Higher Returns With Entrepreneurial Investing

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ong-term investing in the       owners and managers; investing
stock market can offer a        directly into a business that
passive return around 5-8%      pays monthly or quarterly cash
if you remain invested for 30         returns from 10 to over 20%.
years; but, unfortunately, that
return is before taxes and            For example, let’s suppose that
inflation. This is so low because     there is a great single-family
the company founders, backers,        rehabber in your area. This
early investors, investment           rehabber buys homes in bad
bankers, etc., have removed all       condition, fixes them up, and
foreseeable profit from the           then quickly sells them for a
company before it is ever offered     profit. If he or she were very
to the public market. There is a      good, they’d begin taking on
spectrum of investments available     several simultaneous or larger
to you that is dependent on how       projects until they run out of
much effort you are willing to        money to buy any more homes. Once
put into educating yourself,          they run out of money, they start
networking, and performing your       using their credit until that is
own investment due diligence. If      used up as well. Once a
you don’t want to do any work,        successful entrepreneur is out of
you are going to receive the tiny     cash and credit, the only way to
return of a CD or mutual fund in      grow is to partner with
exchange for supporting many          investors. And to entice these
people (in expensive suits) in        investors, they offer higher than
between you and the actual            average returns. [I want to make
business that is making money.        a very important distinction
For people willing to educate         between what I define as a
themselves and put forth added        “start-up” and an “on-going
effort, they will be sitting          business”. A start-up is a few
across the table from business        people that only have a business

idea who want to spend your money     products overseas; or invest in a
instead of theirs – never invest      developer that splits large plots
in them! Leave these to the           of land into residential lots; or
professional evaluation of a          an investor that packages
venture capital firm. An on-going     privately held mortgages. There
business is already being run by      are many local investing
someone professional who has          opportunities that offer the
current customers, suppliers,         investor greater control than
location, products, or services –     buying public stock, along with
these are the types of businesses     higher investment returns.
you want to invest in].
                                      Direct ownership requires a few
You may be simultaneously             skills that buying a CD or mutual
networking with local business        fund doesn’t require, but you
owners, educating yourself about      will be well compensated for
their industries and the local        developing these skills. The
economy, and checking the             first skill to learn is some
reputation of those with whom you     basic accounting because
are interested in becoming a          financial numbers is the language
partner. Introduce yourself as        of every business. You need the
someone that has been watching        basics to start reading financial
their success, and indicate that      statements in order to evaluate
might want to invest in one of        potential deals. If your desire
their future projects. It could       is to invest in car dealerships,
be a business owner who has four      you need to know the difference
retail stores and that you’d like     between a well-run or a
to invest with them to open their     poorly-run dealership from
fifth store; or the owner of a        reviewing their financial
local manufacturer needs some         statements. The next skill is
capital to startup selling            networking to locate deals – get

your phone ringing, business card     people who will steal your money
circulating, and e-mail account       and disappear or people that mean
filling with potential deals.         well but are unable to
Private equity and debt financing     follow-through and build a
is normally offered to family and     successful business. In either
friends, then acquaintances; and      case, your hard earned money is
this will only happen if you are      long gone so you should take
meeting people and talking about      great pains to get independent
what you are looking for. The         third-party verification of all
third skill is performing due         the facts and history that you
diligence; which means                can.
independently verifying as much
as possible about the individual,     I personally know a few people
the company, and the transaction      that have built their wealth with
so that you can be reasonably         the high returns from private
confident in getting paid in          placement offerings, and wouldn’t
full. Few local private offerings     invest in the stock market due to
will have a prospectus written by     the lack of control and lower
teams of lawyers and accountants      average return. If you have the
who have dissected the offer, so      willingness to put forth the
you, personally, have to do the       effort, great returns can be
work. No matter if this is a          yours as well.
relative or a friend, there are

About the Author:

Francis Kier has an MBA in finance and shares his two decades of experience with investing and personal finance. More of his articles are available at http://investing.real-solution-center.com.