A week ago, I had the opportunity to present about Raising Capital at
the AAPL – American Association of Private Lenders event in
Philadelphia, and although some of you missed it, why not cover some of
the highlights?
Sure, it’s not the same as being there, especially since I had my
securities attorney and another large private capital fundraiser answer
questions on a panel at the end.
But, we covered some key components, such as: Types of Money, Money
Myths, Mistakes Raising Capital, Tips on the Best Ways to Raise Money,
Investor Relations, and the new Jobs Act, especially 506(c) and its
implications.
Today, I’m going to cover Types of Money and why they’re so important.
If you can demonstrate to people where they can free up money or save
money on this like taxes, it could be a huge help to them. Also, if you
have an investment vehicle to put capital in, then you’ll probably
raise more money too.
The reason that this is so important is that if you can demonstrate
to people where they can free up money, or save money on things like
taxes, and if you have a vehicle to put it in, then you’ll probably
raise more money.
The concept of the four types of money really comes from Robert Kiyosaki: There’s Your Money, the Banks Money (OPM or Private Money), there’s the Tax Man’s Money, and there’s the House’s Money.
He also goes on to teach that there are three different asset classes
that one can invest in: Businesses, Real Estate, and Paper Assets, with
pros and cons to each class.
Businesses
Pro: This is the asset class that offers the highest of all returns on investments.
We once had a guy, who wanted to buy PPR, and his whole model was to
purchase start-ups, add value, and in 3 years flip the business for a
profit. We only have to look at Instagram or Microsoft to
see how profitable investing in a business can be. If you really think
about it, many tax laws were written to favor business owners.
Con: Businesses are the toughest asset class to own, develop, and maintain.
Real Estate
Pro: Real estate is the easiest of asset classes to
leverage. It’s easier to borrow money for real estate than it is for a
business or paper assets.
Con: For the smaller investor, real estate can be
far more capital intensive than investing in paper assets. For example, I
can invest $25 in Lending Club, a paper asset in the form of an
unsecured note, but it’s hard to invest $25 dollars in a piece of real
estate.
Paper Assets
Pro: Paper assets are the easiest of all asset
classes to get in and out of. An example for me is that I can sell a
note in less than 30 minutes. I’m not so sure that I could sell a piece
of real estate that quickly. I could also trade a stock option in
seconds or minutes.
Con: You probably have the least financial control.
There are definitely fewer tax advantages, and they can also be highly
volatile.
As Doug Andrew, author of “Missed fortune 101,”
says, “These markets are like a person with a yo-yo going up stairs.
Over the long term they go up (stairs), but there are ups and downs
along the way (yo-yo).” And, Andrews advises his readers to protect
themselves from the ups and downs of the markets.
Many people say that they’re diversified in one mutual fund or maybe
in several mutual funds, but to me, if you’re only investing in one
asset class, then you really aren’t diversifying.
I find to be truly diversified; you need to be investing in more than
one asset class. An example of this would be Donald Trump, who invests
in Real Estate and Business, or Warren Buffet, who diversifies between
Paper Assets and his Business.
I like to think that I’ve been able to create synergy by
investing in a business like PPR with OPM (Other People’s Money) from a
Private Offering, while also using the Bank’s Money or Private Lenders
to do my Real Estate deals.
I also like to think that I’m using as many Tax Strategies as
possible to free up more of my money, by maintaining my RE license to
take advantage of more passive losses through depreciation (not capped
at $25K), and by setting up an ESOT (Employee Stock Ownership Trust) at
PPR to save tax on our business revenue.
I do this, while also using my own money to personally invest in re-performing notes, which actually create synergy amongst all three asset classes.
It’s really hard to beat buying a note at a discount, with a high
yield, that’s backed by real estate, with a homeowner occupant, who has a
vested interest in paying their loan because they need a place to live.
And last, I like to think I’m able to take some of the House’s Money
off the table by putting some money in a more protected, tax sheltered
vehicles like IRA accounts and Insurance Contracts.
Many people tend to put all their money back into their business or
their real estate investments, etc. But, I’m a firm believer that houses
were meant to store people and not cash.
There are always market downturns, lawsuits, and bankruptcies out
there, but there are also safer buckets that can be utilized to take
some of the House’s Money off the table.
Source: http://www.biggerpockets.com/renewsblog/2014/08/14/learned-raising-30-million-private-capital-part-types-money