Rich People Behavior Ep 574

Summary Notes


In this episode, the host shares insights on wealth-building strategies through business acquisitions, emphasizing the importance of skills and negotiation tactics. The host, who successfully sold a gym for profit without initial investment, discusses the contrast between the spending habits of the wealthy versus the less affluent. They highlight the wealthy's preference for low-risk, guaranteed returns over high-risk, high-reward investments, illustrating this with a detailed example of acquiring a business using seller financing and bank loans. The host concludes by encouraging entrepreneurs to seek out existing businesses with motivated sellers, as these can offer significant opportunities for growth with minimal risk, echoing the sentiment that skills are a vital, untouchable asset in entrepreneurship.

Summary Notes

Acquisition Strategy

  • Speaker A discusses a successful acquisition strategy where they acquired a gym and sold it for a significant profit.
  • The acquisition was structured in a way that the gym itself paid for the purchase, effectively costing the buyer nothing.

And so I basically acquired a cash flowing asset for nothing, and then had just acquired a cash flowing asset for no money.

The quote explains how Speaker A managed to acquire a gym without any personal financial outlay, emphasizing the strategic nature of the acquisition.

Wealth Mindset

  • Speaker B introduces the concept that wealthy individuals view business as a game.
  • The podcast aims to document lessons learned in building a billion-dollar portfolio.
  • The goal is to help listeners grow their businesses and potentially partner with the podcast creators to reach significant financial milestones.

The wealthiest people in the world see. Business as a game.

This quote encapsulates the mindset that the wealthiest individuals approach business strategically and competitively, similar to a game.

This podcast, the game, is my attempt at documenting the lessons I've learned on my way to building into a billion dollar portfolio.

The quote outlines the podcast's purpose, which is to share strategic business insights and experiences from building a substantial investment portfolio.

The Value of Skills

  • Speaker A emphasizes the importance of skills as assets that cannot be taken away by any external force.
  • Skills are seen as a personal and permanent asset.
  • The speaker has noticed a trend among wealthier acquaintances who spend less and are more strategic about their acquisitions.

You absolutely just need skills. You can have nothing else in your life. And a beautiful thing is that no government can take it from you. No person can take your skills from you in a divorce.

This quote highlights the enduring value of personal skills and their invulnerability to external circumstances, presenting them as a secure form of personal capital.

Investment Opportunities

  • Speaker A contrasts the traditional approach of investing in a house with alternative investment opportunities.
  • The discussion includes the financial commitment of a mortgage versus investing in a business.
  • Speaker A suggests consulting with business brokers not necessarily to buy but to gain insight into local business opportunities.
  • The speaker shares personal experience with negotiating business deals.

Let's say you've got $50,000, all right? And you're like, okay, I'm thinking about buying a house, right? And I think for first house, you might only have to put 10% down.

This quote presents a common investment scenario where an individual considers using savings to make a down payment on a house.

I wonder how much money I could get for this money. Interesting, right? And so you leaf through the businesses that are in your area.

Speaker A suggests an alternative investment approach, which involves considering the potential return on investing in a business rather than real estate.

You could definitely negotiate a deal. And I'll tell you one of the deals that I did that was really good at the end of this.

The speaker hints at personal success in negotiating business deals, suggesting that such negotiations can lead to favorable investment outcomes.

Acquisition Strategy: Price Then Terms

  • When acquiring a business, first agree on the price and then negotiate the terms.
  • Seller financing can be a key part of the terms, allowing the buyer to pay over time.
  • The buyer can minimize upfront cash by using seller financing and a bank loan.

"And I used it in the deal that I'll tell you about in a second, which is agree on price, then agree on terms, right?"

This quote highlights the two-step negotiation approach: first, establish the purchase price, then discuss the payment terms.

"I need you to seller finance three quarters of the deal."

This quote illustrates the negotiation for seller financing, where the seller agrees to be paid over time for the majority of the purchase price.

"You're going to finance that for three years. And then on top of that or five years, you could do whatever you want here."

The speaker suggests flexibility in the financing timeline, indicating that the terms can be adjusted to suit the buyer's needs.

"Then you get a note from the bank or SBA loan, which you have a $200,000 loan for, and you put your $50,000 down."

This quote describes how the buyer supplements seller financing with a bank loan, reducing the initial cash requirement.

Financial Breakdown of a Business Purchase

  • A business earning $250,000 in profit could be valued at $625,000 (2.5 times earnings).
  • Seller financing could cover $437,500 (three quarters) of the purchase.
  • A bank loan could cover an additional $200,000, with a $50,000 down payment from the buyer.

"625 is the cost of the business. 437, you get seller finance, meaning you can pay that over time."

This quote provides a clear breakdown of the business's cost and the amount covered by seller financing.

"And then you've got $200,000 that you get a loan from the bank, which you put $50,000 for."

This quote explains the part of the purchase price covered by a bank loan and the buyer's down payment.

Economic Advantages of Acquiring an Existing Business

  • Acquiring an existing business can rapidly increase personal income.
  • It can be more cost-effective than starting a business from scratch due to existing clientele and infrastructure.
  • The buyer may improve the business by increasing efficiency and cutting waste.

"So you upgraded your income from 60 to 250,000."

This quote emphasizes the substantial increase in personal income that can result from acquiring a profitable business.

"And within 24 months, all of that income will be yours."

The speaker points out that, after a period (24 months), the income from the business will fully benefit the buyer once the terms are fulfilled.

"It's actually a pretty decent deal."

The speaker concludes that, given the costs associated with starting a new business, acquiring an existing one can be financially advantageous.

Call to Action for Podcast Support

  • The host does not run ads or sell products on the podcast.
  • Listeners are encouraged to support the podcast by leaving a review and sharing it with others.
  • The goal is to help more entrepreneurs through the shared knowledge.

"The only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money."

This quote is a direct appeal to listeners to support the podcast's mission of aiding entrepreneurs.

"It'll take you 10 seconds or one type of the thumb. It means the absolute world to me."

The speaker emphasizes the ease and importance of leaving a review to support the podcast.

Practical Application of Acquisition Strategy

  • The host shares personal experience to illustrate the acquisition strategy.
  • The host had expanded from four to five gym locations using the described negotiation tactics.

"I'll tell you, one of the deals that I did that was pretty good. So I had four locations at this point. This is when I had the gyms, and I opened a fifth."

This quote serves as a lead-in to a personal anecdote that demonstrates the successful application of the acquisition strategy discussed earlier in the podcast.

Initial Business Ventures and Learning Curve

  • The speaker opened their first gym with a minimal investment of $40,000, benefiting from existing infrastructure.
  • In contrast, the second gym received a much larger investment of $250,000 but did not generate more revenue than the first.
  • The speaker highlights the irony of spending more without seeing proportional financial returns.

"So the first two locations, I opened, the first one, I think, for $40,000... But the second one, because I thought I was smarter, we put 250,000 into the second location. And here's the fun thing. It made no more money than the first location did, which I always think is hilarious."

The quote illustrates the speaker's initial approach to business investment and the lesson learned that higher investments do not necessarily equate to higher returns.

Strategic Acquisition and Negotiation

  • The speaker acquired a fifth gym without upfront investment by negotiating a payment plan over twelve months.
  • This acquisition was opportune, as the gym was fully equipped due to the previous owner's personal circumstances.
  • The speaker's mentor played a crucial role in guiding them through the negotiation process.

"And so it was beautiful. It had all this equipment that was really expensive in it... I agreed on price, which I think was 40,000... And then I was like, cool, I'll pay you over the next year... So my first gym, I put 50 grand in. Second gym, I put $250,000 in. Fifth gym. Smarter, more experienced me puts no money in."

This quote emphasizes the evolution of the speaker's business acumen, showcasing a strategic approach to acquiring assets without immediate financial outlay.

Rapid Return on Investment

  • The fifth gym was a financial success, recovering its costs within the first month of operation.
  • The speaker's experience with this gym demonstrated the potential for immediate profit generation in the right circumstances.

"And in the first 30 days, we did 51,000 in sales. So this gym, in the first 30 days, literally paid for itself, period."

The quote highlights the immediate return on investment achieved with the fifth gym, which was a significant milestone in the speaker's entrepreneurial journey.

Transition to Teaching and Asset Liquidation

  • After meeting Russell, the speaker was encouraged to teach others their business strategies.
  • The speaker sold the gym for a significant profit, effectively turning a no-cost acquisition into a lucrative deal.

"And then twelve months later, I ended up meeting Russell and telling him how I was doing this stuff. And he's like, you should be teaching other people how to do what you're doing now. And so I ended up selling the gym for one and a half times more than, I quote, bought it for, which I then had the gym pay for it on its own."

This quote demonstrates the speaker's pivot from operating gyms to leveraging their expertise in a mentorship or educational role, as well as the successful exit strategy from the gym business.

The Value of Skills and Resilience in Entrepreneurship

  • The speaker emphasizes the importance of acquiring skills that cannot be taken away by external factors.
  • They share their personal experience of financial lows and the ability to recover due to their skills and knowledge.
  • The speaker advocates for the principle of getting rich once and the increased risk aversion among those who have already achieved wealth.

"You always have to just get skills... there's no divorce, there's no government, there's no revolution, there's no financial crisis that can ever take your skills from you. And that's why when entrepreneurs hit zero, they can usually bounce back."

The quote conveys the speaker's belief in the enduring value of skills and their role in an entrepreneur's ability to recover from financial setbacks.

Multiplication by Zero and Risk Aversion

  • Multiplying any number by zero results in zero, illustrating how a bad investment can eliminate wealth.
  • Wealthy individuals often have lower risk tolerances compared to those with less money.
  • People with less money may engage in high-risk, low-reward behaviors like buying lottery tickets.
  • Wealthier people seek investments with minimal risk of loss and a stable, albeit smaller, return.

"Any number multiplied by zero. You could have a billion dollars. If you make a bad investment, it goes to zero, right?"

This quote emphasizes the concept that no matter the initial amount, a poor investment choice can render it worthless.

"The people who have the most money is that they actually have way lower risk tolerances than the people who have no money, which is hilarious..."

The speaker finds it ironic that those with the most to lose are often the most cautious, while those with less are more willing to take financial risks.

Investment Strategies of the Rich vs. the Poor

  • The poor often invest in lottery tickets, which are likely to result in total loss.
  • The rich invest in assets with no risk of going to zero and potential for upside.
  • Wealthy individuals prefer a small, guaranteed return over a high-risk, high-reward investment.

"Poor people use their money to buy things that have virtually guaranteed risk of going to zero with tiny risk of upside, right?"

This quote points out that individuals with less money tend to make investments that are almost certain to fail.

"Rich people buy stuff for $0 that have upside potential, but that doesn't have a billion dollar upside potential."

The speaker notes that wealthier people look for investments that cost them little to nothing but offer the potential for gain without the risk of total loss.

Shifting Investment Perspective

  • Changing one's investment perspective is a gradual process.
  • The speaker still finds high-return investments like cryptocurrencies tempting but refrains due to the risk of loss.
  • Patience and character traits associated with success are crucial for making sound investment decisions.

"It took me a long time, and I still am doing it now in shifting how, because I still get excited about. I see these cryptocurrencies, 20 xing and stuff in, like a month, and I'm like, man, that's crazy."

The speaker is sharing their personal experience with the temptation of high-return investments and the discipline required to resist them.

Finding Investment and Business Opportunities

  • Opportunities exist to acquire businesses with motivated sellers at low prices or even for free.
  • Success requires the character traits of patience and due diligence in seeking out these opportunities.
  • Many business owners may be willing to sell their profitable businesses for less than expected due to burnout.

"Try and get something for nothing. See, if you're going to make an investment in any kind or you're trying to start a business, there's usually a business that's already for sale or has a motivated seller..."

This quote suggests looking for unique opportunities where businesses can be acquired under favorable conditions due to seller motivation.

"Guys making a million, 2 million, $4 million a year, who literally have told me, they're like, dude, if someone came today and offered me, like, guys who are making a million dollars a year in profit, like, if someone had offered me 200 grand right now, I would take it."

The speaker shares anecdotes of business owners willing to sell their successful businesses for much less than their profit margins, indicating potential opportunities for savvy investors.

Work Ethic and Wealth Creation

  • A strong work ethic can lead to significant wealth with minimal risk.
  • The speaker encourages the pursuit of wealth through strategies employed by the rich.
  • The importance of looking for non-obvious investment opportunities is emphasized.

"But the good news is that if you have a little bit of work ethic, you can make a tremendous amount of money with very little risk and do it the way the rich people that I know do it."

The speaker concludes by highlighting that with effort, one can achieve wealth with low risk, emulating the methods of the rich individuals they know.

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