U19 – Asset Allocation Plan I 0:03 Hi, everybody. 0:06 Today, I’m going to talk about an asset allocation plan. 0:08 I answer this question quite a bit, but I’m gonna give you just a very narrow answer because I can give you a thousand of these and really, I like to suggest an asset allo…

U19 – Asset Allocation Plan I
Hi, everybody.
Today, I’m going to talk about an asset allocation plan.
I answer this question quite a bit, but I’m gonna give you just a very narrow answer because I can give you a thousand of these and really, I like to suggest an asset allocation plan based upon your age, what I know about you after having a conversation. What your interests are, what you’d like to do, what you love to do what you don’t want to do, things like that. What where do you want to occupy your time? How much time you want to put into something?
I think in my in my book, I mean this is this is important and considering how you want to invest your money, especially after you just received a windfall somewhere and you want to re-allocate. You want to get into something else. That’s not in the first thing that you use to make money. So, I’ve gotten notes everywhere, so bear with me a second.
I want to try to cover a lot of these, a lot of the topics that I discuss with people over the phone. Hopefully, it’ll answer many of your questions and also give you a bit of a guide to go. Look for yourselves.
Basically, an asset allocation plan or a re allocation plan, is just answers the question of where to invest or where to re-invest after I’ve already finished exhausted or completed whatever project or investment I had already been in.
So, I always recommend two types of investments or to two classes of investments, and the first one, I recommend is real estate.
It does not have to be real estate.
I’m just saying out of the two classes or groups or kinds of assets, real estate is a good one. And I’ll give you a quick example.
The reason why I like it is because it’s a very diverse you can get into residential multi-family. You can get into things like wholesaling.
You can, you can get involved as much as you want or as little as you want.
You can get into real, commercial, real estate. You can get into property management. You can get into notes.
Debt, financing, leases, property management.
You can invest in agricultural land, industrial office space, all these things, OK, It’s just there’s such a wide range of things you can do you can get into tax lien certificates That’s kinda nice.
You know each each of those categories has Needs There’s operating costs, and there’s some skills and things like that. Some of you have spoken with just hate real estate for one reason or another you’re tired of it, So I understand that, but real estate, It’s kind of a nice way to put some money somewhere, and people need real estate, and we have a finite amount, OK? So those are two couple of basic principles as to why you’d want to invest in real estate, OK?
The second one, which is way more interesting, well, depends on how you look at it but I like joint ventures.
Joint ventures and I’m not talking about a fund manager or an ETF or a broker.
I’m not, I’m not contacting a broker, or a 401 K, or a custodian that’s going to manage my money for me.
Because by the way, a 401 K for example, that is not an investment.
It’s not yours, OK, it’s somebody else’s investment, you see guys now but another class, the second class of assets I would get into when I’m re-allocating would be joint ventures or you can call it. Probably private equity.
OK, buying into a business, buying into a business, you can, like I said, you can get into you can put as much time into it as you want.
Um, It may also be called a partnership, A joint venture can be a partnership.
It can be written many ways the contract or agreement can be in many ways.
you can you can put a lump sum of cash into a business and be a silent partner.
To just get returns, you could also be a lender.
It can be a co owner.
You can get into joint ventures that involve loans, Tax deeds, and I know I I mentioned that briefly in the real estate class, but I’m just saying joint ventures may also involve taks deeds.
Factoring factoring is another form of lending.
And, of course, leases, lease agreements.
Now, I want to mention about diversification.
Diversification does not mean spreading your money around in many different places.
Hopefully, that some will work and some won’t some will pay off in some. Diversification means investing in something that you know or that you’re already successful in, like, for example, if you have a sandwich shop.
OK, a retail space in a strip mall, for example.
And you want to expand, well, maybe you want to buy your neighbor or maybe your neighbor is Chinese restaurant or maybe your neighbor is a liquor store, right?
I’m not saying that is exactly what you should do because that’s not really diversifying.
That’s just really spreading your money around what I’m saying is diversification includes investing vertically, so you want to invest in your supplier. That’s like number one. So if I own a sandwich shop, it’s the business that I own and I’m renting a space at a strip mall, or maybe I own that space like a condo type operation.
I want to buy the whole strip mall, because dad is my supplier.
That’s one example.
Another example would be, I want to literally by my supplier, or I would literally want to buy my equipment leasing company, whoever I’m leasing equipment from, maybe I want to buy that company or a share of that company. OK, so that is, I think, diversification, investing what you’re already invested in. But do it vertically. Don’t get into whole new ideas. investments that are not really related to what you’re already in there, you can certainly do that.
I’m just saying that is not necessarily diversification.
Now, how do we choose?
So let’s say if you find out what it is you’re gonna get into, you actually put a name on it, and you go, OK, I’m gonna go into those things, and you find there’s a 14 different options, OK. So how do you decide, how do you pick and choose?
Let’s just look at, the way we would look at real estate, because that is a great example.
If I look at real estate a certain way, and I’m gonna go through a list of ways to look at how you can measure the opportunity when it comes to real estate.
Because you can use these same tools to measure other opportunities.
The first basic one is the Rule of 72. So if I’m looking at two different deals, I wanna find out, my first question is, how fast can I get my money out of the deal? So, if I put in $50,000, how fast before I get that $50,000 out? And I start my $50,000 in there?
So, we take the number 72 and divide it by, it’s going to be by the annual rate of return.
So let’s say it’s 8% you would You would divide the 72 by 8, and you would end up with what?
what times 80, 72 it’s 9, right?
So your rate of return or your I’m sorry, your rule of 72 is going to tell you that a deal that is paying 8% a year is going to take nine years before you get your money out.
OK, that’s how that works, Gross rent.
That is an index that you can decide are used to determine if a deal is worth looking at so that way I can stand in and Talk to my agent on the property of real estate that I’m going to buy. Or I’m talking to a broker, or I’m at a meeting. And I can use the gross rent or gross index to determine if it’s even worth me talking about, OK, it’s a quick calculation. So I’m just gonna go through some notes here.
Let’s say, let’s see here.
What we do is, here’s, here’s an example.
So you take a four unit building, with an asking price of $400,000 And let’s say the gross annual rents are $38,400, so you can write this down and try it yourself. So, you take the, the gross rent multiplier, OK, gross rent.
The gross rent multiplier in this case is going to be the property price divided by the gross rental income.
And you’ll get a number like it’s going to be 10 in this case going to be like 10.4 so I’m like that, OK, so is that a good figure? Well, it depends.
I believe your, let’s see.
I think the higher gross rent multiplier Missy here, mmm hmm, yeah, OK, so you could take that gross rent multiplier that number and measure it with other properties in that area and determine if your deal is bet as better than the deal.
Uh, the other deals that are out there.
Just by that index number, it’s, it’s not very accurate. I mean, it’s not something you want to use all the time. But it’s the kind of thing you would use when you’re just talking to people and, or maybe you sit there with your phone and do a quick calculation, and you can see if it’s worth.
If it’s worth talking about this deal, compare with that other one you were just talking about. OK? Little more sophisticated is something known as the cap rate.
And I’ve got some notes here.
I’m going to show you about cap rate capitalization rate.
Is literally, So don’t mess this up here.
It is net operating income, divided by the property value, and to get the percent rate, you just multiply by 100.
So you take your net operating income and divide it by your property value.
So I guess that’s your appraised value or whatever you come up with as an objective standard for your property value. Now, you can literally search the term cap rate calculator on the Internet, and there will be a website that you can enter in.
You can enter in your Gross Income on a deal, whether it’s real estate or business, whatever, and in the form on the Internet, it’ll ask you to account for things to deduct to determine what your, your expenses You will subtract out, it’ll, it’ll calculate your actual net operating income and then you divide that, it would divide it for you by the property value, OK, and that’ll get you a capitalization rate.
That’s a good number to use to measure the value of a deal.
The next one is called Cash on Cash, Now these are phrases, you can look up on the Internet. You can see it for yourself.
Cash on cash is where you take the annual pre-tax cash flow, annual pre-tax cash flow, and you divide it by the actual cash that you invested.
And to get the percent rate, of course, you multiply by 100.
Cash on cash, OK?
Some people call it cash and cash out. I think you’ve heard me use the term cash and cash out.
Those numbers are another way to analyze the property.
Sometimes you’re going to analyze the property value by, by factoring in the debt.
And sometimes not, It depends on how you wanna look at things, what you’re trying to do.
Now, the last one, it’s going to be return or radar return, I’m sorry. Return on investment, I always get that confused. It’s the return on your investment.
So what we’re going to do is take the, the amount, I’m sorry, the annual Return, the annual return you’re expecting, and divide it by the total amount of money that you invested.
So your expected rate of return or what you actually returned, bye the total amount of cash out of pocket that you invest in this.
And you could just multiply by 100 to get your actual percent rate.
So that is how a brief way that is how you want to look at re-allocating or getting into some other investment.
To be a little bit more sophisticated.
You can get the balance sheet of the asset you’re looking at, OK, And then have someone, like an accountant or CPA, go through it with you and look at different risk factors.
In fact, a lot of times, the business broker And you should probably work with the business broker in this process.
The broker can either himself or with one of his own accountants, can go through the balance sheet of the asset you’re trying to purchase.
Now, let’s say, the asset does not have a balance sheet. You can actually create a balance Sheet based upon the transactions regarding the asset for the last year, three months, or whatever.
But have someone else analyze the balance sheet, And you would do things like this.
Compare the income of that asset With similar assets in that area, are in that market, to see if it, it measures up, to see if it makes sense, to see if the numbers aren’t way different, OK?
So, an accountant would know that sometimes you can do a forensic analysis of data, of your income statement.
That gets really dialed in. And sometimes when you have an online business, where you’re looking at the shopping cart data, you can have someone check to make sure that all the IP addresses were actually valid for all the purchases in that business. So, there are all kinds of ways to look at which opportunities better.
So generally, the goto is real estate, and then private equity and private equity, Which would really be joint ventures.
Joint ventures would be something like, you know, partnership, or, maybe I call up a restaurant owner, and I offer to put in a quarter million dollars. Because I’m looking at his books somehow. Or, I made a deal with them, or something like that, and I want a piece of the action.
So if he’s making 8%, that I want to make 8%, and why would he do that? For me?
Well, maybe it’s a favorite, not really, but he would take my money as an equity partner, because it would offset his risk, his money that he has in the deal, OK, otherwise, why would you, why would you share a great deal, you’ve got with an, with an asset, right, with someone else? Other than to offset your risk and maybe get into something else yourself.
So there, there’s always a way to make a deal and get into somewhere. So private equity, and I’m very biased against stock.
I’m very biased against the stock market.
I’m very biased against bonds and and public equities.
And I think over time, and this year, especially, you’re going to see for yourself why those things really have never existed.
I think in my lifetime, I don’t believe that there’s been a stock market.
So, I’ve never bought stock in my entire life.
Maybe that’s not, not being very smart, but I like making money working with other people and joint ventures, and doing projects that serve people, and, and just make it enjoyable. So, you don’t have to do it that way. That’s how I do it. So, my first rule for people is, if you’re looking to re-allocate, get into something that you loves.
Now for a lot of you might laugh and say, why?
No. I just think for myself, that’s what I want to do.
But you don’t have to do that. You can get into something that you understand really well, or that you could understand really well.
So just keep those basic rules in mind.
Look at what diversification really is Look at an asset in terms of if I want to diversify When I buy this asset, what are my options?
Is there a ceiling?
Am I a limited Can I can I scale upward into vertically into the suppliers or or whatever aspect of this business Can I invest in it beyond the actual business itself that I’m buying today?
All right.
Well, I hope that helps you answer the question of, how do I create an asset allocation plan, OK?
So generally, that’s the framework, and you can dial it in.
I’ll even help you, you can dial it into specific named businesses are people to work with.
Thanks very much.


1. The speaker discusses asset allocation plans, noting that these should be individually tailored according to factors like age, interests, and the time one wants to dedicate to their investments.
2. The speaker mentions the importance of considering how to invest money, particularly after receiving a windfall and wanting to re-allocate funds into a different investment from the initial money-making venture.
3. Two types of investments recommended by the speaker are real estate and joint ventures. Real estate offers diversity and a wide range of investment opportunities, from residential and commercial properties to property management and agricultural land.
4. Real estate is noted to have both operating costs and require certain skills. Despite some individuals expressing a dislike for real estate, the speaker suggests it’s a sound investment due to people’s need for real estate and its finite quantity.
5. Joint ventures are the second type of investment recommended, which could involve buying into a business. This could mean being a silent partner, a lender, a co-owner, or getting involved in joint ventures that involve loans and lease agreements.
6. The speaker defines diversification as investing in something you already know or are successful in, rather than simply spreading your money in different places. They suggest vertical investing, which could mean investing in your supplier or purchasing shares in companies related to your business.
7. The speaker discusses several metrics for evaluating potential investments, including the Rule of 72, gross rent multiplier, capitalization (cap) rate, cash on cash return, and return on investment (ROI).
8. The Rule of 72 is a tool to estimate how many years it will take for an investment to double given a specific annual rate of return. For example, at an 8% annual return, it would take 9 years for the investment to double.
9. The Gross Rent Multiplier is used to assess the value of a rental property and can be used to compare it with other properties in the area. The cap rate is used to measure the return on an investment property based on its net operating income.
10. Cash on cash return measures the annual pre-tax cash flow against the actual cash invested, while ROI measures the annual return expected against the total amount of money invested.

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