How the top 1% make their money

Summary

• The majority of millionaires are made in real estate, while billionaires are made in private equity.
• Real estate investment profits come mainly from property appreciation and rental income.
• Forced appreciation in real estate happens through property improvements.
• Real estate is a reliable investment because land is finite and population tends to grow over time.
• Private equity offers more ways to make money compared to real estate, often with higher risks and rewards.
• Businesses can increase dramatically in value by mitigating risks and fostering growth.
• In private equity, converting business risks into pillars of value can significantly boost a business's worth.
• Real estate has a limited upside, whereas businesses can offer substantial returns, sometimes 100x.
• Improving a business's size, profit, and operational stability can drastically increase its value.
• Don't just focus on creating current profits; build your business to be valuable to others.
• Private equity leverages two main variables: profit (EBITDA) and the reliability of that profit.
• Recategorizing your business or incorporating technology can significantly increase its market value.
• Larger businesses command higher multiples and can be more attractive to big investors.
• Growing your business organically and reducing debt increases your potential profit multiples.
• An older, consistently growing business generally has higher value due to its proven stability.
• Focus long-term on one business to build generational wealth, rather than chasing new opportunities frequently.
• Consistency and patience are crucial for achieving substantial returns in both real estate and private equity investments.

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How To Take Action

I suggest implementing a few low-cost, high-value strategies right away to boost your business or personal growth.

For Small Businesses and Entrepreneurs:

• Increase Customers:
  Start by identifying untapped or less competitive marketing channels. Use social media, local events, or partnerships with other businesses to reach more potential customers without significant cost.

• Improve Customer Value:
  Focus on enhancing the customer experience. Upgrade your product or service slightly, add a loyalty program, or provide excellent customer service to increase the lifetime value of each customer.

• Reduce Business Risks:
  Identify potential risks within your business and tackle them one at a time. Hire a key person to fill a gap, automate part of your operations, or tighten up your financial practices to make your profits more reliable.

For Aspiring Real Estate Investors:

• Forced Appreciation:
  Look for properties that need a bit of work but are in good locations. Simple improvements, like fresh paint, basic landscaping, or modernizing the kitchen, can significantly increase property value without a massive investment.

• Rental Income:
  If you own a property, ensure it’s tenant-ready. Keep it well-maintained, and focus on retaining tenants to ensure consistent rental income. Research the rental market to set competitive yet profitable rental rates.

For Those Interested in Private Equity:

• Business Value Increase:
  If you're already running a business, focus on improving its operational stability. Start by standardizing processes, cutting unnecessary expenses, and making the business less reliant on you as the owner.

• Long-Term Focus:
  Choose one business or investment to stick with for the long haul. Consistency and patience are key. Rather than jumping from one opportunity to another, commit to growing and improving your current venture steadily over years.

Implementing these strategies can help you build and grow your business or investment reliably and effectively.