Buy a business to create cashflow

Oops.....sure.....back to topic

 

What strategies from the past aren’t working today?

In the past:

1. We bought property.
2. We used debt.
3. We had to manage/service that debt.
4. Some preferred I/O loans, others preferred P&I.

What is different today? Nothing.

In the past, one could buy property with good capital growth prospects plus own one or more business with good profit prospects to generate net worth.

I believe that strategy still works today.

 

From what I read (bit didn`t experience as too young in this game) IO could be extended more easily and you could get more money and more easily from the banks. For a couple: buy a $5M portfolio, IO, wait 20 years (worst case scenario), sell the whole lot, you have $5M net.

 

Yes in the past all you had to do to extend you loans was ring up your bank manager and ask for your loan to be increased even on weekends. There may have been a time limit on the extension.Your loan could be increased in seconds for loans up to $1.2m. After that you might have had to go get financial reports and go to a new lender. But when properties were about $100k you could buy many a lot easier than to-day.

 

Here are SIX things you might want to consider

How about DTI ratio's? You never had them.
How about IO limitations? You never had them. You could carry as much as you wanted for as ling as you wanted. You were never ever required to retire debt. It made a HUGE difference to one's ability to manage cashflow and not just hold a portfolio, but also to grow a portfolio.
How about sensitised assessment of new debt and existing debt ? new debt was always buffered, but not to the extent it is today. And existing debt ? Well, you had actuals. When you repeatedly make arguments which seek to deny the importance of this - such as "what is different today? " , it is delusional. It provided you with a HUGE advantage. It supercharged yours and everyone else's borrowing capacity for almost 3 decades. Rate cuts and actuals created, quite literally, the equivalent of never ending borrowing capacity boosts for all and sundry...
How about lender cash out policies? Went from unrestricted to very restricted
How about rates falling consistently over almost 3 decades ? Todays generation will never have that. The may not see rate increases, but they will never see rates plunge to multiples below where they started.
How about 95% LVR's for IO?

 

Yes, banks would just extend by phone, today we are jumping hoops, property will be revalued and Review whether you can service debt.
My, how times have changed
Plenty of threads on this

 

The banks might have/might not have them (I have no idea) but I did.

That is why owning profitable businesses (I had four in my working life) was so important.

Generating increasing business income allows one to reduce their DTI or take on more debt.

I have considerably more debt today in retirement than in any period of my 35 years of working life.

Magbe my banks are delusional?

Certainly haven’t. All our loans are IO. Even the IO loan I refinanced earlier this month didn’t hit any limit.

Maybe our banks don’t have IO limits?

Even after 10 years in retirement, even today we have never been asked to retire debt.

Maybe it is because we have assets that generate ever-increasing capital growth and after-tax income?

I have no idea.

Never heard of it, even with this month’s loan refinance.

Never stopped us.

With rates at 2%+, I don’t believe they can go much lower.

I would rather borrow at 2%+ than 17%+. I have done both.

I have always set my maximum LVR at 80%.

I always considered anything higher as too risky.

Today, it is easier for me to borrow than at anytime in the last 40+ years of investing.

One of the advantages of being delusional I suppose .

 

I have been working for my boss for 6 years now for a CNC Machining company in Perth. We are well known in the industry here for quality and delivering on time.
When I started in 2014 we had 7 staff and annual turnover was $1.5m. Last year we had 17 staff and annual turnover of $4.2m. This year I was tasked with developing and improving systems and to lift profit margins from 17.4% up to 25%. We are currently on track for an annual turnover of $4.9m and net profit of 100k/month (4 consecutive months of six figure profit while boosting staff morale).
There is so much more room for growth and we have a business plan to develop into a $10m company by 2025. My co-manager and I have shares in the company and we are using the business to effectively purchase our shares. My boss will be stepping down next year to move into a silent shareholder role to allow us to further grow the business (he is currently the bottle neck).

 

Some people think good businesses generate profits in 2% to 3% range; others believe it is in the 7% to 8% range.

My target was always 20%. One can support a lot of debt if their business turns over $5M at 20% profit.

Even though in $ terms the profit is the same, I would rather own a business with $10M turnover at 20% profit than one with $100M turnover with 2% profit.

 

Yes for sure. However if you have a business with the higher cashflow and you can improve the profit percentage with shrewd management over time then you are also going to be well placed longer term.

One of the reasons I really like the Amazon FBA business model is the potentially high ROI which if it is rolled into inventory can have you with a very valuable brand in a relatively short time. A business that you can run from anywhere. The magic of compounding is a wonderful thing.

 

Yes we live in OZ & sell in the USA market

 

hi MTR, i posted about our sale back in march, but you may not remember, but we sold our 1st big brand back in march..preparing 2nd for sale now, and built brand number 3 while in lockdown, will be our biggest yet

 

yes its not easy, but we just hit 1M in sales in 140 days with our 3rd brand that we started while in lockdown

 

well done mate, congrats

 

I'm amazed! That's a great effort.

 

This is amazing, life changing

 

thanks MTR, when you sell the brand it certainly is..before then you have so much in stock, but not in the bank.
i was originally in the somersoft forum back in 1999 when THE WIFE was posting, investing in property for many years but it all went pear shaped and lost the lot...fortunately for myself/kids i didnt give up and now financially free...its been a rollercoaster for sure lol

 

Great to hear

How did you go about selling the brand and was it a difficult process?

 

read all about Thras.io online....fastest company in the USA ever to get to a billion dollar valuation...buying profitable amazon businesses...now there are another 10 trying to emulate them...lots of work goes into getting them the information they need in order to buy them, but it obviously all worth it

 

Interesting read up. I imagine this whole area is going to grow a LOT!