Raising Private Money
October 25th, 2009
I have said ability to raise money (capital) is one of the most important things a wealth builder needs to know.
I have raised well over 10 million dollars (probably over 20 million) in the last 7 years.
Raising money comes down to a number a very important core things. One such thing is your ability to COMMUNICATE and convince people to invest.
The way you communicate is different depending on who you are presenting to. Pitching a professional angel investor is very different than pitching a friend for example.
In this post, I will share with you how to pitch a “regular” Joe.
What I am about to share with you is my approach and not necessarily what others do.
Anytime you are pitching “regular” Joe, there are one of TWO things that can move people to invest.
1) Target their “greed glands”
2) Target their “pain”
You NEVER come out asking for the money. You want THEM to ask to invest.
Okay, so let’s touch on the first one – The “Greed Gland Approach.” Basically share with them WHY you are so excited and passionate about the investment. Do that with some passion. Share with them what the investment can do for you. Let their “greed glands” kick in! You want them to salivate. NEVER EVER guarantee, promise any kind of return. Everything you discuss is PROJECTED. Make sure you also discuss the downside of the investment. Don’t hide anything.
Okay, so let’s touch on the second one – The “Pain Approach.” Basically you want to identify their FINANCIAL PAIN in the conversatio before you talk about the investment, then you share with them what you are doing to achieve your financial goals. Once again, share with them why you are so excited and passionate about the investment. Do that with some passion. Share with them what the investment can do for you. They would worried that you might “make” it without them. Once again, NEVER EVER guarantee, promise any kind of return. Everything you discuss is PROJECTED. Make sure you also to discuss the downside. Don’t hide anything.
Be honest, never lie. Never hide anything.
I cannot say that enough: NEVER EVER guarantee, promise any kind of return.
Finally, alway remember that you are dealing with people’s money/savings. Be responsible.
Money For Deals…
May 23rd, 2009So you need money for deals. You have no money.
Where do you start?
Let’s start with 3 basic ways of getting money:
- Save It!
- Borrow It!
- Trade It!
I will expand on each of the above.
- Save It: This is NOT my favorite way, but many people save money by living frugally and/or making making more money. If you save $20,000 per year (hard for many people), it would take you MANY years to save $1 million! Like I said, this is NOT my favorite way.
- Borrow It: This is one way to get money. You have to make sure you match the investment to the type of money. For example, borrowing money for long term with no cash flow investment is not a good idea. Borrowing money against a cash-flowing investment might be a better idea.
Here is an example: If you have an asset (e.g. building) that cash flows, then borrowing against it is a good idea. This is basic “arbitrage.” Just make sure that your cash flow coming in is HIGHER than what you are paying. For more information, check the “Financial Arbitrage” videos on this blog.
- Trade It: You can raise money by selling shares in your company. So the investor becomes an EQUITY investor. Anytime you are thinking of doing this, make sure you talk to an SEC attorney to walk you through all SEC compliance. But essentially you can trade ownership in your entity for money. This is good for long term investments. I use this method for my various companies.
Now, which method is best for you?
I gave you some examples.
But let me say this, you need to consider the downside as well. For example, if you borrowed to buy an asset, and things went south, what happens then? You are liable.
But what happens if things went south if your investor ownership? Well, assuming you worked with an SEC attorney, disclosed risks, and there was no fraud involved, you are fine!
So always consider upside and downside of dealing with other people’s money.
In general, here are my 2 cents for NEW businesses: “Trade It” when you are a new business, “Borrow It” if you are an established business with revenues to cover loan payments. There are exceptions.
Keep in mind when you buy real estate with cash flow, you are buying an “established” business. Just watch the “Financial Leverage” videos I have on this blog.
If you need help on learning about OPM, call us at 888-888-3612 and ask for a strategy session for OPM.
Introduction to OPM (Other People’s Money)
April 13th, 2009You have heard the term OPM (Other Peoples Money).
There are a number of sources of OPM:
- Conventional loans
- Seller Financing
- Private Money
- Hard Money
- Business Lines of Credit
- among others
There are also other sources that one can be creative with:
- Rental Deposits
- Real Estate Agent’s commission
- Notes
- and many more…
It is important that every wealth builder understand OPM and the legal aspects of OPM. When I was was starting out in investing, one of my New Year Resolutions was to master 3 of the above sources of OPM in a 12-month period. It was the absolute BEST thing I ever did!
Now, I have used every single source of OPM above plus a lot more.
Here are some characteristics of OPM.
The CHEAPEST source of OPM is SELLER FINANCING (it is not uncommon to get 0% interest!).
The EASIEST source to QUALIFY for is SELLER FINANCING (many times, no one checks your credit).
The 2nd CHEAPEST source of OPM is CONVENTIONAL FINANCING (as far as interest rates).
The fastest one to make you a MILLIONAIRE over and over again is PRIVATE MONEY (if used right).
The FASTEST one to close on a real estate deal is SELLER FINANCING followed by HARD MONEY.
The fastest way to $1 Million is to borrow $10 Million (or however much to make the $1 Million).
In future posts, I will touch on some of these sources, but here are things to think about:
1) Know what the LEGAL ASPECTS of each are. Whenever you are dealing with OPM, The SEC (Securities and Exchange Commission) comes into play. You always want to comply with the SEC!
2) Anytime you talk about OPM, you are talking about LEVERAGE. So study LEVERAGE first before getting into OPM. I have supplied you FREE videos on “Financial Leverage” on this site. Click on the “Financial Leverage” on the right hand side.
3) No one source of OPM is perfect for every deal. Understanding when to use what is important.
What are some of the OPM sources you should focus on? I cannot tell you, each of you are different. It varies so much on where you are in your investing, what you are doing, and what you are comfortable with.
But let me share with you what is possible…
I have raised TENS of MILLIONS of dollars, to fund not just real estate but also businesses.
My net worth has sky-rocketed because of this one thing – ability to raise money. Here are a few companies I have funded >>>. These do not include any real estate transactions.
If you are interested in learning more about OPM, I can direct you in the right direction.
Go ahead and request a free 30-minute strategy session, and let the WEALTH STRATEGISTS know you want to talk about OPM only. There is one single caveat.
Since I am trying to create more content for you all, I would like to record the calls (with your permission of course) about the OPM questions you might have. If you are fine with that, we can help. This is a win-win for everyone.
Otherwise, I will be touching on this topic over the coming months on this blog.
Until next post, Dream BIG!
