Purchasing Passive Income
October 17, 2014 Leave a comment
If you have ever wondered how to purchase passive income, here is a story told by Matthew Duckworth:
“I have a friend who sold his first company in Texas when he was in his early 20’s for about $15 million. Since then, all he does is invest in passive cash flow situations… oil & gas, real estate and a few start-ups. No stocks. No bonds. Just private investments that create cashflow.
He has a small team of people he works with that scour the earth to find private investment deals that will generate a return over 20%/yr and he’s actually done better than his target. My partner and I have very much the same process.
With small investment deals, its actually kinda easy to get this kind of return. The problem is finding enough deal flow and having a real understanding (aka Charlie Munger’s “Circle of Competence”) to eliminate most of the risk. That’s the hard part.
You see, its all a numbers game. If you pour, for example, 100 opportunities into the top of your opportunity funnel, you might only find 5 really worth digging into and MAYBE 1 worth putting an offer on. If – on the other hand – you have 1,000 opportunities, your chances of finding something amazing skyrockets. The number of deals you sift through is directly correlated with your potential return for a given amount of risk.
For example, we looked at a small $300k deal that provided mobile housing to the Bakken Oilfield and the cash flow was right at 24% a year. We’re involved in an even smaller deal with a manufacturing company now that will likely net over 40%/yr if we don’t do anything spectacular.
So, is your goal possible? Yes.
Can I tell you exactly how to do it? No…
…if I did I’d write a book about it and sit at home playing Madden while my mailbox filled up with big checks from my publisher. There’s no secret investment… the secret is the process by which you find the investment.