Another Type Of Investing That Can Be Fun And Lucrative
While we all know about stocks and bonds and such, have you ever thought about doing what the big boys do? You know, where you buy out whole companies or enough of one to make a difference?
I want to go over a type of investing that many investors overlook and that is investing in small, privately owned companies or even startups. These can be anything from Websites, to your local niche retailer that is doing well who wants to open another location, to the guy down the street with the next latest and greatest invention.
In the new book, ” Get Rich, Stay Rich, Pass it On: The Wealth -Accumulation Secrets of Amercia’s Richest Families ” by Catherine McBreen and George Walper jr. they suggest that you invest up to 25% of your portfolio in enterprises that that develop products and services or invent break through technologies.
While of course this takes some digging to find these opportunities, once you know how, they are everywhere and it does make sense. You would be surprised at how many solid ventures that from a $100,000 down to $10,000 that you can put your money into that will throw off returns year after year in excess of 20-50%. While risk is relative, many of these small ventures have less risk than playing say the options or futures markets, and even many stock plays as you actually have some control over their outcome.
While of course you have to do your DD or Due Diligence, there are tons of opportunities out there like this. I know I get in at least 1 or 2 really good ones each week from entrepreneurs that are looking for capital that are solid investments and oftentimes are already profitable business ideas that just need that extra push that only capital can provide.
How can you find out about deals like this? Well, as I mentioned, I would be happy to share some of the ones that I get in if you would like. Simply drop a comment here and I will send a few along you way. Another way is to just put the word out to friends, family, and business associates. There are also numerous websites out there that supposedly will hook you up as well, but I am somewhat circumspect of them, so you are on your own there.
I have found out that if you have capital available and let it be known, people will find you. Let me give you a couple of examples.
You have an existing business, let us say we have a business owner in town that does T-Shirts and embroidery etc. Most towns have them. She has been up and running for a a while now and wants to open another store on the other side of town. Total cost about $100,000 for the store front, equipment and inventory. She is currently nets right at $100,000 per year, so you offer to float the loan or form an LLC to for that store, in exchange for the $100,000 you get 20% of the business. Of course you are going to want to check with your attorney or accountant, but often times an LLC can be best for valuation if the business is to be sold later and protection for you. But that is another story for later.
She has her act together and within one month of opening, there is already a profit. You begin to see an immediate return on your money. By having two stores and more equipment, she is able to go after larger orders and her overhead is reduced because she can buy supplies in twice the amount thereby increasing profitability by 5%. This is a very typical win-win scenario.
In these scenarios, you need to have an out. Perhaps she can buy you out for 120% of the investment within 24 to 48 month. The great thing you can both set it up anyway you want to. You are in control. You also need to be able to step in things go haywire too. But, more often than not, although you may have heard otherwise, these situations work out to the benefit of both parties.
As to why she would do this, if you have ever had to go to a bank for a business loan you need not ask. Not only is it often times a big hassle, but it can take a long time. Whereas if she goes with a private investor, she can have her money in just a few days and start earning money.
Of course you can escrow part of the money so that you see that it goes where it is supposed to but usually, small business owners do best without being micro-managed. That is not to say that you don’t keep an eye on your money, but if they keep their accounting records online with such a service as https://www.expensr.com/ which is a free service that allows you to do a basic QuickBooks like system on the web. It is also a company that I am keeping my eye on. They have a killer app that is going to give QuickBooks a run for their money. You can also use if for personaly expenses as well as that is what it if primarily set up for.
As far as other investments, is their that crazy guy down the street that is always tinkering with things? Maybe you could help him trademark and patent his latest idea.
You can also just outright buy existing businesses in you own town be they a bar, a car wash etc. In many cases you can get the owner to carry financing too.
The latest craze is to buy and sell websites. It takes some specialized knowledge to get into the game, but there is money in it.
There are more choices than you can shake a stick at but remember, try and go for at least a 20% plus return. You also just might hit a few out of the park with several 1,000% returns too. It happens more often than you think.
Like I said, if you don’t know where to start, I would be happy to send some of the deals that I get in your way. There is no way I have time nor funds to get to them all.
You might just want to add investing in, and buying and selling whole small businesses. If you use your noodle, the rewards can be well worth it.
