Finding Opportunities That Everyone Else Missed
My rich dad often said, “If you gave everyone in the world a million dollars and told them they had a year to spend all of it, most people could complete that task. Yet if you asked everyone in the world, ‘Starting with nothing, can you acquire a million dollars in a year?’ only a very few could. And the few would probably be entrepreneurs.”
The world can use a lot more people who can create wealth and, in the process, solve many of the challenges we face. That’s what it will take. True entrepreneurs will seldom do it for the money. They nearly always have a higher calling. But when they achieve their own wealth, the freedom that comes with it is what keeps them going and moving on to the next venture.
If I lost all my money, I know I could simply make the money back and keep going with my mission. Having that knowledge may seem like a little thing to most people, yet having this power is a very big thing for me.
For one, I think the ability to turn a problem into money is a superpower of entrepreneurs and investors. This skill is all in their mind, they can see things that others just can’t see. It’s what sets them apart from everyone else.
You’re familiar with the term, “glass half full,” right? Well, when it comes to investments, I like to talk about a similar concept, called “upside.”
What exactly is the upside? It’s what makes a prospective investment especially attractive to an investor. It’s the opportunity to significantly increase the income or the value of an investment in the future. After all, it’s in the upside where the greatest profits and returns are made—it’s music to an investor’s ears.
You see, one of the hallmarks of a seasoned real estate investor is being able to bounce back from a bump in the road. Not every investment deal is going to go as planned, no matter how much research you did prior to signing on the dotted line. And this holds especially true for managing properties — such as rental houses or apartment buildings. In order to succeed in investing, you must have the ability to problem solve an issue that’s costing you money, and turn a liability into a nicely performing asset.
For instance, the upside of a poorly managed apartment building might be to increase revenue by replacing non-paying tenants with ones who pay on time. The upside of a pharmaceutical company’s stock would be the announcement of a medical breakthrough. Are you starting to see the big picture?
It may seem counterintuitive, but the upside is often found by examining the problems. Think about the greatest entrepreneurs of our time—most of them began their businesses because they came across a problem in their own lives and thought of the solution. Steve Jobs solved the problem of individuals needing access to personal computers. Sara Blakely solved the problem of smoothing out the lumps under her own dress and invented Spanx. Anita Roddick solved the problem of chemicals in skincare products and launched the Body Shop.
Investing is really no different. And while many investors shy away from problem investments, I can tell you from personal experience that the problem is actually where the profit lies.
How to Find the Upside
If you’re a landlord of rental properties, for instance, you’ll want to give your tenants what they want. And for many years, what they wanted was safety. Nowadays, however, the number-one item on their wish list is in-unit washers and dryers. As such, one of the simplest upside potentials for several of the apartment buildings Robert and I have invested in was to add washers and dryers to the units. Yes, there is an upfront cost to consider, but the advantage is that it increases the net operating income (gross income minus expenses). And we all know where the value of an investment property is derived from — the NOI. The higher the NOI, the more valuable the property.
The simple task of putting washers and dryers in the apartment units allows us to charge additional rent. Now, it may only equate to $50 more per unit, but if you have 200 units, that number turns into $120,000 a year!
Investing is a surprisingly creative process because you have to find ways to create upside in a property or business. You might have to do more market research, pick more people’s brains, and think way outside the box. And if you can’t find the upside? Then it’s simple: you don’t make the investment.
The Ultimate Upside
Obviously the goal of any investor is a return on investment (ROI). Let’s say you invest $1,000 and that investment generates $1,000. That’s the ultimate return, right? But what if you could get a $2,000 or $3,000 return? Amazing! When you’ve got back exactly what you invested, you’re now playing with that is called “free money.” You have none of your own money left in the deal, you still own the asset and it’s still creating cash flow. It just doesn’t get much better than that.
Find An Opportunity That Everyone Else Missed
Most people leave school looking for jobs, not opportunities. They have been taught to work hard for ordinary earned income rather than passive income or portfolio income, and most have never been taught how to balance a checkbook, much less read and write a financial statement. Small wonder they say investing is risky.”
See with your mind what others miss with their eyes. For example, a friend bought a rundown old house that was a total eyesore. Everyone wondered why he bought it. What he saw that we did not was that the house came with four extra lots. He discovered that after going to the title company. After buying the house, he tore it down and sold the five lots to a builder for three times what he paid for the entire package. He made $75,000 for two months of work. It’s not a lot of money, but it sure beats minimum wage. And it’s not technically difficult. It just took a different mindset.
Editor, Rich Dad Poor Dad Daily