Play the match game …

Here’s an ‘investing match game’ for you to try … simply match the active investment actions in Column A with the investment vehicle of choice in Column B (you must use each word in Column A once, and once only … you may use any word/s in Column B as often as you like):

Investment Actions Investment Choice
Rehab’ing / Flipping   Real-Estate
Mortgaging / Leveraging   Motor Vehicle
No Money Down   Business Assets

Now, is this a trick question? If you’re honest, you probably answered:

Investment Actions Investment Choice
Rehab’ing / Flipping   Real-Estate
Mortgaging / Leveraging   Real-Estate
No Money Down   Real-Estate

… after all, these are all ways to make money with real-estate; so did you pass the little test?

Good, because here is how they might work:

1. Rehab’ing, then flipping (quickly on-selling) real-estate

You can purchase a run-down property in a good location (usually a small house, condo, duplex, triplex or perhaps a run-down apartment complex), provide some of your own labor (or try and find a general contractor willing to work cheap) to fix up the kitchen and bathroom/s, apply a little paint and some new carpet, and … voila … you get to re-list the property and resell it for a price that covers your purchase price + rehab + profit (both yours and the general contractor). At least that how it used to be done – and, will again, sooner or later. Rehab’ing and flipping can be a useful way to generate a small lump of cash (also known as ‘chunking‘).

2. Mortgaging real-estate

You can purchase some real-estate, perhaps putting in a deposit of 10% – 20% and then using the bank’s money to pay for the balance. You can either live in the property or rent it out to help cover the cost of the mortgage (which you should usually fix so that you can be certain of your future costs). Since the mortgage payments do NOT rise with inflation (if you were smart enough to fix them), but rents do … over the long run you will earn an income and an eventual capital gain as the property increases in value. Buying and holding is a simple strategy for long-term wealth.

3. No Money Down

This is where you find a creative way to avoid paying a deposit (perhaps you don’t have the cash?) and then work with one of the other two strategies. There are people who swear by this method and others who say that there is no ethical way to use this strategy in a repeatable fashion. In either case, you use tools, like assuming an existing loan, and/or seller carry-back financing and/or finding a partner to avoid the necessity for fronting the 20% deposit yourself.

Of course, this little primer on real-estate was just a little ruse to stop you from peeking ahead

… you see, even though I have also invested in real-estate in many different ways, here’s how I would match up those columns a little differently, based upon some things that I have actually done over the years:

Investment Actions Investment Choice
Rehab’ing / Flipping   Motor Vehicle
Mortgaging Leveraging   Business Assets
No Money Down   Business Assets

i) Rehab’ing, then flipping a motor vehicle

Just out of college, I landed a high-flying job in the hot IT sector (yes, we had computers in the 80’s … just bigger) … when all of my friends were buying their first new car, I was selling mine, to buy …

… a 10 year old Porsche 911 (the particularly ‘hot’ S-model) for just $13,000 (she was a beauty, but more exhaust fumes ended up inside the car than outside … helps to explain the loss of a few memory cells).

The trouble is that she was that horrible bright/lime green that the German engineers thought was oh so appealing … yuk. I hired a compressor and bought some paint and materials … and, a friend who (said that he) had some experience spray painting, helped me to strip and sand the car’s exterior to bare metal then we spray painted it (in his backyard garage) a beautiful red … acrylic. We used over-the-counter enamel spray cans in a matching red to change the color of the interior of the doors, cabin, and engine/trunk because those areas were too hard to sand smooth and polish to a shine.

When we were finished the car ‘looked’ a million dollars …. needless to say I flipped it pretty quicky … selling it for $26,000. That was a decent profit for a not-long-out-of-college kid in the early 1980’s!

2. Mortgaging business assets

I mentioned in a previous post that I left my high-flying job just shy of 10 years to join my father in a very small finance business (just me, my father, and one administrative clerk); it didn’t perform very well, not even covering salaries. However, when my father got sick, I decided to buy out the family, leaving me $30k in debt.

The only problem was, that being a finance company, the business needed funding – bank funding, and a lot of it. The best solution that I could come up with was to find a bank who would treat the business assets (the ‘paper’ that we were funding) just like real-estate: I had no trouble finding a major bank willing to lend me 75% against those assets at a middling-to-high interest rate (leaving me to find the 25% deposit … by way of a partner whom I found then later bought out). The bank took no other security other than my personal guarantee … now, I have banks lining up to fund millions at up to 95% of those same assets (sub-prime or no sub-prime!) with no additional security and, now at an excellent rate.

3. No Money Down

Obviously, finding a partner for that business was a ‘no money down’ technique as applied to business, rather than real-estate. However, I came to the USA to sell some software to a related business. What I found was a business that had been family-owned for 50 years, allowed to run down, then been purchased by a large multinational for a ridiculous sum.

Naturally, the part of the business that I was interested in was not operating profitably, so instead of selling them my software and services to help them ‘fix’ the business themselves, I provided a cost-benefit that showed that they should give me majority share – for nothing – in return for taking over, and re-engineering its operations.

My team and I turned that business around in just a few, short months, and I sold my share to another public company for a huge gain (what’s the return on ‘no money down’? Infinite!) just 2 years later.

The point here is that money can be made anywhere, in any manner … all you need to apply is the NEED to achieve a certain level of financial result, the VISION to see a way to get there, and the PERSISTENCE to see it through …

… failure to do so will NEVER be for a lack of opportunity!

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0 thoughts on “Play the match game …

  1. AJ,

    I love these stories. I will share one that makes the round at the Fisher College of Business (MBA program) at The Ohio State University. Hopefully, I will get the details close enough that the person whose story it is (and who is still living) will be happy with this version. It’s a good one.

    The man’s name is Les Wexner. He was a 21-year-old undergrad at FCOB at the beginning of this story. His Dad (and Mom) had a family-owned women’s clothing store in Columbus OH (where OSU is located) and finally decided to take a vacation one winter after about 30-50 years of no vacation. Dad left Les in charge; it snowed. The snow storm meant no customers and idle time for an active mind. Les had a lot of ideas of how to “improve” his Dad’s business. When his parents returned, Dad disagreed.

    Apparently, Les felt strongly enough about his ideas to go about proving his Dad wrong. This is where it parallels your stories above.

    Les decided to open up his own – competing, I assume – store, but as a college student had no money. So he convinced an aunt of his to loan him $5000, but she put the stipulation on the loan that he could borrow the money AS LONG AS HE DID NOT SPEND IT. So he put it in the bank, which then lent him the money he needed (agaist the $5k as collateral, and perhaps with a business plan as well…)

    Les Wexner is the founder of Victoria’s Secret and The Limited, plus a few other boutique-like ladies stores that cater to other-sized women. He’s still a great supporter of OSU and the FCOB, too. We love him!!!

    Thanks for sharing your stories, AJ. Stories like this prove that believing in yourself is the best step to making dreams come true.

  2. @ Di – Thanks for sharing! Inspirational stories abound … one just needs to make their own inspirational story …

    Hopefully, this post also shows that you can use one tool for a different job and make it work to your (financial) advantage! AJC.

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