In this episode we tackle part two of Kulkarni’s Five Year Freedom Formula. We dive deeper into what your plan should entail when you know the deals you’re after— and what your plan shouldn’t be. She reveals the questions investors need to ask themselves when dealing with alternative strategies, and the point in where they often flounder and let their plans fall to the wayside. Don’t let it happen to you, and remember: this is a no stopping zone!

Timestamps:
00:34 | No Floundering Permitted
02:32 | The Next Piece of the Puzzle
04:54 | Opportunity Costs
07:05 | The Deals Are the Sexy Part
21.12 | They’re Alternative Because They’re Not as Well Known
13:44 | The Mainstream Masses
16:05 | Take Small Bites
19:25 | The Opportunities Are Out There

Resources and Links:
Freedom Warrior
Rich Dad, Poor Dad

Transcript:
Salena Kulkarni:

[00:03:29] So you've got that narrowed down to 'Well, I like this, I like syndications. And I like joint ventures and I like private funds.' And and so then this piece of the puzzle is, well, how are you going to get access to deals? 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode we’re speaking with Amazon bestselling author, chartered accountant, and founder of the Freedom Warrior program, Salena Kulkarni. She delves into part two of her five year freedom formula, which tackles the pain point where many people falter, and reveals the questions every investor needs to ask themselves.

Tyrone Shum:  

Kulkarni recaps our previous episode and details what the second portion of her formula entails.

Salena Kulkarni:   

[00:00:34] Just for those people who may not have heard that previous episode, what I was really sharing about was the five year financial freedom formula that I talk about, in terms of how do you achieve financial freedom in five years or less. Meaning you have the liquidity you want, you've got the leverage that you want, and you've got that capacity to create legacy. And part one was all about the plan. 

[00:01:00] Part two is really all about the deals. So your ability to access deals and create opportunities is ultimately what will deliver consistent, predictable income. So this part two is really saying that where a lot of investors really flounder is they don't create enough opportunity for themselves, and they don't necessarily have access to the right deals.

Tyrone Shum:   

[00:01:28] I'm really excited about this, because this is kind of the stage that I love playing in. Especially what I've been working in. And as you know, and most people will know from the podcast is I love accessing these alternate strategy type of opportunities out there. I guess the thing is, as you said, it's the deal flow. I think there's so much out there in the market, you could go to potentially a buyer's agent and they can help you find another property to buy, you could go to maybe a financial advisor, and they recommend you go and buy shares and stocks and all these other things. 

[00:01:59] The thing is, how do we realise or look at this from the plan's perspective, that would be  suitable for maybe an individual or maybe even the case study that we looked at. Let's talk about that actually, from the previous case study where they had a business and that they wanted to achieve $200,000 passive income from their portfolio, but they are limited because of where they are, at this point in time. What's been the next steps for them to be able to access this or get into these type of strategies?

Salena Kulkarni:   

[00:02:32] Part of the journey around building your plan is really about making clear which strategies are a fit for you and which aren't. So even within the space of traditional and alternative property investing there's dozens of strategies, as you know. And we've spoken about some of them in past podcasts. But the opportunity component of the next stage of this freedom formula is about really answering the question, 'Are you confident that you have access to the types of deals that you need to hit your goals?' 

  

[00:03:08] So the plan is about saying, 'Well, I like these strategies. And they are in alignment with my risk profile, and they're going to get me to where I want to go. So I need this amount in traditional property and I need this amount of money working for me harder at, say, a net return of 10%.' So you've got that narrowed down to 'Well, I like this, I like syndications. And I like joint ventures and I like private funds.' And and so then this piece of the puzzle is, well, how are you going to get access to deals? 

[00:03:44] And so this is a question that has two parts to it. One is how strong is your pipeline? Do you have a pipeline of alternative investment that you can just dip into that deliver that double digit return? Do you know the right people who can help you get where you want to go instead of chasing deals? Do you have a network of people that can just deliver you great opportunities as and when you need them? 

 

[00:04:13] The added dimension to this that people don't think about is: does your network actually help you invest your money well in advance of having it? So one of the things that I like to talk to business owners about is, most businesses have a bit of a rhythm around, for example, 'This is roughly how much money I make each quarter.' And so if you've got a strong pipeline of opportunity, what you can do is you can say, 'Well, I'm here in the month of August. I know that in the December quarter, I'm going to roughly have this amount of capital to play with.' 

[00:04:54] And so what you can be doing in this quarter is planning what you're going to do with that money in the next quarter. And that's really the game that we're trying to play. What I see investors often doing is money burns a hole in their pocket. They go, 'Oh, I've got access to this bank line of credit', or 'I've got cash sitting there.' It's wasting time. People kind of understand that there's an opportunity cost. And so they rush out, and they just want to park their money somewhere. 

 

[00:05:25] And inevitably, and I've spoken to hundreds of investors who've done this, they've committed to a project that really wasn't in alignment with their goals. They've settled on an investment or a property, which maybe is in alignment with their goals, but isn't really going to give them the performance they want. Or they've made a decision based on flimsy due diligence, there's all sorts of reasons that people are in a rush to get into the investment. So they end up being wrong footed. 

 

[00:05:57] And so this concept of having a pipeline and answering the question for yourself, 'How strong is my pipeline? Do I know the right people?' So say, for example, with the stuff that you do Tyrone, if I know that you have a certain availability of deal flow for me, that it earns a certain rate of return, I'd want to be talking to you now, in relation to money I'm gonna have next quarter. I don't want to be leaving it to the enth hour because I want to be on your radar. The reality is  grade epic deal flow is limited. There's no question. So it's really about tapping into the right people with the right opportunities. 

 

[00:06:37] And so the second part of opportunity and deals is: have you been active in fostering a network of exclusive relationships? Do you have access to A grade dealmakers who can hand you premium investment opportunities that aren't available to the masses? Do you know the right people who can help you so that you never have to chase deals or waste time sifting through opportunities? 

[00:07:05] And then the third part of this, which again, a lot of people overlook, is: does your network help you navigate challenges in the market? So for me, my trusted advisor network serves two purposes. One is the deals, which I know is the thing that everybody's most concerned with, because that's the sexy part. But the other part of it is these guys that are in the trenches. They have their finger on the pulse of what is happening in the market. So I go to them for wisdom and guidance around things that could potentially upset my applecart. 

[00:07:40] They give me a sense of, 'Salena, this is becoming overheated, we think that the opportunity needs to shift here', or, 'Here's a defensive way to protect against this happening.' And you can never have all the answers, and there's no crystal ball. But having a relationship with a lot of people who are known as being number one in the world for that strategy— that's what gives you the edge. And those are people that you want to cultivate as friends for life. I think we worry too much about what's the one deal you can hand me today. And my attitude is: how do you play the long game with people? How do you build relationships that will endure?

Tyrone Shum:   

[00:08:22] I totally, totally agree. And it's so, so important, because it's the same thing with Property Investory. We've been very, very fortunate to have such a wide range of guests come in to the show. And because of that, I've met so many great relationships in the huge network of people and investors and developers and so forth, to better tap into, and call. We can ask them for advice or knowledge, or share their wisdom with people and help us to be able to find those potential deals out there. 

 

[00:08:51] So it's so, so important to cultivate that. Because ultimately, one, once you've got that relationship, then there's that trust, and it would save you so much time having to go out and do that all yourself. And when we talk about property, especially property investing, it's all about building a strong team around you, because you can't do everything yourself. You can be an expert at one thing, but it's just impossible to be an expert at all things in property, and there's just so many moving parts and components within property that make it a fun game, but also quite a challenging game at the same time as well. 

 

[00:09:24] I can give you an example. Recently, I've been working with a few deals that we've been putting in and helping investors go into, and there's so much legal involvement that we have definitely been very heavily reliant on a lawyer to be able to put together the deal. And if it wasn't for him, there's a lot of little clauses that we would not have been able to understand and see. We only notice to an extent, but by relying on them heavily, we know that they can handle that and ensure that a deal goes through correctly. 

 

[00:09:52] That component in itself is already a huge part, and a major part that I think I totally agree that's so, so important. I also want to ask a little bit and maybe for listeners out there who may not understand the differences between traditional and alternative investments. And I know we've talked a little bit about this in previous episodes, but maybe let's just quickly touch over traditional, to explain to people what that is. And then what alternate investments are as well.

Salena Kulkarni:   

[00:10:20] Traditional investments are the ones that we all know and love. Traditional investments are the ones that are often heavily regulated. So stock market shares, things like that, bonds, those sorts of things, managed funds. And then in property— property is a funny one. To some degree, it's less regulated. But I think of mainstream property investing as being part of the traditional investing mix. 

Coming up after the break, Kulkarni further explains the differences between traditional and alternative investments...

[00:10:49] In other countries, property in itself gets discussed as an alternative investment. But for the purpose of what we're talking about, typical buy and hold developments, those sorts of things, I just put that into the traditional space.

The ideas investors need to grapple with...

[00:14:36] I think part of the challenge that you have, once you start looking into alternative investing, you see that there's no shortage of people telling you that there's great deals out there.

Her advice to anybody beginning a new type of investment strategy.

[00:16:05] My starting point with people is, regardless of where you are financially, people often come to me and say, 'I want a really fast result. And I'm an action taker. And I'm going to deploy all my capital in a very short space of time.' 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Kulkarni elaborates not only on the differences between traditional and alternative investments, but also those between Australia and other countries.

[00:10:49] In other countries, property in itself gets discussed as an alternative investment. But for the purpose of what we're talking about, typical buy and hold developments, those sorts of things, I just put that into the traditional space. And the returns on those can be wide ranging, but typically— even commercial property I would put into traditional— but I think the difference for me around alternative in the context that I use it is alternative is to do with, number one, the type of strategy that you employ. But number two, the outcome that you're after. 

  

[00:10:49] So often with traditional investments we're after a capital return or growth. Not necessarily though, but alternative investments are, for me, the pursuit of annuities, of income streams. So that for me is the definition there. They're not as well known. There's not as much information out there on them, they're more difficult to access. They're not necessarily more risky, but you do need to have a certain level of education around them before you probably get involved in them. Is that deep enough?

Tyrone Shum:   

[00:12:08] That's awesome. I think that's a very, very good summary to explain what the differences are. And it really leads me into my next question about the alternate investments. And as you mentioned, they are harder to find, and I can talk from personal experience, because I've been investing in property and also shares and so forth since I was a young teenager, now my parents got me into shares, investing and so forth and property at a very young age. 

  

[00:12:34] And when I started looking for passive income, especially reading from Rich Dad, Poor Dad how I was saying he's generating 10%, compounded every year from investments and stuff like that— I started going to the market to try and find these, and I couldn't find them at all. It's just so hard. It's just not offered in the larger institutions. It's not talked about in the bank. And even if you just go to a bank nowadays, to try and get a term deposit, you're probably getting a return maybe about five or 6% per annum. And that's the best kind of thing that you can get with your money. 

[00:13:08] And luckily for us, because we've dealt with so many different things, we've been through development, we've been speaking to overseas, US property investing and so forth, these opportunities start to come up and you start to realise, hold on, they're actually there. But it's just a matter of who you know, and how you get into them. 

  

[00:13:26] Would you agree that's probably one of the reasons why it's been difficult to get access to these kind of opportunities? Why do you think it's been challenging for a lot of investors out there? Because a lot of them just in a buying property instead, because they can't find these kind of continuous streams of income.

Salena Kulkarni:   

[00:13:44] Alternative, as the way I use it, is alternative because it's not mainstream. It's not talked about for the masses. And I think what I advocate is: how do you blend the best of what's there with traditional with alternative? That's the ultimate, because it allows you to keep one foot in a camp that you know, and you're familiar with. And it allows you to then just use a little. I'm really suggesting people put a very small percentage of their wealth into alternative in order to amplify cash flow. 

[00:14:17] The real art that I'm trying to really suggest people get their head around is: how do you blend? How do you take the best of what's available to you in your own local market, with what's available in circles and markets that you're less familiar with? So I think part of the challenge that you have, once you start looking into alternative investing, you see that there's no shortage of people telling you that there's great deals out there. The challenge is sifting through and separating the sharks from the legitimate deal makers. And there's no question. It would be very easy to lose your shirt if you put your faith in the wrong people, as is true with any investing to be frank.

Tyrone Shum:   

[00:15:06] And that's the challenge. And that's what we've discovered as well, working with various developers, various different types of entities that we've dealt with. When we do our due diligence, that's where you really find out which is actually a good deal and which is not. And hence the reason why there's a specific criteria that we look out for before we jump into any of these. Otherwise, we wouldn't be even looking at them ourselves as well. 

 

[00:15:30] What's also interesting as well, I wanted to talk about is, maybe we can talk about the case study that we've had already discussed in the previous episode, or previous podcast that we did together. About this couple who looking to achieve $200,000 income, but they only currently have a portfolio of about $5.5 million, generating about $60,000 income from there. How have you there to help them, in this scenario, to be able to look at alternate strategies? And maybe if you can give an example of what they've done in that five year plan compared to that 24 year plan.

Salena Kulkarni:   

[00:16:05] My starting point with people is, regardless of where you are financially, people often come to me and say, 'I want a really fast result. And I'm an action taker. And I'm going to deploy all my capital in a very short space of time.' I always go full circle and say, 'Look, it's very hard for me to knock the accountant out of me, but my general view is, educate yourself. Tread carefully and take small bites of the cherry.' 

  

[00:16:36] What I like to see people do is, you're learning a new kind of investing. It's not one that's spoken about, it's not one that people know a lot about. So, tread carefully. Build your confidence. Because what I'm really clear about is, I'm not going to make decisions for you. You need to be in the driver's seat for the money that you invest. My job is to be the guide, to hold your hand and help you make good decisions. But I'm not going to make the decisions for you. 

 

[00:17:08] So what that means is, there's a big component here, which is around understanding. And the education piece and growing your understanding of the investment opportunities themselves. But I feel like my role is to help people step up and play a bigger game in terms of wealth in general. Because one of the things if you start studying famous characters over history who have been good at building wealth, what you see is that building wealth is one thing, keeping it is completely something else. So the sustainability of the wealth that you have, protecting it, helping people who come into your world, whether it's your children or your grandchildren, or causes you care about. How do you foster stewardship in your tribe so that you have a higher probability of that wealth enduring?

 

[00:18:01] So with this particular couple, I was encouraging they take small bites of many different cherries in the first year. It's not about just dumping a whole lot of money into one deal. It's like, 'Let me put $20,000 over there, let me put $50,000 over there, let me put $100,000 over there. Let me understand and get to know all these different deal makers.' So it's a slow and methodical process, which as they start to build confidence up to see how the deals work, what the paperwork looks like, the mechanics— then they can start to ramp up their position.

Tyrone Shum:   

[00:18:42] And that's a very, very good strategic, but also safer, in my opinion, a safer way to approach it. Because the last thing you want to do is throw your money into one deal, and then something goes bad. And I've always recommended that to a few of our clients that we've worked with as well, too. 

[00:18:58] I had a client who had over $800,000. And she initially said to me, 'Look, let's just put on this one deal.' And I said, 'No, don't do that! It's too much. Spread your eggs into separate baskets. So if one does delay, or there's different things that happen, or there's a worst case scenario that happens, then at least you're protected because you've got other deals that are bringing in additional income as well, too.' 

The Opportunities Are Out There  

[00:19:25] We plan for the worst, we always do, and hope for the best. And I guess at the end of the day, you do whatever you can to mitigate the risks. You have legals in place, you have contracts, you have all the people, yada, yada, yada, but you can never ever know what's going to happen because no one has a crystal ball. So that is a very, very good and smart strategy to approach, rather than just jumping straight into the first one that you see. And as Selena said, there's plenty of opportunities out in the market. It's just a matter of finding the right ones. And that just takes a bit of time. 

[00:19:56] I think this is fantastic that we talked about alternate strategies in this episode, and it really ties really well. Because once you've got this plan, the next thing is, okay, let's take some action to work out what's going to be the right alternative strategies or alternative investments that will actually help you fast track to where you want to achieve. So, Salena, in the next episode, what are we going to be talking about in part three?

Salena Kulkarni:   

[00:20:20] Part three of the Freedom Formula is really the autonomy piece. How do you put yourself in a position where, instead of having no choice about whether or not you run your business, you put yourself into a situation where if you sell your business for a high ticket price bonus, if you don't— it doesn't matter. But it's about if you want to keep working, not keep working, but it's about that capacity to have choice and how we achieve that.

Thank you to Salena Kulkarni, our guest on this special episode of Property Investory.