$100k a month PASSIVE I am the BANK Ep 309

Summary Notes


In a detailed discussion on investment evaluation, the host breaks down the principles of analyzing potential deals using a four-lens framework: yield, capital preservation, tax advantages, and equity growth. By applying these criteria, the host critiques a seemingly attractive investment offering a 10% annual return on a $450,000 startup investment, exposing its inadequate capital preservation, poor tax efficiency, and lack of equity upside, deeming it borderline unethical. Conversely, the host shares a personal success story of a $2.5 million hard money loan for a foreclosure property, emphasizing the importance of high yield and capital security, which results in a substantial monthly passive income, showcasing the effectiveness of the investment framework in practice.

Summary Notes

Introduction to Investment Framework

  • Speaker A introduces a framework for evaluating investments.
  • The framework consists of four lenses: yield, capital preservation, tax advantage, and equity growth.
  • Speaker A intends to demonstrate why a particular deal was not favorable using this framework.

"But as I show you the framework that I use, which has four lenses that I look at investments through, you'll see more and more why it wasn't good."

This quote outlines the intention to use a specific framework with four criteria to evaluate an investment's viability.

Podcast Theme and Purpose

  • The podcast is focused on customer acquisition, increasing customer value, and retention.
  • It also covers lessons learned from failures in business ventures.
  • Speaker B sets the expectation for the podcast content and invites listeners to subscribe.

"Welcome to the game where we talk about how to get more customers, how to make more per customer and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe."

Speaker B provides an overview of the podcast's theme, which revolves around business strategies and learning from past experiences.

Passive Income Through Investment

  • Speaker A mentions a successful deal providing $100,000 a month in passive income.
  • The goal is to demonstrate how to find and structure such deals.
  • Speaker A highlights the importance of avoiding certain deals, referencing an unethical offer received by a CEO in their portfolio.

"One of the deals I did 60 days ago pays me $100,000 a month in passive income just by being the bank."

The quote illustrates a successful investment outcome that Speaker A aims to use as a teaching example for the audience.

Evaluating a Startup Investment Deal

  • Speaker A describes a deal where a business seeks $450,000 in investment for a startup.
  • The deal promises a 10% return after one year.
  • Speaker A uses this deal to illustrate the application of the investment framework.

"So 450,000 to a startup. And he said they're willing to pay you 10% per year, and they're going to pay this at the end of twelve months, all right? Which means at the end of twelve months, he's going to get 450,000 plus forty five k."

This quote presents the specifics of the investment deal that will be scrutinized using the investment framework.

Investment Framework: Yield

  • Yield refers to the cash flow an investment generates monthly.
  • It is a critical factor in evaluating the return on investment.
  • Speaker A emphasizes yield as the first lens in the investment framework.

"Number one is yield, all right? Which is how much money, cash flow is coming to me every single month, all right?"

The quote defines 'yield' as a key component of the investment framework, focusing on the regular cash flow from the investment.

Investment Framework: Capital Preservation

  • Capital preservation assesses the likelihood of the initial investment being returned.
  • It is not a binary measure but is considered on a scale.
  • Speaker A identifies capital preservation as the second lens in the framework.

"The next way is capital preservation, which is how likely am I going to be preserving my capital, that my money is going to come back to me."

This quote explains 'capital preservation' as a measure of the security of the initial investment amount.

Investment Framework: Tax Advantage

  • Tax advantage evaluates the tax implications of the investment.
  • Investments can be treated differently for tax purposes, affecting overall returns.
  • Speaker A introduces tax advantage as the third lens to consider.

"The next one is tax advantage. All right, so if I do this investment, is this going to cost me a lot tax wise?"

The quote introduces 'tax advantage' as a factor that can have significant financial implications on the investment's net benefit.

Investment Framework: Equity Growth

  • Equity growth considers the potential increase in value of the investment.
  • It is the fourth and final lens of the investment framework.
  • Speaker A suggests that equity growth should be part of the investment evaluation.

"And then finally you've got equity growth. All right, so does the thing that I am buying or putting my money i"

The quote is incomplete but indicates 'equity growth' as a crucial aspect of the investment framework, focusing on the appreciation potential of the investment.

Capital Preservation

  • Capital preservation is concerned with maintaining the initial value of one's investment.
  • High-risk investments like startups often do not guarantee capital preservation.
  • In the context of the discussed deal, capital preservation is questionable due to the nature of the startup investment.

"Well, this is going to a startup, and they're saying they're not going to pay you anything at all. And then at the very end, they're going to give you 495,000 at the end."

The quote highlights the risk involved in the startup investment where the initial capital might not be preserved, as there is no interim return, only a promise of a lump sum at the end.


  • Yield refers to the earnings generated and realized on an investment over a particular period.
  • The discussed deal offers a 10% yield, which is considered not great for a debt deal.
  • Comparing to the S&P index, which might have had about a 20% increase, shows the deal's yield is relatively low.

"Yield wise, I'm going to get 10%. Okay. That's cash flow kind of good, but for a debt deal, probably not great."

The quote explains that while a 10% return might seem attractive, it is not competitive compared to other investment options like equity indexes.

Tax Advantages

  • Tax advantages can significantly affect the actual earnings from an investment.
  • In the discussed deal, a 45% tax on the 10% yield effectively reduces the increase to 5.5%.
  • The tax disadvantage makes the deal less appealing, especially when considering inflation.

"And then the fourth box here is tax advantage. These guys make good money. And so I was like, 10%. And I was like, you're going to get taxed at 45% of that 10%, which really means your effective increase is going to be 5.5%."

The quote points out that the supposed 10% yield is substantially reduced after taxes, diminishing the attractiveness of the deal.

Equity Participation

  • Equity participation allows investors to share in the profits and growth of the company in which they invest.
  • The discussed deal lacks the opportunity for equity participation, meaning investors only share in the downside risk.
  • Without equity participation, investors miss out on potential gains if the company succeeds.

"But this one has no increase in equities because we're not participating on the upside, we're just participating on the downside, which, by the way, when you ever do money lending, all you get is guaranteed cash, and you participate on the downside."

The quote emphasizes the limitation of the deal, where investors do not benefit from any potential upside, only the risks.

Ethical Considerations

  • The fairness and ethical nature of investment deals can be a concern.
  • The speaker considers the deal unethical due to its high risk and low potential return.
  • Ethical considerations are important when evaluating investment opportunities.

"So this is borderline unethical how bad this deal is."

The quote reflects the speaker's opinion that the deal is so disadvantageous to the investor that it borders on being unethical.

Alternative Investment Example

  • The speaker offers an alternative investment they engaged in as a contrast.
  • The alternative involves a secured loan for a building out of foreclosure.
  • The structure of this deal is hinted to be more favorable in terms of the four key investment aspects (capital preservation, yield, tax advantages, equity participation).

"And so what I want to do now, if you guys are good with it, is I'll show you the flip side, which is the deal that I just did about 60 days ago."

The quote introduces an alternative deal that the speaker finds more favorable, suggesting it as a better example of balancing the four key aspects of investment.

Growth and Scaling in Business

  • Discusses the process of scaling a business from a large size to an even larger one, specifically targeting businesses aiming for the $100 million mark.
  • Highlights the availability of services to assist business owners in scaling their businesses through Acquisition.com.
  • Emphasizes the importance of capital reservation and strategic financial planning in business growth.

owner that has a big old business and wants to get to a much bigger business, going to 5100 million dollars, plus, we would love to talk to you, and if you like that or would like to hear more about it, go to acquisition.com.

This quote introduces the concept of business scaling and the services offered by Acquisition.com to help businesses grow significantly in terms of revenue.

Real Estate Deal Analysis

  • Speaker A analyzes a real estate deal, considering the offers received for a building and the earnest money put down by a potential buyer.
  • The building is valued at $2.5 million, with offers ranging from $5.1 to $5.6 million, indicating a profitable opportunity.
  • Speaker A is acting as a lender in the deal, not a purchaser, and is focused on ensuring their capital is preserved.

And I was like, okay, so now I know that this is reasonable. And he sent me the offers over, so I knew that they were good.

Speaker A confirms the legitimacy of the offers on the building, which supports their decision-making process in the deal.

Risk Mitigation and Personal Guarantees

  • Speaker A secures personal guarantees from the buyers to protect their investment in case other offers fall through.
  • The personal guarantees serve as a risk mitigation strategy to ensure capital preservation.

So just in case these three offers fall through, on top of the fourth offer, with the earnest money, I got personal guarantees by both the buyers of the building.

This quote highlights the use of personal guarantees as a safety net to protect the lender's capital in the event that the primary offer or subsequent offers fail to materialize.

Financial Structuring and Tax Implications

  • Speaker A does not have equity participation in the business but instead receives a yield on their investment.
  • The yield is structured to be high due to the unfavorable tax treatment of regular income.
  • Speaker A's note specifies a return of 48% to 96% per year, showcasing the high potential returns that can be sought through strategic deal-making.

From a tax perspective, if they're just going to pay me a yield, which is exactly how I structured it, what am I going to have bad tax treatment? You bet your ass I am.

Speaker A acknowledges the tax implications of their financial arrangement, which influences the need for a high yield to make the deal worthwhile.

Access to Deals and Network Effects

  • Speaker A explains that a track record of doing deals and the ability to quickly mobilize capital increases access to more exclusive deals.
  • The ability to deploy large sums of money on short notice places an investor on a "higher and higher list," opening up opportunities for more lucrative deals.

And the more deals you do, the more people know that you have money, that you can do deals, and then the more they reach out to you, right?

This quote explains the network effect in the investment world, where a reputation for closing deals and having available capital leads to more deal flow and better investment opportunities.

Hard Money Lending and Bridge Loans

  • Hard money lending, also known as private lending or private placement, involves short-term loans with high-interest rates.
  • These loans are often used when quick liquidity is needed, for example, when a deal on a property is too good to pass up.
  • The borrower pays a premium in interest rates for the expedited access to funds.

"This is a bridge loan. This is a short term loan. It's called hard money lending. Private lending, private placement, different things like that. But they need money fast, and so they can't go through a normal process because they got a steal on this building."

The quote explains the nature of hard money lending and its use as a bridge loan to provide quick liquidity for time-sensitive investments, like a significantly undervalued property.

Investment Strategy and Returns

  • The speaker details a personal investment strategy that yields 4% per month on a $2.5 million loan, equating to $100,000 monthly.
  • The strategy involves setting a minimum carry to ensure a certain profit even if the loan is repaid quickly.
  • The speaker emphasizes the importance of due diligence and understanding the terms of such deals to avoid unethical or poorly structured investments.

"Now, you might be wondering, why would anyone pay that? ... And so they need someone who can immediately provide liquidity, and in exchange, they pay a higher rate."

This quote justifies the high-interest rate charged for the loan by highlighting the borrower's urgent need for quick liquidity and their willingness to pay for it.

Minimum Carry Concept

  • A minimum carry is set to guarantee a certain level of profit regardless of how quickly the loan is repaid.
  • In the given example, a minimum carry of two months ensures a $200,000 return, even if the loan is returned within a day.
  • The loan term can extend up to 90 days, potentially increasing the profit to $300,000 if it rolls into a third month.

"I gave them 90 days at this, which means in the minimum carry, meaning if they did it in 24 hours, I still get two months of minimum carry, meaning if I'm going to do this deal, I have to make at least $200,000 on just sending the wire and then getting the money back."

The speaker explains the concept of minimum carry and its application in the deal, ensuring that they receive a significant return on investment regardless of the loan's duration.

Ethical Considerations and Deal Evaluation

  • The speaker warns against engaging in deals that seem too good to be true without evaluating the ethics and feasibility of the offer.
  • It's important to consider whether the other party is either unaware of the implications of the deal or is banking on the investor's lack of knowledge.
  • The speaker advises viewers to run the other way if approached with a questionable deal and to thoroughly assess any investment opportunity.

"If someone emails you a deal that looks like this one, run the other way and question their morals and ethics, because either they absolutely have no idea what they're doing or they are expecting that you have no idea what you're doing."

This quote emphasizes the importance of being cautious with investment offers that may be predatory or based on the assumption of the investor's ignorance.

Tax Implications and Yield Evaluation

  • The speaker discusses the importance of considering tax implications when evaluating the yield of an investment.
  • With a high income, the speaker would be taxed at the highest bracket, reducing the effective return to 27% after taxes.
  • It's crucial to ensure that the deal is still favorable after accounting for taxes and that the yield justifies the investment.

"Well, I'm going to get taxed on this, right. My after tax rate on this is going to be like 27% return. So for me, 27% return still makes sense after taxes and everything."

The quote highlights the need to calculate the after-tax return on investment to determine if the deal is financially worthwhile, especially for those in higher tax brackets.

What others are sharing

Go To Library

Want to Deciphr in private?
- It's completely free

Deciphr Now
Footer background
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon

© 2024 Deciphr

Terms and ConditionsPrivacy Policy