February 22, 2010

Where the REAL money is made

I have had some amazing opportunities to meet with some billionaires and multi-millionaires this year. These are all extremely successful people that have worked very very hard to get to where they are today, and I have learnt a lot from all of them. I have seen some trends with the way they have made their money, and when it boils down to it, there aren’t that many ways of really making huge amounts of money consistently. Basically you can:

  • Create a business that satisfies a market need, scale and optimize it to infinity.
  • Create a website or service that has an amazing product, or is advertising driven, and grow it 1000x.
  • Invest in stocks, bonds, shares and funds and watch your money grow.
  • Invest in real estate.

I am going to cover what I think about each of these ways of getting rich, and why the best and often easiest way to enter the world of the super rich is by using the last option – real estate. NOTE: I’m not saying that any way is better than the other, but what I am saying is that – if you take the average case – real estate is the best field to get into and make your money work for you.

Creating a business

I love business. I love my business. I wouldn’t have it any other way – I love the control, the creativity, the variety and the networking opportunities. But lets face the facts – only 1 in 5 businesses are still alive by their fifth year.

With so many thousands of businesses started every year, you really need to hit the right sweet spot to become truly successful – to be the next Google or Facebook, you need to be that one in a million. Its a hard journey, and if you don’t have an entrepreneurial mindset with the right mix of social skills and real passion, you aren’t going to succeed in business.

Creating a website

If you think creating a business is hard, imagine creating a website that has 100x the competition. There are thousands of new websites created every day. How many truly awesome sites can you list, that you are willing to pay for and use? I would probably have a list of about 100 or so – but compare that to the 200 million or so other websites that are also competing for people’s attention, and you need to be something absolutely exceptional. Don’t expect to be the next Twitter or Youtube – this happens much more rarely than you may think.

Many people don’t actually realize how much funding is given to Internet startups in Silicon Valley. Every day, there are new companies launching with the “next best thing” – filled with MIT and ex-google engineers, and loaded with millions of dollars in VC funding. And almost all of them fail. If you think you can compete with that, go ahead.

Trading in stocks

I have invested in an excellent fund that tracks the stock market’s biggest shares. I’ve made 30% in the past year, but chances are I won’t get a return like that for at least a few more years.

On average, you can expect to make 10-15% yearly from the stock market if you don’t take massive risks. This is 5% or so less when you take into account inflation. That means that unless you’re starting with a massive pile of money, its going to take a very long time to accumulate your wealth. Even with compounding, your $250 dollars a month into that trust fund won’t make you a billionaire.

Another option is to invest in an actively managed fund – but by now studies show that most funds give you less returns than the stock market on average, even though they are managed by professional fund managers! More often than not, picking random stocks gives you better returns.

The last option is to take risks and actively pursue shares – which is really a full time job in itself. It can be highly lucrative – but remember, the system works against people with relatively small amounts of money. Markets are moved behind the scenes by massive corporations, and I don’t trust any of them. You need to be in the loop all the time, because you are competing with billion dollar corporations hiring the most intelligent stock analysts in the world.

Your alternative – real estate

Ahh, real estate. There are several things I like about it:

  1. Its a basic human need. People always need to live somewhere, and more people are entering this world by the minute.
  2. It has a low barrier to entry. It is much cheaper investing in a small property than starting a business, in many cases.
  3. It is pretty hard to screw up. If you follow some basic rules, and know a few connected people, its not that hard to invest in the prime areas.
  4. Its fun. Almost as fun as owning a business I would think. You get to meet people, be creative about renovations, explore new areas – whats there not to like?
  5. You can do it with almost no money. Many books and white papers are available on the subject, but the bottom line is you don’t need much money to buy into property.
  6. Most of the time, the value will go up. Some of the time, the value will increase astronomically. Real estate consistently increases in value in most areas, so it provides excellent returns.
  7. It has a great snowball effect. Starting in real estate may take a few years and is usually slow in the beginning, but once compounding kicks in you can grow it exponentially. I met someone recently who grew his net worth from 30 million to almost a billion in just under 15 years with smart property investments.

So the bottom line for me is, real estate is the easiest way to get into living your dream. You don’t need massive amounts of money to get started, nor do you have to be a budding Einstein. I want to get into the market in the next year or so, because I believe its a fantastic opportunity.

NOTE: There are people that have made a killing from each method of getting rich. I will probably use all of them at my disposal in the future. My point in this article was to illustrate that, for the average man, real estate is the easiest barrier to entry to get started with accumulating your wealth.

Whether you think I’m a business prodigy or a naive ass, I always love hearing your thoughts below!

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  1. Darren February 23, 2010 at 4:47 pm

    Very good, getting down to basics. Good idea to give them all a try, and don’t forget to have fun along the way. :)

  2. ceo February 23, 2010 at 5:12 pm

    Thanks :) They all have merit and one shouldn’t discount any of them.

    Unfortunately its not always that easy to have fun all the time, but in general it should be exciting and you should be passionate about it.

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