Unpacking the Freedom Formula with Tyrone Shum: Part Two
Tyrone and I are back at unpacking the world of alternative investing strategies. This time around, we discuss the steps moving forward after you’ve established your formula. It has context and relevance for all investors.
So in part two of this three-part series that explores my five-year model, you’ll learn about creating a pipeline and why relationship building and networking is so important for epic deal flow.
Q: Can we get a recap of part one, where we unpacked the Freedom Formula to lead into today’s episode of part two?
- For those who may not have heard that previous episode, I shared the five-year financial Freedom Formula that I follow to achieve financial freedom in five years or less.
- You have the liquidity you want, you’ve got the leverage that you want, and you’ve got the capacity to create a legacy. And part one was all about the plan.
- Part two is all about the deals. Having the ability to access deals and create opportunities is ultimately what will deliver consistent, predictable income.
- Many investors flounder because they don’t create an opportunity for themselves, and they don’t necessarily have access to the right deals.
Q: What should the next step be after figuring out your formula?
- Part of the journey around building your plan is making clear which strategies are a fit for you and which aren’t.
- Within the space of traditional and alternative property investing, there are dozens of strategies. But the opportunity component of this, the next stage of this Freedom Formula, is about answering the question, “Are you confident that you have access to the types of deals that you need to hit your goals?”
- Can you say, “I like these strategies, and they are in alignment with my risk profile. They’re going to get me to where I want to go.”
- So, you’ll need this amount of traditional property and this amount of money working harder for you to see a net return of 10%.
- You’ve maybe even narrowed it down to, “Well, I like syndications, and I like joint ventures, and I like private funds.”
- This piece of the puzzle is about figuring out how you’re going to get access to deals.
Q: How do you assess whether your pipeline is strong enough?
- Do you have a pipeline of alternative investments that you can just dip into that delivers a double-digit return?
- Do you know the right people who can help you get where you want to go instead of chasing deals?
- Do you have a network of people who can just deliver great opportunities as you need them?
- The added dimension to this that people don’t think about is, does your network actually help you invest your money well in advance of having it?
- Most businesses have a bit of a rhythm around roughly how much money they make each quarter. If you’ve got a strong pipeline of opportunity, you can say, “Well, I’m here in the month of whatever, August, and I know that in the December quarter, I’m going to roughly have this amount of capital to play with.”
- What you can be doing in this quarter is planning what you’re going to do with that money in the next quarter.
- I often notice with investors that money burns a hole in their pocket. They go, “Oh, I’ve got access to this bank line of credit, or I’ve got cash sitting there. It’s wasting time; there’s an opportunity!”
- People need to understand that there’s an opportunity cost.
- They rush out and just want to park their money somewhere. And inevitably, and I’ve spoken to hundreds of investors who’ve done this, they end up committed to a project that really wasn’t in alignment with their goals.
- For example, they settle on an investment or a property, which may align with their goals, but isn’t going to give them the performance they want. Or they’ve made a decision based on flimsy due diligence.
- There are all sorts of reasons that people are in a rush to get into investment, so they end up being wrong-footed.
- You need to start answering the questions for yourself, “How strong is my pipeline? Do I know the right people?”
- For example, with the stuff that you do, Tyron, if I know that you have a certain availability of deal flow for me that earns a certain rate of return, I’d want to be talking to you now, in relation to money I’m going to have next quarter.
- I don’t want to be leaving it to the eleventh hour because I want to be on your radar.
- The reality is, a great epic deal flow is limited – there’s no question.
- So it’s really about tapping into the right people with the right opportunities.
Q: How do you work out if you’ve been active enough in fostering a network of exclusive relationships?
- Do you have access to great dealmakers who can hand you premium investment opportunities that aren’t available to the masses?
- Do you know the right people who can help you so that you never have to chase deals or waste time sifting through opportunities?
- Does your network help you navigate challenges in the market?
- My trusted advisor network serves two purposes. One is the deals, which I know is the thing that everybody’s most concerned with because that’s the sexy part.
- But the other part of it is, these guys are in the trenches. They have their finger on the pulse of what is happening in the market. So I go to them for wisdom and guidance around things that could potentially upset my applecart.
- They give me a sense of “Salena, this is becoming overheated, we think that the opportunity needs to shift here,” or “Here’s a defensive way to kind of protect against this happening.”
- You can never have all the answers, and there’s no crystal ball. But having a relationship with a lot of people who are known as being number one in the world for that strategy is what gives you the edge.
- Those are people that you want to cultivate as friends for life. We worry too much about the one deal they can get me today. And my attitude is instead to play the long game with people and build relationships that will endure.
- Tyrone agrees that it’s so important to cultivate relationships in the huge network of investors and developers to tap into and ask for advice or share their wisdom and help us find those potential deals out there.
- Ultimately, once you’ve got that relationship, there’s that trust. And it saves you the time of having to go out and do that all yourself.
- When we talk about property, especially property investing, it’s all about building a strong team around you. You can be an expert at one thing, but it’s impossible to be an expert on all things in property.
Q: We’ve talked a little bit about this in previous episodes, but can you explain the difference between traditional and alternative investment?
- Traditional investments are the ones that we all know and love. Traditional investments are the ones that are often heavily regulated: stock market shares, bonds, managed funds – those sorts of things.
- Property is a funny one, to some degree – it’s less regulated. I think of mainstream property investing as being part of the traditional investing mix.
- In other countries, property in itself gets discussed as an alternative investment, but for the purpose of what we’re talking about, typical buying and holding developments, those sorts of things, I just put that into the traditional space. The returns on those can be wide-ranging.
- I would typically even put commercial property into traditional, but I think the difference around alternative, in the context that I use it, is to do with: number one, the type of strategy that you employ, and number two, the outcome that you’re after.
- Often with traditional investments, we’re after a capital return or growth.
- Not necessarily, though, but alternative investments are, for me, the pursuit of annuities of income streams.
- Alternative investments aren’t as well known, there’s not as much information out there on them, they’re more difficult to access.
- They’re not necessarily more risky, but you do need to have a certain level of education around them before you get involved in them.
Q: Why is having access to alternative investments challenging?
- Tyrone says he’s been investing in property and shares that since he was a teenager and when he started looking for passive income, especially reading from Rich Dad, Poor Dad, where Hauer says he’s generating 10% compounded every year from investments, he started going to the market to try and find this. And he couldn’t find it at all.
- It’s not offered in the larger institutions. It’s not talked about in the bank. And even if you just go to a bank nowadays to try and get a term deposit, you’ll probably get a return of maybe five or 6% per annum.
- Luckily for us, because we’ve dealt with these things, been through development, we’ve been speaking to people overseas, these opportunities start to come up.
- You start to realise that the opportunities are actually there, but it’s just a matter of who you know and how you get into them.
- That’s one of the reasons why it’s difficult to get access to these kinds of opportunities. Many investors out there just end up buying property instead because they can’t find these kinds of continuous streams of income.
- The way I see alternative is that it’s not mainstream. It’s not talked about for the masses.
- I advocate blending the best of the traditional with the alternative. That’s the ultimate because it allows you to keep one foot in a camp that you know and are familiar with. And it allows you to put a very small percentage of their wealth into alternative in order to amplify cash flow.
- The real art that I’m trying to suggest people get their heads around is, how do you blend? How do you make the best of what’s available to you in your own local market, with what’s available in circles and markets that you’re less familiar with?
- Once you start looking into alternative investing, you’ll see that there’s no shortage of people telling you that there are great deals out there. The challenge is sifting through and separating the sharks from the legitimate deal makers.
Q: Can you talk about the case study that we discussed in the previous podcast about the couple looking to achieve $200,000 income, but they only had a portfolio of about 5.5, generating about $60,000 income from there – how have you been able to help them in this scenario to be able to look at alternate strategies? Can you give an example of what they’ve done in that five-year plan compared to a 24-year plan?
- People often come to me and say, “I want a really fast result. I’m an action taker, I’m going to deploy all my capital in a very short space of time.”
- My general view is, educate yourself, tread carefully and take small bites of the cherry.
- You’re learning a new kind of investing, one that’s not that’s spoken about; it’s not one that people know a lot about. So, tread carefully and build your confidence.
- What I’m really clear about is, I’m not going to make decisions for you. You need to be in the driver’s seat for the money that you invest.
- My job is to be the guide to hold your hand and help you make good decisions. But I’m not going to make the decisions for you.
- There’s a big component around understanding and education. You need to grow your understanding of the investment opportunities themselves.
- My role is to help people step up and play a bigger game in terms of wealth in general.
- If you start studying famous characters over history who have been good at building wealth, you’ll see that building wealth is one thing. Keeping it is completely something else.
- So, the sustainability of the wealth that you have and protecting it is important. Help people who come into your world, whether it’s your children, your grandchildren, or causes you care about, by fostering stewardship so that you have a higher probability of that wealth enduring.
- With this particular couple, I encouraged them to take small bites of many different cherries in the first year.
- It’s not about just dumping a whole lot of money into one deal. Instead, put 20 grand over there, 50 grand over there, 100 grand over there – get to know the different dealmakers.
- It’s a slow and methodical process. As they start to build confidence, they start to see how the deals work, what the paperwork looks like, the mechanics – then they can start to ramp up their position.
- It’s a safer way to approach it because the last thing you want to do is throw your money into one deal, and then something goes bad.
- Tyrone says he’s had a client who had over $800,000 and told him, “Let’s just put on this one deal.” And he said, no, don’t do that, spread your eggs into separate baskets.
- Other deals that bring in additional income serve as protection.
- Plan for the worst and hope for the best. Do whatever you can to mitigate the risks; you have labels in place, you have contracts, you have all the people – but you can never ever know what’s going to happen because no one has a crystal ball.
- There are plenty of opportunities in the market, it’s just a matter of finding the right ones. And that just takes a bit of time.
Q: Let’s discuss part three. What can we expect to unpack about the Freedom Formula?
- Part three of the Freedom Formula is really the autonomy piece.
- Instead of having no choice about whether or not you run your business, you put yourself into the situation where if you sell your business for a high ticket price bonus, or if you don’t, it doesn’t matter.
- It’s about if you want to keep working or not keep working. It’s about that capacity to have a choice and how we achieve that.
If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.
Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!
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