Podcast Summary
Buying and investing in real estate businesses: Consider acquiring property management companies to manage your real estate assets and increase cash flow. Focus on hiring, automating, and outsourcing to maximize profitability.
Buying and investing in businesses related to real estate can be a profitable alternative in today's challenging market for finding cash-flowing properties. Cody Sanchez, a businessperson with experience in buying businesses from Goldman Sachs and other private equity firms, shares her expertise on evaluating and acquiring such businesses. She emphasizes the importance of considering companies that manage your real estate, such as property management companies, as potential acquisitions since you're already paying them a percentage of your revenue. Cody's approach to buying and managing various types of businesses, from laundromats to SaaS products, makes the process seem simple and accessible. Her focus on hiring the right people, automating processes, and outsourcing tasks can inspire investors to explore this alternative avenue for increasing cash flow.
Discovering Profitable Business Opportunities: Be observant, adaptive, and resourceful to identify unique business opportunities, even in mundane areas. Creativity and determination are key in discovering and capitalizing on profitable ventures.
Successful business identification involves looking for unique opportunities, even in seemingly mundane areas. Rob's use of the term "baker's quadrant" from their past questioning experience showcases this concept. Furthermore, the importance of being observant and adaptive to potential business opportunities was emphasized through the example of looking for fax machines as indicators of business potential. Additionally, the discussion highlighted various innovative ways to invest, such as buying businesses for no money down through Rent A Retirement or owning a vacation home with Vacasa's full-service management. Overall, the episode underscores the significance of creativity, determination, and resourcefulness in discovering and capitalizing on profitable business opportunities.
Applying Private Equity Principles to Small Businesses: Cody shares his experience in micro PE, buying and growing businesses using private equity principles on a smaller scale, emphasizing cash flow, growth potential, and profit multiples in evaluation.
The speaker, Cody, applies private equity principles on a smaller scale, known as micro PE, to buy and grow businesses, inspired by his experiences in the investment world and seeing others do large deals. He started with small investments using his own money, and now publicly shares his journey to encourage others to consider this path. The evaluation of these deals involves looking at cash flow, potential for growth, and valuing the business based on profit multiples. While there may be slight differences depending on the type of business, the overall process shares similarities with evaluating real estate deals.
Focus on cash flow in deals, not just potential appreciation: When investing in real estate or businesses, prioritize deals with strong cash flow over those with high potential for appreciation. Seek profitable, normal businesses for your first deal and avoid struggling 'turnaround' opportunities.
When considering a business or real estate deal, the primary focus should be on the deal's ability to generate a desirable cash flow. For the speaker, a deal needs to cash flow at least $100,000 for them to be interested. In real estate, both rent and appreciation are important, but cash flow is the priority. Asset-heavy businesses, such as car washes or mobile home parks, can blur the line between buying the business and the real estate. Some investors might choose to own both, especially if they already own the commercial building where the business is located. The speaker advises against buying a struggling business, or a "turnaround," for a first deal, as there are plenty of profitable businesses available without the need for extensive value-add. Instead, focus on buying a normal business and adding some value on top. With over $5 trillion in assets set to transfer from baby boomer-owned small businesses, there are plenty of opportunities for investors to find profitable businesses without having to fix them from the ground up.
Consider Selling an Existing Business Before Starting a New One: Business owners may not realize their business's value, leading to potential loss. Buying an existing business can be a better option than starting a new one, and it's essential to consider the resources and support needed to run a business successfully.
Many business owners, especially those who are profitable, may not be aware that they can sell their businesses, leading them to shut it down instead. This can result in a significant loss, as the business could have been sold for a substantial amount. It's essential to understand that running multiple businesses can be overwhelming, and it's challenging to find reliable help. To avoid this, potential buyers should consider carefully before entering into multiple business ventures and be open to the possibility of buying an existing business instead. Additionally, it's crucial to remember that running a business is not truly passive income, and it requires dedication and hard work. Therefore, it's essential to consider the resources and support needed to run a business successfully before making a purchase.
Hire a capable operator to run your business and minimize day-to-day involvement: To successfully buy a business and earn the right to not work, hire a capable operator, incentivize them, and trust them to lead. Understand the business and communicate effectively to build a decentralized leadership structure.
To successfully buy and run a business without being overworked, you need to ensure the business generates enough profit to hire a capable operator. This person should be incentivized with equity, revenue share, or profit share, and should think of themselves as the CEO. Hiring the right person and structuring the deal correctly are crucial. It's essential to get your hands dirty in the beginning to understand the business and effectively communicate with your team. Decentralized leadership, with thorough upfront work and trust, can lead to minimal day-to-day involvement. Remember, you must earn the right to not work by learning the ins and outs of your business. Real estate, in particular, may require more hands-on involvement due to fewer levers for change compared to businesses. Avoid the temptation of buying a business or property and expecting passive income; instead, engage actively to build something meaningful.
The fallacy of retiring from work after making a few good decisions: Neglecting responsibilities in business can lead to the departure of top talent and the deterioration of assets. Approach work as an opportunity for growth and enjoyment, rather than a burden or a means to an end.
The idea of retiring from work after making a few good decisions is a fallacy. The speaker learned this lesson through his experience of starting and running a real estate team. He initially believed that once he had built a profitable business, he could coast into retirement. However, he soon realized that neglecting his responsibilities led to the departure of his best employees and the deterioration of his properties. Instead, he came to understand that work can be fulfilling and enjoyable, especially when it involves mentoring and helping others grow. The speaker's experience echoes the idea that marriage and business relationships require effort and engagement to thrive. Therefore, it's essential to approach work as an opportunity for growth and enjoyment, rather than a burden or a means to an end.
Understanding team motivations: Recognize individual motivations and communication styles to create a harmonious and productive work environment, utilizing tools like DISC assessments.
Finding and motivating the right people is crucial for business success. Just like Pavlov's dogs, when you provide incentives and rewards, your team members will be motivated to perform at their best. However, it's essential to understand that not everyone is motivated by the same things. Some people may prefer a steady work-life balance, while others may be driven by the thrill of making new deals and taking risks. By recognizing individual motivations and communication styles, you can create a more harmonious and productive work environment. Utilizing tools like DISC assessments can help you better understand your team members' unique profiles and tailor your management approach accordingly. Remember, effective communication and incentives are key to keeping your team motivated and focused on the shared goal of growing your business.
Understanding Personality Types for Effective Leadership: Leaders can communicate effectively and build successful teams by understanding personality types (Eyes, S's, and C's) and hiring people with complementary strengths to balance weaknesses. Delegate tasks, outsource problems, and buy solutions to focus on strengths.
Effective leadership involves understanding your personality type and leveraging the strengths of others. The discussion highlighted three personality types: Eyes (extroverted, decisive, and people-oriented), S's (stable, dislike change, and detail-averse), and C's (conscientious, detail-oriented, and perfectionists). Understanding these types can help leaders communicate effectively and build successful teams. The speaker, an experienced business owner, emphasized the importance of hiring people with complementary strengths to balance one's weaknesses. He also shared his philosophy of delegating tasks, outsourcing problems, and buying solutions instead of building them from scratch. This approach allows leaders to focus on their strengths and build successful businesses.
Investing in Real Estate with Minimal Hands-On Involvement: Explore platforms like Fundrise for private credit deals, Redfin for hassle-free home buying, or Pine Financial Group's mortgage fund for passive income. Buying existing businesses or properties can also provide immediate cash flow or profit.
There are various ways to invest in real estate and earn returns without handling the day-to-day responsibilities. Top real estate investors use platforms like Fundrise for private credit deals with attractive interest rates, while Redfin offers a seamless home buying process with personalized recommendations and lower fees. For passive income, consider investing with Pine Financial Group in their mortgage fund. Additionally, buying existing businesses or properties, instead of building from scratch, can reduce risk and offer immediate cash flow or profit. Whether it's through real estate or investing, there are numerous opportunities to grow your wealth while minimizing hands-on involvement.
Buy an existing business for growth: Buying an existing business can lead to immediate income and the ability to expand through acquisitions. Certain industries, like real estate, may benefit from acquiring ancillary businesses for increased efficiency and cash flow.
Instead of building a business from scratch, it can be more efficient and profitable to buy an existing one, even if it comes with a premium price. The speaker explains that this strategy allows for immediate income and the ability to expand the business by acquiring related companies, creating an ecosystem. He also mentions that some businesses, like financial modeling or media, are best grown organically, while others, like customer service tools or marketplaces, can be acquired to enhance revenue and profits. For real estate investors specifically, ancillary businesses that could be beneficial to acquire include those that focus on bookkeeping, operations, or finding deals, allowing investors to focus on their strengths and increase cash flow.
Discover business opportunities through expense tracking: Analyzing expenses can lead to potential investments or revenue share acquisitions, expanding your business network and reducing operational involvement.
Identifying and tracking business expenses, both personally and for your company, can lead to potential business opportunities. By analyzing where your money goes, you may discover areas where you can invest or buy out smaller businesses, becoming a part-owner while minimizing your operational involvement. This approach, known as a revenue share acquisition or a "lazy person's deal," allows you to grow your business network while reducing your workload. To ensure success, it's crucial to maintain transparency into the financials of the businesses you own a stake in. Additionally, focusing on providing sales and marketing support to the acquired businesses can be an effective way to contribute value and secure a percentage of their revenue in return.
Focus on equity ownership for greater impact: Expert recommends equity ownership for substantial benefits, looks for tech opportunities in under-automated businesses, and advises expanding within real estate investments.
While affiliate deals can be a good starting point for those new to business and real estate investing, the speaker prefers equity ownership for more substantial impact and long-term benefits. He suggests focusing on businesses or deals closest to your real estate investments as potential areas for expansion, and looks for opportunities to add technology to traditional, under-automated businesses. The speaker's expertise lies in recognizing potential in properties and businesses, and he encourages developing this muscle through exposure to a large number of deals.
Building relationships leads to profitable business opportunities: Reach out to potential business owners, get to know them, and acquire their profitable businesses through cash and seller financing. Be active on social media for deal flow.
Building relationships and networking in your community can lead to valuable business opportunities. The speaker shares an example of how he acquired a profitable SaaS business through reaching out to the owner and getting to know him. The deal was funded with cash and seller financing, and the plan is to integrate it into an existing business and distribute it through the speaker's social media following. The acquisition was made at a good price, and the business is expected to be profitable within two years. Additionally, the speaker emphasizes the importance of being active on social media as a way to receive deal flow.
Simplifying deal terms for faster transactions and better seller relationships: Presenting only main terms to older sellers can lead to quicker deals and better relationships. Building relationships with business brokers opens up potential deals. Identifying opportunities in smaller marketplaces can lead to successful investments.
Keeping deal terms simple can lead to faster transactions and a better relationship with the seller. Cody shared an experience where he closed a deal within 48 hours by presenting only the main terms to an older seller who didn't want a full term sheet. He emphasized the importance of developing a relationship with business brokers, who usually represent sellers, to gain access to potential deals. Cody also mentioned his unsuccessful attempts to buy business buying sites, such as BizBuySell, and his desire to invest in smaller marketplaces to create a well-done platform for buying and selling hard asset businesses, similar to Zillow or Redfin. Overall, Cody's insights offer valuable lessons for those looking to buy or sell businesses, emphasizing the importance of simplicity, relationship building, and identifying opportunities in the market.
Leveraging Real Estate Knowledge in Business: Investing in real estate is tougher than before, consider buying a complementary business within the industry to leverage existing skills and knowledge, and read Dale Carnegie's biography or Atlas Shrugged/Fountainhead for inspiration.
While real estate investing may seem like an attractive option due to its perceived ease and stability compared to owning a business, the current market conditions make it increasingly challenging to find good deals. However, there's an alternative for those interested in both real estate and business: buying a complementary business within the real estate industry. This approach allows investors to leverage their existing knowledge and skills while also generating income. The speakers also shared their favorite books, with Cody preferring Dale Carnegie's biography for real estate and Atlas Shrugged or Fountainhead for business, as they resonated with their passion for these fields.
Staying Curious and Open to Learning: Asking questions and being open to new ideas can lead to personal and professional growth. Engaging in physically challenging activities can also make other aspects of life easier.
Open-mindedness and a willingness to learn are key traits of successful individuals, whether they are entrepreneurs, investors, or simply seeking personal growth. Cody Sanchez, a former journalist, Goldman Sachs employee, and business owner, emphasized the importance of asking questions and not pretending to know everything in order to succeed in the investment world. She also shared her hobbies, including Muay Thai, yoga, and saunas, as ways to challenge herself physically and make everyday tasks easier. Cody's experiences and insights demonstrate that being open to new ideas and perspectives, and not being afraid to ask questions, can lead to personal and professional growth. Additionally, engaging in physically challenging activities can help make other aspects of life easier. Overall, the discussion highlighted the importance of staying curious, being open to learning, and seeking out new experiences.
Staying Informed and Avoiding Scams Online: Be cautious online, educate yourself to avoid scams, and stay informed about current events and their potential impact on platforms like Twitter.
Staying informed and being able to distinguish between real and fake online interactions is crucial in today's digital world. Cody and David shared their experiences with receiving scam messages and the importance of not falling for them. They emphasized the need to be smarter than the bots and to educate ourselves to avoid becoming victims. Furthermore, they discussed the potential impact of Elon Musk's purchase of Twitter on the platform and its implications for free speech. Overall, the conversation highlighted the importance of staying informed, being cautious online, and diversifying our methods of communication and engagement. If you're interested in real estate and want to learn more from Cody, follow him on Twitter. And remember, as David said, "it's about time IN the market," whether you're investing time, money, or both.
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If you're serious about real estate investing or looking to level up your game, finding an investor-friendly agent is crucial. With BiggerPockets Agent Finder, you can easily connect with such an agent by visiting biggerpockets.com/deals and providing some basic information about your desired investment location and property type. These local market experts can provide valuable insights into neighborhoods, help analyze numbers, and boost your confidence when making investment decisions. This free resource is exclusive to biggerpockets.com/deals. Remember, past performance doesn't guarantee future results, and all opinions expressed are those of the hosts and participants. Always consult with qualified advisors before investing, and never risk more than you can afford to lose. BiggerPockets LLC disclaims any liability for damages arising from the use of information provided in this podcast. So, head to biggerpockets.com/deals today to find your investor-friendly agent and get closer to financial freedom.
