Putting Your Capital to Work

            Increasing your Roi is a good thing, but with each decision you make there is the potential for profit and loss. You must take the time to determine the risk and be able to live with the results which follow. This is where allowing your capital to work harder for you helps to stabilize the risk. It allows you to diversify you profits from the ROI. Just because you make money in real estate doesn’t mean you can only make money in real estate. Many when they see the golden arches think of cheap fast hamburgers. Ray Kroc’s wealth wasn’t built on selling hamburgers, it was built on owning the land which the franchises were built upon. In the movie titled The Founder which is about Ray Kroc and the empire he established the following lines were given.

“You don’t seem to understand what business you’re in.” These words were said because Kroc was trying to build wealth on a 1.4 percent profit from a 15-cent hamburger. Kroc was told by his mentor to buy the land the franchises were built on and then only allow the franchises to be bult upon the land he leases to the franchises. Kroc revenue stream started from the moment the contracts were signed, not when the franchises were built. When the franchises opened, he received more capital for their desired expansion, which fuels land acquisition, which fuels expansion and the cycle build momentum as time goes on.

This system also gave Kroc the control he desired for quality control over the operations of each franchise. If the franchise owner didn’t co-operate with Kroc’s plan, which was a violation of standards which Ray had implemented then they came back in line or their leases were canceled.

Dominoes Pizza according to its CEO Patrick Doyle is a technology company that sells pizza. One might argue that Amazon is a logistic company, or in the delivery service.  

Capital allowed these giants to grow once they discovered what business they were in.

What business are you in. You may be in the real estate business disguised as a fast-food hamburger restaurant. How can you leverage what you do to allow you to obtain your dream.

We need available capital to continue our investing. Many think that they must put down the largest amount possible. (they think they’ve increased their cash flow by lowering the mortgage). Some investors look at the opportunity loss of putting an extra $33,000 down as a loss of $150 in cash flow. Though in reality not all that capital is lost. However, what they gained was the ability to re-invest that capital in other opportunities.

Some may be asking what is the difference. Would you rather have the $150 per month or the opportunities which a properly invested $150 could give you. Would you rather have the fixed rate of $150 or the increase of a rental property, the equity, the write offs and other benefits which that $150 could yield you. When you can borrow at a lower interest rate than what you can earn when properly invested why wouldn’t you borrow it when you are assured that the key facts are stable.

Note: every business goes through its life cycle. From a distance they all can be explained by the bell curve:

• What business are you in.
• Which part of the business are you in, expansion, peak, contraction or trough
• Which phase of your business’s life cycle are you entertaining: start-up, growth, shake out or decline

  Many well-established companies have vanished overnight by someone building the proverbial better mouse-trap. Age doesn’t always protect from technology. The pony express was replaced by the telegraph which was replace by the telephone in short time spans.

There are risks involved in investing, your job is to determine if the risks are worth the benefits and to calculate if you can cover the cost if you’re mistaken.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.