Buying 1 Asset Per Year

What I am about to write won’t make sense to 90% of people reading it.

It’s highly unlikely working a W2 job will make you rich

And if it does – you will be 60 years old before you can enjoy your wealth.

You trade the most enjoyable, active, and fun years of your life for security, predictability, and comfort.

Instead, you should focus on building assets from your 20’s – 40’s and then only work when it interests you.

This concept is taught in books like Rich Dad Poor Dad and Buy Then Build.

Don’t get me wrong – it’s not easy. But often the things in life worth having require grit, sacrifice, and persistence.

So if you are open to taking the hard route – keep reading.

Naval Ravikant is someone I admire for his ability to turn deep thoughts into concise words. Here is what he says about freedom

I understand this to me Freedom To is the freedom to say “Yes” and Freedom From is the freedom to say “No”.

In order to achieve Freedom From – I am convicted you need assets to allow for optionality.

Buying/Building 1 Asset Per Year

Every year my wife and I set annual goals as a couple.

We break them down by Faith, Family, Finance, Fitness, and Fun.

Our financial goals always involve us building assets. Right now we are focusing on 3 key asset types.

401ks (stocks & bonds)

Real estate

Owning/operating small online businesses

You might be thinking – how do you afford to do all three?

We don’t. Instead, we automate our 401k contributions and focus on one of the other two.

Let’s analyze each asset.

Buying cash-flowing real estate

Let’s say you want to buy a $165,000 house in a B-class neighborhood. Let’s also assume you are a conservative investor. You would likely need…

25% down ($41,000)

4% for closing ($6,600)

~10% for CapEx ($15,000)

Total of $62,500

Is this reasonable for the average couple? Maybe, maybe not. But you can easily save your way to this amount, involve other business partners, or get creative. There are dozens of ways to buy real estate without your own money.

Let’s assume for a minute you have the $65k ready to go.

You will need to

Select a market

Work with experts to help you with lending, inspection, transaction, closing, etc.

Decide if you are self-managing or using a property management company

Analyze a deal for cash flow

Make an offer

Close

Oversee the health & success of the investment

Again – not easy.

For most people, the right investment is into a 401k where they can set it and forget it.

But for those that want freedom from – keep reading.

We won’t be able to save enough from our W2 to buy a rental property every year. We are likely on a 1-3 year purchase pattern.

This brings up option #3 – buying/operating small online businesses.

Buying/operating small online businesses

Buying/building this type of asset is the hardest of the 3. If you don’t enjoy reading books about business, or understand the basics of business in terms of financials, sales, or marketing – this likely isn’t an asset you want to get involved with.

If you like playing the game of life on hard mode and understand that risk = reward, let’s get into it.

Most people think buying a business online is really hard. It’s really not. But there are two groups of business owners who are actively selling their businesses DAILY.

Technical SaaS founders

Baby Boomers

The distinction is that baby boomers likely have brick-and-mortar businesses with years of successful execution but are in need of new technology, marketing practices, or systems/processes to scale to new markets.

Tech founders likely are using the latest and newest technology but don’t have product market fit so there is a different type of marketing expertise needed.

If the research is correct, 62% of 210,000 businesses changing hands each year will be turned over by baby boomers to a new group of entrepreneurs

If this type of asset intrigues you, check out websites like

Acquire.com 👈 best for small SaaS products

Buybizsell.com 👈 best for brick-and-mortar businesses

Empireflippers.com 👈 best select of all business types

Quietlight.com 👈 best for e-commerce and Amazon FBA businesses

There are dozens more but these are a good list to get you started.

Typically you will evaluate a business based on 1 of 2 metrics

Revenue

Profits

If the business is growing rapidly year after year – you are likely going to pay a multiple of revenue.

Example: The business is growing 40% per year and doing $100,000 in revenue. You will pay some sort of multiple like 3.5x which makes the business worth $350,000

If revenue growth has stopped, slowed down, or gone backward you are likely going to evaluate the business on profitability. If the business isn’t profitable – you better understand what you are doing because you are now buying a distressed asset (which is a different beast/skillset).

Let’s assume it’s a profitable business. If there is $20,000 left for the business owner at the end of the year and this represents a 10% margin – you might see a valuation of 1.2x or roughly $24,000 evaluation.

From here – you will need to spend time, money and energy to optimize the asset.

Cash flowing Assets

The entire point of all this work is cash flow.

Let’s use some very simple math. Let’s say you can close on a real estate deal for $50k all-in and that produces $200/mo in cashflow.

Let’s also assume you can buy a simple online business for $10k and that produces $200/mo in cash flow.

Therefore, we should budget $10-$60k per year for $400/mo in cash flow.

As we know compounding is one of the greatest forms of leverage. If we execute this strategy for 10 straight years and did it right we would have a lot more than $4,000/mo in recurring cash flow.

You might be thinking – well how would we have more than $4k? $400 × 10 = $4,000.

True! But we also benefit from appreciation.

Rents and real estate prices have historically always gone up (careful there is risk in saying asset class X always does Y).

But you can also expect to make more cash flow with an online business as you make the right investments and strategic decisions.

The sky is the limit. You can truly see a path toward freedom to into freedom from.

Let’s Review

You will notice both assets require money down, time, energy, and oversight.

This is true.

No matter how “passive” you want your income a savvy investor knows they must be diligent with watching over their investments.

The best investments are the ones that don’t lose money and being involved in the asset is the only way to ensure that doesn’t happen.

So the question comes down to time vs money.

If you have a young family + a W2 job + hobbies, where does that leave time to invest and optimize assets?

The answer is in your calendar and habits.

Instead of 1-2 hours a night of Netflix or video games – you need to be analyzing deals, closing on deals, and improving the effectiveness of a real estate property or business.

Again, none of this is easy. That is why I started this by saying 90% of people reading this wouldn’t make sense of this idea behind buying an asset per year.