Whats New : Wealth Creation – High Return Opportunities
Before I take advantage of a high return private opportunity I want to answer YES to all these questions … they are explained in detail below:
- Key #1 – Have I put 10% or less of my net worth into the wealth creation opportunity?
- Key #1 – Have I put 10% or less of my net worth into the wealth creation opportunity?
- Key #2 – Does the business owner/s have control of my money?
- Key #3 – Has the business owner ever built a successful business?
- Key #4 – Do I know what my annual return will be, when it will be paid, who is paying it, if there is a performance bonus
- and when the capital will be repaid?
- Key #5 – Will this opportunity give me a passive return?
- Key #6 – Is the term at least 3-5 years?
- Key #7 – Do I know who is responsible for providing quarterly reports?
Plus two bonus Keys!
- Key #8 – Is there a proper legally binding loan agreement or contract?
- Key #9 – The person behind the private opportunity is not a close friend?
I get about one joint venture or capital raising request per week across my desk. I could ignore all of them… but I don’t! I know that some of these ventures are incredible passive income opportunities. I have even done some of these ventures myself in the past and have experienced both the good and the not so good. The question is:
“Should you take advantage of these types of higher risk, higher return opportunities?”
Why miss out on passive returns which are often 20% plus per annum just because of ignorance! Risk is always minimized with the correct knowledge.
Like all wealth creation opportunities friends, work colleges, accountants and even government departments will try to discourage you from any opportunity that could actually create wealth! For nearly 30 years I have created wealth from the stock market yet many people are so fearful they will never look at that opportunity… and their fears are always based on false information. Their own paradigms do not allow them to accept that people can actually get rich so they try to prevent others from doing so!
Just like investing in the stock market there are rules and guidelines I always follow when taking advantage of these types of opportunities.
Here is my checklist:
Key #1. NEVER put more than 10% of your net worth into speculative ventures!
Very often people make the mistake of looking at an opportunity and because it appears so good and so certain, they put most or all their life savings into it. This is plain stupidity and greed… yet I have seen many intelligent people do this. 90% of your wealth creation should be in quality real estate and blue chip shares, a maximum of 10% should be in speculation such as start up business ventures, inventions, speculative shares and high leveraged trading. People get greedy and ignore this basic rule and sadly, when they lose they blame everybody else except themselves!
Key #2. Who has control of your money?
This is an extremely important question because very often people will put their hard earned cash with someone they don’t even know. The biggest money scams have third parties doing the capital raising so that it is harder to trace your money. ALWAYS make sure that your money is going directly to the business owner and that you know and trust the business owner.
Key #3. Is your money secure?
People always assumed that their money was safe in a bank or even in property. We have sayings such as “As safe as money in the bank” and “As safe as houses!” In recent times in the US we have seen neither is true.
The most important component of taking part in private opportunities is that you know and trust the business owner. A person you know and trust and have even done business dealings with before is far more likely to care about you and your money than a bank where you are just a number and a profit centre!
One of the best guarantees is that the business owner has started and built successful businesses before. If the person has never run a business before but has a great idea, chances are the business will fail and you will lose your money. If the person wants to develop a property but has never done a successful property development before, stick your money in your pocket and run regardless of how good it sounds! Remember, a person cannot outperform their self-image.
Key #4. Am I going to get a return?
We all know there is no such thing as an absolute guarantee of return … history shows us all investments have failed at some point whether it be banks, government bonds, property or shares. It is knowledge and wisdom that allows us to avoid the losses and make the profits! In private opportunities we must know what the potential return is.
If you are buying equity (owning a percentage of the business) you must do thorough due diligence. Ask for both best case and worse case cash flow projections, go through each cash flow projection and make sure they have allowed for their own wages, legal and accountancy fees, computer software and hardware, taxes, office expenses, marketing and have at least a 10% contingency buffer per annum. Check out the validity of their market research. Don’t be afraid to ask the hard questions … it’s your money!
Being a lender is much simpler. Find out exactly what your annual return will be, when it will be paid, who is paying it, if there is a performance bonus and when the capital will be repaid. The returns may appear to be lower than many equity opportunities promise; however they won’t be pie-in-the-sky returns either.
Key #5. Is it a passive return?
When comparing returns you must always consider the value of time. When you are putting in your time and effort to achieve a return on your money you always want a higher return than you get from passive investments. Why? Because your time is something you cannot get back!
A passive income is income you get without any of your effort. Remember Robert Kiyosaki’s game CashFlow? The rat race is working for a living, to exit the rat race you have to build your passive income to beyond your living and lifestyle expenses. A fifteen percent passive annual return is better than a thirty percent aggressive (or active) annual return if you have to spend hours (your life) each week and only obtain the thirty percent return sometimes. Always make sure the return with private opportunities is passive and does not require any input on your behalf.
Key #6. What is the term of the private opportunity?
For passive opportunities you want it long term not short term. You have probably seen My Money Tree calculator … For many years I have shown it in my stock market seminars to explain the power of compounding … Wealth Rule #3 in my “7 Steps To Unlimited Wealth” CD & Workbook program says ‘Use the Power of Compounding’.
If you invested a single amount of $100,000 at 25% return over 10 years and simply reinvested the return you would have almost $1,000,000 at the end of the 10th year! If you are seeking to take advantage of higher return opportunities make sure you have the option of leaving your money in there for at least five years. Remember … Passive income gets you out of the Rat Race!!
Key #7. Ensure that proper reporting and accountability is in place!
One of the most challenging aspects of private opportunities is not being informed of what is happening. I experienced this first hand as a business owner when I delegated the responsibly of writing and sending reports to my General Manager. They failed to send out the reports when they were supposed to. People who had purchased profit share units started to get concerned about what was happening.
Even though the business was on track to exceed profit expectations this allowed the then sacked General Manager to sow discord amongst the unit holders and eventually ruin the business opportunity for everyone, costing each person their hard earned dollars. In hind sight I should have dismissed the employee much earlier and taken responsibility for the reporting. Proper reporting and accountability is imperative and vital.
You must make sure you know how often the reports will be given (I suggest at least quarterly) and you must know who is accountable for providing those reports BEFORE you take part in the opportunity. If the reports are not forthcoming on time, demand them.
Ok, I said there were 7 keys To creating wealth with Private Opportunities … there are two more I have to share with you!
Key #8 Is there an equity contract or loan agreement between the two parties? You MUST ensure the contract has in it everything you agree on and that you have a signed and witnessed copy by both parties. Don’t ever enter an equity or loan agreement without having a legally binding contract.
Key #9 DO NOT EVER hand over your hard earned dollars to a friend to invest in a great idea they have heard about! You will lose two things … your money and your friend! ALWAYS remember that a person can never outperform their own self-image about money!
I trust you find my checklist helpful and that as you build your wealth, it guides you to make wise decisions.
If you have any questions or comments about creating wealth with private opportunities please send those to me via the comments section below.