Monthly Archives: November 2014

Magic Deck as a Business

As you may recall I play Magic. Today I am going to describe life and business as a Magic deck. Now stick with me while I draw this picture, there are certainly more connections than might appear at first glance.

In Magic there are different formats of building a deck or playing the game. The facet I am going to look at today is called Constructed, which oddly enough is that you build (or construct) a deck before playing. In Constructed you build a deck of a minimum of 60 cards and you generally can’t have more than 4 of any specific card. Sometimes it makes sense to have fewer copies if it isn’t something you want to draw early or is something that you can search out. But the cards that are integral to the operation of the deck you want as many as possible. If there are cards that have similar function but with different names you want to max them out too so that you can have more chances to draw that effect. The more copies of an effect you have in your deck the more opportunity you have to draw it, and if it is a requirement for the deck to be successful the higher chances to draw mean you will draw it early and that will also increase the consistency of the deck. I think consistency is probably the most important aspect of having duplicate cards. If your deck is not consistent, then you won’t be winning very many games. So that is all good you say, but what does that have to do with business?

Excellent question! Well to have a successful Magic deck there must be consistency in the deck. I think that is key to business as well. To have success in business your business must do things consistently. Not just anything, but the right things. However if you are doing something profitable, even if it is not the most efficient thing and you do it consistently your business will make money. Obviously if you are doing things to enhance the efficiency then the consistently will bring up the profits.

They key to consistency in Real Estate investing are things like making sure your lead funnel is full, making sure the marketing goes out, making sure the deals close when they are supposed to. The key players that you need for consistency are your acquisition manager, your title/closing attorney, your bird dogs and wholesalers, your contractors and make-ready team. These people make up your core team and combined with the consistent action are where the majority of the money is made in this business.

In Magic I mentioned earlier that you might have less than 4 of a card in your deck. These things are generally big effects that when they go off you typically win the game. So the multiple copies of cards are to build the foundation to get to this game ending effect, and typically you have a way to find it in your deck as one of the foundational items. You are going to have these one-offs in business as well. These will be your estate planner, your insurance agent, your 1031 specialist. When you need them you search them out and use them for the specific task at hand.

In Magic and in business you need to have the building blocks for consistent action, then find the special resources needed to accomplish a specific task. You also have to track what actions are working (as I have mentioned previously about weight as well) and then decide if another action in business or effect in Magic is more efficient then you need to not be scared to change the process or change the deck. Both in Marketing and in Magic testing is in the vernacular. Always test and decide what is most efficient for the task at hand. Let me know here or on twitter what you think of this comparison or other games that you think can be a corollary to business and investing.

Until next time,
Feel the pain and do it anyway.


Partnering for cash flow

Last time I said that I would tell you how I plan to buy houses on a large-scale despite having no money to do it. It is an incredibly simple concept. I am going to use someone else’s money. Easier said than done? Perhaps it is. I haven’t actually done this yet, but I certainly plan to. I will keep you posted on how it goes.

One of the major disadvantages of flipping compared to holding rentals is that the property only makes money one way. You sell it, you collect a check. Holding a rental can make money in 5 different ways. Equity capture or buying the house for less than market value; equity buildup or having the principal on the mortgage decrease; appreciation or having the property increase in value after you buy it; depreciation or having a paper loss that is allowed by the IRS; and finally cash flow or recurring rental income. One of the awesome things about real estate is that any of these five ways can be used in partner agreements.

Given that I don’t have any money I really need a property that cash flows. So that gives me four other things to use for negotiation with a partner. I plan on buying properties that have reliable cash flow and while appreciation is nice, I don’t plan to buy properties just for the appreciation. So down to 3 bargaining chips. I am going to aim at keeping the equity buildup as well since that equity is one of the key things to becoming rich, though this is a point where I can be flexible. I can keep it all or share it. The last two methods are my main giveaways so to speak. I would like to utilize real estate to decrease my taxable income, but I think for now that might have to wait. The cash flow is more important to me right now since there are other ways to decrease taxes just by owning a business.

I’m going to focus on the paper depreciation for a second before I detail out the last profit center. In order to give away the depreciation of the property my partner and I will have to form a legal entity together. I believe a Limited Liability Company (LLC) makes the most sense and is the entity I will likely be using, but I can see the argument for a Limited Partnership (LP) or an S-Corp. I won’t go into the differences on those now. LLCs are a passthrough entity as far as the IRS is concerned, so whoever owns the LLC gets all the taxes, both the good and the bad.

Since the taxes flow through an LLC, it is fairly easy to hand over the depreciation to one of the partners. LLCs are also taxed based off of profits, not income. So here is the wiggle room that I will have to decrease my taxable income. Have the LLC utilize the cash flow from the property to pay for things for me such as eating out or providing my cell phone. If all the cash flow is spent by the end of the year there is no income that passes through to me and nothing to be taxed.

The last profit center on a piece of property is the equity capture. I leave this to last because I think it might be a sticky point. What I will be proposing to my partners is that they bring the money for the down payment on the property. In exchange they get the paper depreciation for as long as they wish to receive it. I fully believe that most people will say they want their taxes reduced forever. But in the circumstance where they do want to stop receiving a tax deduction, then I have the equity capture to give back to them as well. If I buy the property right, the equity capture should be pretty close to, if not more than, the down payment they provided to get into the partnership.

There are a few other details in the partnership I am not going to go into here. They are things like property turn over and management and tenant management. The important part of what I am going to try to do is to utilize the different profit centers to create a win win situation. I get some much needed cash flow, they get much needed tax breaks, and we provide safe, affordable, clean housing to those who need it.

I hope this gives you some ideas on how to form a real estate partnership. Decide what you need to keep and what you can live with letting go and use that as the basic structure.

Until next time, take some action. Feel the fear and do it anyway.


If we can define our world, we can understand it, right? Whose definition do we use? Diamandis point out that the definition of poverty in and undeveloped country and the definition of poverty in developed countries wouldn’t be the same at all. It is unlikely that everyone in the world can be elevated to the height of luxury some enjoy in those developed countries. For one thing, there are many parts of the world that don’t have the infrastructure to have easy availability of goods. But, can we change their quality of life?

Streams vs. Piles

Streams vs Piles

I think that maybe one of the things that keep people in jobs is the recurring income. Obvious right? Everyone has recurring bills so they meed recurring income to handle those bills. But even with the recurring nature of bills a lot of people are looking for a big payday. They think that once I have a large amount of cash, I will be set. Though what happens to that large amount of cash? It shrinks as the bills are paid or the toys are bought. I have heard that even if someone amasses 1 million dollars by the time they retire, that person has an 80% chance of out living that money. I don’t know the source on that, so take it as just another meaningless statistic if you wish, but given human nature to spend more to match their means it makes complete sense to me. So in order to not deplete the pile of money one must go make another pile of money. And then go make another pile.

Counter to piles of money are streams of money. Now I think that in the beginning that streams of money are not nearly as sexy as piles of money. Lets look at a scenario involving real estate. Buying a house and fixing it up and then selling it for a profit is called flipping. With flipping it is not unreasonable to easily make tens of thousands, possibly even hundreds of thousands of dollars in one transaction. 90 days to fix up a house you just bought and then have it on the market with a realtor for a couple weeks to make $75,000 is extremely sexy. In addition to sexy, one should be able to live fairly well on $75,000. That is higher than the median income of the US I believe. So with that methodology one could flip one house a year, work 4 months of the year, and otherwise be comfortable. There is certainly a lot of appeal to that.

Now with streams of money, called cashflow in most business including real estate, and more specifically to real estate rental income, that money comes in month after month with little to no effort to make it appear. So instead of working 4 months of the year to get one paycheck, you might have to work a couple of weeks to get one paycheck a month. For ever, effectively. However opposed to the $75,000 in one fell swoop, that rental you just picked up is going to be making you $300-$500 a month. That is a lot of months of rent checks to equal one flipping check. Yet even though the amount is much lower, it is recurring and steady. Just like your bills. So pretty easy to slot the incoming cash to match the outgoing cash.

Note that I said piles of cash are sexier at the beginning than streams. When does that change? Well it is going to change and be sexier with streams when compounded. It takes 3-4 months to do a flip, and if you hire out and are skilled in managing you can even have several going at once. It takes several weeks to buy a rental, but that time is mainly spent waiting. Waiting for the rehab to finish, waiting for the escrow agents to close, waiting to find a property that meets your criteria. So it is pretty easy to scale that and be waiting for 3 different properties to close at the same time. You have the same issue on the rehab in both cases, but otherwise waiting on multiple rentals is a pretty simple affair. So arrange to buy one rental a month. Or maybe two. Even go for 3 if your financials allow it.

So lets look at the situation of working 4 months a year and buying one rental a month that cash flows $300. The first month you make $300. Not terribly sexy, but that covers your car note. A little bit of mental easement there I would say. The second month you make $600. That looks a bit better. The third month you have $900, and the fourth month you have $1200 coming in. Now $1200 every month is starting to look pretty attractive. By the end of the year you will have amassed almost $12,000. Still not as amazing as the one $75,000 payout we talked about earlier, but still an attractive sum.

But instead of one house a month for 4 months, what if it was one house a month for 12 months? Or 3 houses a month for 12 months? Then the recurring income numbers are way sexier than the numbers for the piles. Especially given the amount of work needed to match those goals. I can hear some of you muttering that someone would need to have a pretty big bankroll to be able to buy 4 houses a month for a year. I agree, there is a pretty hefty sum of money needed to make those purchases. But it doesn’t need to be your money. Next time I will cover my plans to buy properties on that scale and not have funds on that scale.

Until next time, take action. Feel the fear and do it anyway.

Other Peoples Money

I figured out fairly young that the best way to make a lot of money was to have someone else give it to you. Ideally, lots of other people. I know that sounds simple and possibly even intuitive, but in reality I think it can all be boiled down to that.

Here I am going to show two ways of having people give you money. The basic premise is to provide more value than the money they give you. One way to provide value is to provide something for sale, the other is to provide a service. Finding some way to provide those things that is repeatable is the path to wealth.

The first way I want to discuss is selling something. One of the things I am passionate about is a card game called Magic: The Gathering. Now, I won’t go in depth on what Magic is, but here is a quick summary; Magic is a collectible card game and like most things collectible there is a secondary market for the cards. The cards are printed and sold to dealers and the dealers then sell the cards to players, and the players can sell their cards to each other and back to dealers as the the market and value of the cards fluctuates. So here is where my epiphany came from in regards to the cards. When the cards are first printed they are sold for a profit of about a dollar. So there isn’t a ton of profit in the cards with a single transaction, but when you have a thousand transactions the profit can add up quickly.

So all of that turns into having a lot of people give you a little bit of money in profit, and thus you have profits and wealth. As card dealers are a business they know that the should invest some of their money back into the business and repurchase stock and repeat the cycle. Again, this is not an article about Magic, so I won’t explore this any further.

In the realm of providing a service I want to talk about renting ou houses. People need a place to sleep, to have family dinners, and to hang their nick-nacks on the wall. Not everyone can own, or wants to own, property so real estate investors and landlords provide value in that regard. Make sure that the properties you own are safe and sound and people will pay you for the privelege of occupying and maintaining your property.

People will pay for the things they either need (in the case of housing) or that will entertain them (Magic, among other things). Figure out what people want or need and provide it to them. They will give you money. This works out in all aspects of business. Find a way to get other people to give you money and build a process where that is repeatable, reinvest some of your profits back into that process and you will do fine.

Until next time, take some action. Feel the fear and do it anyway.

“As England goes; so goes the world”

Change your mind. Change the world.

I typed that pretty darn quickly. Reading it will be quick too, but doing it – that’s another matter.
I’ve shared that “my work for time” mentality needed to be refocused to finding work that makes money whether I’m there or not. I’ve also shared that looking for those options Lucy talked about was scary/exciting. What I didn’t share is that I didn’t know I needed to change my mind-set to find some of them. When I first retired, my intent was to supplement my pension with sewing for people, computer projects for people, or daycare. I found out that having my time controlled by someone else wasn’t such a fun retirement. I also learned that there weren’t a lot of folks lining-up in my yard for my expertise. Deciding to jump into real estate investing with my kids was a knee-jerk reaction to wanting to help them.

What I didn’t know was that I needed to learn the real estate stuff as fast as possible. And along that journey is where I found my mind being blown away by cluing in on today’s style of doing business. One of the books I’ve read during that time is Abundance by Peter H. Diamandis and Steven Kotler. I want to share some of the things I found out about the present and technology. He paints a picture that I can still hardly process, but now I at least know there are things to see with open eyes and mind.

There are several things outlined by the authors to prep us for what comes next.

“…evolution shaped the human brain to be acutely aware of all potential dangers….has a profound impact on human perception: It literally shuts off our ability to take in good news.”
“…a quick look at history shows that progress continues through the good times and the bad.”
“The 1918 Influenza epidemic killed fifty-million people, World War II killed another sixty million.”
“…this period also saw infant mortality decrease by 90 %, maternal mortality decrease by 99%, and,
overall, human lifespan increase by more than 100%.”
“…using almost any metric currently available, quality of life has improved more in the past century than ever before.”
“…In today’s hyperlinked world, solving problems anywhere, solves problems everywhere.”

If we can finally tackle some of the global standards of living in undeveloped countries through technology, what will happen? I think this is the most interesting part! Diamandis and Kotler posit that, “Over the next eight years, three billion new individuals will be coming online, joining the global conversation, and contributing to the global economy. Their ideas – ideas we’ve never before had access to – will result in new discoveries, products, and inventions that will benefit us all.”

Technology, that’s what will prove the old way of thinking obsolete. When I hear about more and more money and resources leaving our country, or funding being cut by our government, I keep wondering how much longer we can do so much for so many with so little? That thinking is labeled as a “scarcity mind-set.”

Too often we have given into the “scarcity” viewpoint. Depression era children learned conservative habits because scarcity was their reality. But was there a need for that conservative mind-set when they were adults in the 50’s and 60’s? Often, time itself will make us question whether there was really a scarcity, or just a “scarcity mindset.” What is proven, over and over, is that what is hard to come by today will likely be made plentiful tomorrow through technology. Something to think about?