Transforming Your Wealth Trajectory Using Alternative Investments

Taking a Holistic Approach to Wealth Creation

It’s really important that when you are approaching the topic of wealth creation, from my perspective, it’s really important to be very holistic. 

When I say holistic, when people come to me, often what they’re looking for, is they simply want access to great deals and I understand that that can mentally be the starting point.

Certainly, there’s an element of understanding that getting someone who can hold your hand and be the guide is also valuable. 

But from my perspective, when I’m working with people, that holistic bird’s eye macro view of what is it that you have done to get to this stage of your journey is really important. 

I think what can happen is, although, the idea of “just show me some sexy deals” is where people start, I think the intangible benefit of having someone to work with and be that person to bounce off to look at your wealth from a holistic perspective is really game-changing. 

I certainly wish I’d had someone who could have helped me earlier in my journey. 

I think the metaphor that I would use is if you don’t take a very holistic view of what it is that you’re doing, what thoughts, beliefs, and actions you’ve had on your journey and why that brought you to where you are if you can’t really look at that more carefully, I think what happens is you run the risk of being the lotto winner. 

There are some fantastic statistics out there but the majority of lotto winners actually end up losing most of their fortune in the first 10 years and that is because they’ve come into some wealth and they don’t necessarily have the thinking and the tools to support the continuation of that wealth. 

How I See Wealth Game

I’d like to start today by doing a quick recap on how I see the wealth game. 

If we look at history over the last 40 to 50 years, maybe even beyond, the wealth game has been about, “How do you accumulate a series of assets or investments that grow over time?” so that eventually you end up with a net worth and an asset position which generates enough cash flow for you to retire, live independently and of course, maintain your lifestyle.

Unfortunately, as time has gone by, and certainly we’re seeing it very, very strongly in the last 10 years is that asset prices have definitely gone up. 

Particularly, if you look at real estate investing, it’s certainly been the way that a lot of millionaires have been created is through taking a small amount of capital, leveraging or borrowing to get into property, and then watching those assets grow over time. 

The thing that is universally apparent now is that the cash flow from a standard investment property isn’t necessarily delivering in the timeframe that people want. 

So many people start with this view that they should tolerate or endure negative cash flow and that hopefully, somewhere down the track, those assets will start to increase their rents and that those increased rents will outpace the cost of the expenses, lending, and inflation so that you end up with strong cash flowing investment property. 

I have literally spoken to dozens and dozens of investors over the last even say 3 to 4 months who are expressing the pain and frustration around having done all the right things, having accumulated a small portfolio of investment properties.

But now they’re in a situation where they have hit a ceiling and they just can’t see how where they are is anywhere close to where they want to be. 

Partially because the income stream from those investments is just so pathetic.

Client Case Study

So what I want to talk to you guys about today is I have a new client in my Freedom Warrior Mastermind and this couple, I think is a great case study for those of you who are interested in understanding how alternative can completely transform your wealth and understand exactly the mechanics and the journey around what needs to happen first, second, and third. 

Again, for those of you who are tuning in for the first time, alternative investments are simply an asset class and in my case, the area or the sector of alternative investments that I think are meaningful are those backed by real property. 

So for those of you who are already property investors, everything around alternative is really just an extension of what you already know. 

There just happened to be a series of strategies that are not mainstream that unfortunately, most investors will never ever have access to because they just don’t move in the right circles but which deliver that predictable sustainable cash flow which is really why the results that you can achieve in a relatively short space of time are transformative. 

So this particular couple, I just want to give you a bit of an overview of who they are.

They are young and they have started early. From the age of about 20 to 21, they recognised that they didn’t come from wealth and they were both self-made. 

Partly because they came from migrant parents they recognise that they needed to create wealth through real estate and have that compound over time.

I’ve never seen such a young couple hustle and redline and make it work to get to where they are today. 

So the situation that they’re in today is that they have an enviable property portfolio, they’ve got great investment properties, and they’ve got about six properties.

They are in a situation where the banks have basically told them that they will not lend them any more money.

They’re trying to tweak around the fringes to work out number one, how do they keep the best of the portfolio that they’ve built, but still continue to fast track towards financial freedom, rather than if they were to do nothing. 

I think this is really what brought them into my world; if they did nothing, they were probably at least 25 to maybe even 30 years away from having the cash flow that they wanted or needed to create life-altering decisions.

When I say that, I mean, whether it’s the choice to work part-time, to step back altogether, throw it all away and go travelling the world, or whatever the definition is for them, they realise that was so far away and they’ve done all the right things and they still weren’t going to achieve it.

Step #1: Doing an Audit on Your Property Portfolio

So the starting point with these guys was really to do an audit of what they already had and evaluate which are the specific investments that are strong and likely to continue to perform over time, which ones were the dogs, which ones needed to be cut away.

Intuitively, they kind of already knew but it was a case of really running the numbers against each of those properties and examining what is the likelihood of that capital growth continuing.

What are the likely consequences of holding that property? What are the maintenance issues that you are going to come up against? How problematic are the tenants that you’ve got? 

If there are some development opportunities, how are they going to occur and in what order? How do of rank and prioritise those investments? 

Then in the context of what money are they earning, what is their capacity to set aside dividends? What is their ability to harness any future borrowing?

The word I use is an audit. It’s really an audit of where are they, what have they got, have they got clarity on who they are, what they want, and what they have aligns with all of those things. 

I had the fortune of spending a full day with these guys to really go deep on all of those things so that they could start to see what they had through maybe a clearer lens or a clearer filter.

I think the challenge that a lot of investors have is they’re so hell-bent on the accumulation piece that they don’t continue to stop and reflect on what they’re building in reference to the goals they have. 

I understand this because I’ve done it too. This blind kind of like, “I’ve just got to keep moving forward, regardless of what I’m buying.”

The unfortunate thing is because of the fact that because real estate is so expensive, you just can’t afford to carry lemons. 

What I think a lot of investors that I’ve seen over the years have done is it’s only when you shine the torch on it and say, “Really, is it doing what you want it to do?” that people start to go, “Well, actually no.”

I know in some cases, there are emotional reasons that you hang on to real estate. There are reasons that perhaps you don’t want to recognise a loss or realise a loss. 

There could be reasons that maybe it will come good. There’s always optimism that the growth is just about to happen. 

It doesn’t really matter what those reasons are but it’s just really useful at regular intervals, to be looking at your property portfolio from that perspective.

Especially in today’s environment where the banking policies the government policies are really driving the limits on what we can and can’t do in the market.

It’s no longer the case that you can just accumulate investment properties infinitum, regardless of your income.

Income is a hugely limiting factor and given the conservatism in the banking environment right now, it makes sense that if you know that you’ve got X amount of borrowing capacity, you don’t waste it by putting underperforming assets into your portfolio.

Step #2: How Much Capital Are You Willing to Invest?

If that’s step one on the journey, step two is then saying, “Well, you know, given everything you have, there are two questions, if you’re going to invest in alternative, how are you going to harness the capital?”

I think the parallel question to that is, “What is the minimum effective amount of capital, that you are going to need in order to bridge the gap from where you are to where you want to be?” 

I love to use that five year time horizon and for someone like this particular couple who is sitting on reasonable net worth, they cannot afford to stop doing the work that they do, because they need it to live. 

They’re not particularly lavish people but the gap between the income stream from the portfolio to where they want to be is still vast. 

So what we’re trying to do in this second stage is, first of all, work out where is the capital that you’re prepared to free up to invest.

The second question is, how do you do it in a way that doesn’t rock the boat too much?

One of the things that more inexperienced investors face is the idea that they want it all and the acceptance of the idea that you can’t have it all at once.  

I encourage you to go back, there are certainly past podcast episodes on this in a bit more detail.  

But in order for you to work out your minimum effective capital, in order to achieve life-altering income and wealth through alternative, you have to have built some capital.

You have to have developed some level of net worth. Perhaps it’s not as much as you think it should be. 

An example of this is, I’ve spoken to countless people who have this magic number of, “I want to get to a net worth of $10 million,” and when you reverse engineer that, I ask them, “Okay, tell me where does that number come from?” there’s no real thinking or logic around it.

It’s just a number that’s come up that they think, “Oh, that sounds like a good number and that’s sort of where I think I should be. 

But these guys that I’ve just spent the day with, are smart enough to realise that the number around the net worth is less important than how productive that portfolio is for them.  

Step two was if they have X amount of capital, and in their case, it was going to be something like $350,000 to $450,000 of capital out of their portfolio if they allocated that to alternative today and topped up with about $50,000 to $100,000 a year or say two or three years that it was going to get them where they want it to go. 

Assuming they fairly conservatively pursued and divided that capital up into a series of opportunities that was going to earn them about 10% to 12% net after all expenses before tax.  

So this process of step two of going, “Well, what do we need to do to get you where you want to go?” 

It’s not rocket science but it’s simply a way of saying, “Without disrupting what you already have in play, how could you take some of that premium capital combine that with some of your surplus income and just engineer an outcome?”

Now, the exciting thing about alternative is you’re not buying an asset and speculating that it will go up.  

You’re acquiring investments that are producing income today from day one, that is the goal or primary goal.  

It’s not always but the primary goal that most of my tribe have is, “How do I access assets and investments that are going to actually be performing today?” that might even perform better in the future. 

Because I’m working with a deal maker who knows how to move that deal and get that asset performing better but, “How do I earn money that I can rely on today?”

That understanding is really transformative for some people who have some capital to play with because they can take as little as 5% to 10%, maybe 15% up to 20% to 25% of their net worth and put it to work in a slightly different way in order to get them to their definition of financial freedom in two to five years. 

For some people who are listening that might seem completely wild, but in the circles that I move in, where I would actually argue that the average risk profile of investors is more conservative than most people’s, it’s not that much of a stretch. 

Step #3: What are The KPIs that Should be Tracked to Measure Success?

So for these guys, then moving into step three was really about recalibrating their thinking around, “What are the KPIs or metrics that we want to be tracking in order to articulate or measure success?” 

Now, people have heard me talk about this many times, the number one metric inside our program is what we call Inkosi, and Inkosi is the Zulu word for tribal leader. 

It comes from this idea that we’re all trying to be leaders within our own community and the Inkosi metric is saying, “Well, let’s say my goal is $100,000 or $150,000, what percentage of that goal have I achieved?”

It becomes really easy to share with other like-minded investors, “Now, I have my Inkosi at 20% or 40% or zero or whatever.” because it’s the great equaliser and that’s why I love it so much. Then there are a few other metrics that I like to measure. 

The journey with these guys was just to say, “Where are you against each of those five metrics?” 

What that does, is that gives them a much more holistic way of evaluating how their wealth is performing. 

Sometimes it’s a little bit confusing and maybe I’ll run another podcast on those five KPIs because I think it’s a really useful understanding to have.  

But once you’ve got your barometers if you like in play for, “Here’s where we’re starting”, it becomes super easy to track how your performance and the trajectory that you’re on to get you to your goal. This is just my belief.

No matter how hard you hustle with traditional property, the best it’s going to do is actually give you an incremental increase in your net worth.

There are very few strategies that I’m aware of that will effectively completely change the line that you are on as far as where you are and where you want to be in terms of passive income. 

 As for those of you who know me, I’ve really dedicated my life to trying it all.

 I’ve tried futures trading, currency trading, share trading, I’ve done obviously, traditional property and I’ve not found an asset class that gives me a strong predictable income in anywhere near the sort of volume of deals that gives you that ability to diversify as alternative. 

Step #4: Understanding the Five Buckets of Strategies

So the final stage of the planning process with these guys was number one, auditing what they have number two, identifying what capital they had that they were prepared to allocate to this then number three, setting up a new dashboard for them to track performance. 

Then the next stage of their journey will be making sure they understand the five buckets of strategies that sit within alternative as I play with it inside out, so that by the time they get to the starting gates and to take action and follow up the opportunities that we identified as being necessary to optimise their wealth, that takes time. 

Anyone who knows anything about wealth recognises you never want to take rash decisions that are completely going to be irreversible quickly.  

There’s going to be a journey that these guys are on to tidy up their paperwork and there might have been some structural issues that needed attention, so all of that stuff takes time. 

But at some point, in the next two to six months, they will get to what I call the ‘starting gates’, where they’re in a position to actually execute on some deals. 

So the goal for them between then and now apart from actioning on all of the stuff that they have is making sure that their understanding of these new strategies is as high as it needs to be and that they know who the trusted advisors are that they want to take action with, so that they are in a position to pull the trigger and effectively start very slowly, accumulating some alternative investments and gradually building that cash flow. 

I’ve had clients in the past that have had multiple millions in cash sitting around and their goal is to get to a certain level of income and they just want to jump in all at once.  

In fact, they say, “Look, are you going to tell me where to put my money?” and my response to that is always the same.

Like by the time you get to the ‘starting gates’, you shouldn’t want my opinion. In fact, “You will not want my opinion,” is what I say. 

You will know who you like, why you like the strategy, what the downside protection is, and why there are multiple exit strategies. 

You’ll understand a bit about the geography and the macro and the microeconomics so that you have high confidence that you’ve done as much as you can to stack the odds in your favour before you even pull the trigger. 

Final Thoughts

I guess the purpose of today’s podcast is really just to emphasise that alternative investments in my world can transform lives. I really don’t want to be understated about that.  

If you know that you can take action over the next year to two years that will put you in a position within that two to five-year mark where it is game over, where you can have life-altering decisions about how you spend your time, how to influence the people in your tribe, in your community, the causes that you care about, that is transformative. 

I think I’ve been, if I’m really honest, a little bit understated and mild about the impact that this kind of thinking has on people’s wealth outcomes, partly because I think I’m polite. 

I probably have a little bit of fear if you like around being too overt about it, but I just really want to emphasise that this stuff can really change lives. 

It’s not just about accumulating one deal. One of the things I talk about over and over and these guys certainly understood it was the goal is to build a pipeline of deals so that you never, ever have to invest from a place of FOMO or fear of missing out, or chasing deals ever again, if you don’t want to.  

So, guys, I’m going to actually call it quits there. I know I’ve gone down a few different rabbit holes but alternative investments are for you if you want to change your trajectory. 

This young couple that I’ve just started work with is definitely at a stage where they have hit a ceiling with what they can achieve with standard residential property and alternative investments, which I have no doubt, is what’s going to alter their world massively in the next two to five years.  

Till next time guys, take care. If you have any questions or if there were any threads of topics that you’re super interested in, please reach out. I’m always I’m loving the emails and the communication that I’ve been getting. 

Thank you again for the kind words of encouragement really appreciate you guys and I look forward to catching up with you next time.

If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.

If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.

Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!