In this episode she reveals two case studies that share one main similarity, but differ in every other way imaginable. While it may appear that they both take home around the same staggering amount, the principles and strategies they employ with that number are the true gamechanger. Kulkarni walks us through how Billy the lawyer and Tom the chef come from completely different mindsets, and demonstrates the impact those mindsets create in terms of financial freedom. If you’ve always been one to keep up with the Joneses, this episode may be the one to flip your viewpoint around.

Timestamps:
00:24 | A Tale of Two Case Studies
01:56 | Meet Billy
04:03 | Billy’s Rules For Investing
09:48 | Feeling Like a Fraud
11:50 | Tom’s Tips
15:25 | Consistency is Key
19:40 | Just Your Average Joe (or Tom)
24:27 | Articulation Will Set You Apart

Resources and Links:

[00:04:03] If I were to describe what Billy does in terms of investing rules: Number one, he buys assets and he waits. So he buys assets, he never sells. He is certain that the highest net worth wins. And he's told that the game plan is to invest and keep growing his net worth until he gets a trickle of income. 

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. In this episode she shares two case studies that share similar features and financials, but once we peel back the layers, we see they’re as different on the inside as their protagonists are on the outside.

Tyrone Shum:   

Kulkarni has heard her fair share of stories about mainstream wealth building over the years. These case studies may look like twins from the outside, but the individual cases couldn’t be less identical. It’s time for the traditional way of thinking to face off with the new way of thinking, where no matter your style, there will always be something you can learn from the other side.

Salena Kulkarni:   

[00:00:24] You and I have talked off camera a fair bit about things that we keep hearing about in mainstream wealth building. And what I thought would be really useful is just to share two stories, or two case studies, of people. Most people will relate to at least the first person. 

 

[00:00:46] And then I want to reframe and tell you a different story about how to break away from that, to really amplify your results with a fraction of the effort and capital, because I think that's really what people want to hear about. Everyone gets the old rules, but what is the new way of doing things?

Tyrone Shum:   

[00:01:06] And the beautiful thing about this is that we can look from hindsight of someone who has been through there, rather than us hav[ing] lived that journey for 45 years or 50 years to lead into retirement. We can actually see from someone's journey who has been through that stage, and they can give us that kind of wisdom, saving us time having to achieve that. Because no one wants to live 40 odd years to reach the stage and go, 'Hold up, I built this portfolio, but then I don't have anything to live off'.

Salena Kulkarni:   

[00:01:34] I want to say with a big asterix up front, I've changed the name of who we're talking about to protect their anonymity. But the person who I'm talking about has heard me describe this and has a laugh, because he recognises that that's him. 

Salena Kulkarni:  

[00:01:56] Hopefully you'll be able to, for people who are watching the video, show the image, but that young man in the blue suit— or imagine a young man in a blue suit is maybe the better way to go— this guy's name is Billy. 

  

[00:02:10] He's a lawyer and he graduated top of his class. He's now stepped out to set up his own law firm. Life's pretty busy, money rolls in pretty freely, but his overheads are very high. Keeping staff is really challenging. And he sees that the best way to compete is just to pay people top dollar. 

  

[00:02:33] The finances of the business are watched carefully by his accountants. But this guy spends very little time on his own personal finances. He is ambitious, he wants to be wealthy. He doesn't actually know what that means. He takes home about $350,000 per annum as the managing partner. His wife is a teacher and earns roughly $50,000. 

  

[00:02:59] He has a $4 million mortgage. He has car leases of about $5,000 a month, and sends three young children to private schools. So effectively, if we carve up how he spends his money, the interest on his mortgage is about $120,000. Car leases are about $60,000. School fees are about $100,000. So that leaves him about $120,000 to pay bills and groceries and entertainment and he uses all of it.

Tyrone Shum:   

[00:03:28] Wow. So just to clarify, he's earning $350,000 [per] year plus his wife's income [is] $50,000, is that after tax or before tax?

Salena Kulkarni:   

[00:03:37] I'm talking [about the amount] he takes home after tax.

Tyrone Shum:   

[00:03:39] Wow. Okay, that's substantial. So he's obviously earning more than $350,000 then, before tax.

Salena Kulkarni:   

[00:03:46] He also gets a bi annual dividend out of the business, which is another $120,000. And what he does is he uses that to pay off credit card debt, which leaves him about $80,000 after tax to invest. That's kind of the summary. 

Salena Kulkarni: 

[00:04:03] If I were to describe what Billy does in terms of investing rules: Number one, he buys assets and he waits. So he buys assets, he never sells. He is certain that the highest net worth wins. And he's told that the game plan is to invest and keep growing his net worth until he gets a trickle of income. And he's told, 'Set and forget, buy investments, and get on with life'. So he does that. 

  

[00:04:31] Number two, he's not interested in investing in itself. And so he outsources all his decision making. He believes the highest return is in his business or in his work, and he asks his doctor clients who he should work with. And he finds a well dressed financial planner to handle his investment decision making for him. 

  

[00:04:55] Number three, he grows lifestyle with income. So he likes looking wealthy. He also likes the finer things in life. He turns over his cars every two years. And he has to have the latest and greatest of everything. His neighbours are bankers and business owners, and they all seem to be a little bit more successful than he is, and he just wants to fit in. 

  

[00:05:20] Number four, he invests only in traditional investments. His advisor tells him about the 4% rule for retirement, which is that if you spend at about 4% of your retirement capital, it should grow faster, and you should stay ahead. And he gets encouraged to invest in traditional investments, which will give him the capital. 

  

[00:05:44] Number five, he pushes to grow income. So in quieter moments, Billy wonders if his net worth should have been higher by now. He dismisses it and decides that the best solution is really just to focus on growing his income. Surely, if his income keeps going up, then the wealth will follow. 'There's more time to invest later' is the thinking. 

  

[00:06:07] And then idea number six: Strive for the highest returns. So Billy goes out, and he engages a buyer's agent. He sees the point of using the buyer's agent as a tool to find the best deals. And the buyer's agent keeps on putting deals in front of him that seem mediocre, so he passes on those. He wants to find a gem, a bargain. And he only wants to invest in properties that he can buy at below market value. So he sees that as the home run. His mindset is: Strive for the highest returns. 

  

[00:06:45] Then number seven, he goes, 'Okay, I'm going to watch the profit and loss of my business like a hawk'. But he just pays no attention at all to his personal balance sheet, or the profit and loss from his personal passive income. He doesn't look at anything other than the bottom line on his tax return, he has no ideas which assets are performing and which ones aren't. Growth is slow, and the highest return on investment is in his business so he just doesn't care about anything else. 

  

[00:07:18] And then number eight, carrying lemons. So, he's bought a few houses by this point. The banks are happy to keep lending him the money. Most of the properties that he's bought haven't been part of any kind of plan, but they've been sort of random purchases based on glossy brochures or random advice from well intentioned friends. 

  

[00:07:41] Because he hasn't had much in the way of funds to contribute to each property, he's been restricted to buying in high density areas, and he's predominantly bought units off the plan. Some of those have had little to no growth, even after years of holding them. So the maintenance is starting to kick in. And he's been holding for so long now that he worries that he might miss the growth if he sells. And even if he freed up the capital, he wouldn't actually know what to do next.

  

[00:08:15] This next piece is: He doesn't know who to trust. So that's number nine. As time passes, he becomes more and more sceptical about his financial planner, and he realises that he's getting pushed into products that reward his financial planner, that don't necessarily align with his best interests. 

  

[00:08:36] Recent market turbulence has wiped out a lot of the profit that he made in recent years, and he's starting to get anxious now about the gap between what he's actually got and where he thought he'd be by now. And he knows if he's honest, that his wealth knowledge is poor. But he just doesn't know who to trust and he has no investing rules, and he doesn't know how to ask the right questions. 

  

[00:08:59] And then finally, number 10. As Billy approaches retirement— and you can share that photo, Tyrone— he starts to realise that the capital base he has isn't going to create the income he needs to support his retirement. So he starts looking for investment opportunities that will grow his wealth quickly. And he starts thinking about taking on big risks at the wrong time. 

  

[00:09:26] Things he would never have considered before suddenly seemed like his only option. He's got some friends who are looking for seed capital in their business ventures. And he just needs some quick wins. Finances are not discussed between him and his wife, and she assumes that money is plentiful, and that retirement plans are all set. 

Salena Kulkarni:  

[00:09:48] In summary, Billy has spent most of his life appearing wealthy. He has a high net worth on paper, but he still only has one source of income. He feels like a fraud. And he knows deep down, he could have done things differently. He regrets his investing decisions that he didn't take. And he tries to console himself that his lifestyle was worth it. He tells everyone around him that he's happy to keep working. But he's tired. So that's Billy.

Tyrone Shum:   

[00:10:20] Wow. And I have to add, by looking at the photos— if you want to hop on to the website it will be posted up there— he looks very, very sharp. Nice blue suit, he looks very well dressed. And I think he looks like he's a very, very successful lawyer. It'd be interesting to see what people think as well, too. But I think he's definitely got some great appearances there based on his wealth. But as we've seen, this is the true story behind who he really is.

Salena Kulkarni:   

[00:10:48] And you'd have to admit, Tyrone, that that's not an uncommon story, is it?

Tyrone Shum:   

[00:10:54] No, no. You and I've discussed this in great lengths. There are a number of well known people, successful people who are like that. And sometimes you've just got to question and ask whether or not that is what they really, really want. Or are they just like Billy, who are feeling tired, but just trying to be the Joneses, and keeping up with the appearances?

Salena Kulkarni:   

[00:11:16] I think to kind of give this a sharp contrast, let's actually talk about Tom. So I want to kind of reframe and tell you how some people are breaking away to create, as I said, massively amplified results in a fraction of the time, effort and capital. 

 

[00:11:36] So in that photo, on the right hand side, at the top, we've got young Tom there. Tom didn't go to university, he decided instead to start working in a cafe and eventually became a chef. 

 

[00:11:50] He was 27 when he started his first cafe. He built most of the furniture by himself. And he took minimum wages for a couple of years. By the time he was 32, he'd opened another four cafes and was consistently generating profits after tax of about $450,000. So pretty similar to friend Billy. 

 

[00:12:11] His now-wife worked with him in the cafe and managed the books. And he paid them a combined wage of about $150,000 and then allocated all of the balance to investing. So they had a modest home with a mortgage of about $500,000. And they saved most of the dividends that he was paid. 

 

[00:12:32] He drove a late model Japanese car, and he sent his three kids to the local public school. So that's Tom. Tom's mindset and rules for investing. So, number one: Track the right measures. So Tom was always really clear that he wanted a passive income that would cover his living expenses. And he estimated that to be about the $150,000 mark. He describes that as life altering wealth. 

  

[00:13:04] [He] and his wife agreed that if they could build a passive income to that figure, then they would retire and focus on artistic pursuits. He hopes that he can sell his cafes in the future, but he actually doesn't want to rely on that to reach financial freedom. 

  

[00:13:21] This guy had been an active investor since he was a teenager. And he realised very early on that building net worth by itself wasn't enough. So to reach his goal, he has to watch his numbers and track his personal wealth. So tracking the right measures was very important to him. 

Coming up after the break, we dive into Tom’s mindset and rules for investing…

[00:13:42] He started thinking in terms of minimum viable capital. So Tom is not at all fazed about looking wealthy, as you can tell. 

Why he prefers alternative investments over the more traditional options…

[00:16:09] He likes alternative investments that are backed by real property to really push up his passive income. 

She explains how when trying to summarise everything she’s learnt, it all seemed to boil down to one principle.

[00:21:29] I should sort of put a big caption that there's no judgement in either of those. But it's really easy to look at someone who lives in a great house, drives a great car, and go, 'Wow, they must be killing it'. 

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

Tyrone Shum:
Our second case study features Tom, a chef who prefers to spice up his life with alternative investments over the traditional offerings that his counterpart Billy uses.

Salena Kulkarni:   

[00:13:39] The second thing that he did was, number two, he started thinking in terms of minimum viable capital. So Tom is not at all fazed about looking wealthy, as you can tell. He thinks in terms of what is the minimum amount of capital I need to accumulate to generate the kinds of returns that will give him that income that he wants. He regards anything above that number as a total bonus. 

  

[00:14:04] Number three: He recognises that it's important to build a pipeline of deal flow. So at the beginning of his investing journey, Tom's figuring out everything on his own. He's a lone wolf. It's really slow and it feels like hard work. And then he spends all this time talking to other investors, studying the Internet, trying to figure out what are his options.

  

[00:14:28] And as his income starts to rise, he starts levelling up and taking on advisors and mentors to speed things up. But he never ever lets anyone else make decisions about his money. He knows that everybody means well, but they will never care about his money as much as he does. 

  

[00:14:44] So he learns to ask pointed questions, to make sure that all the people that he relies on not only know their stuff, but walk their talk. He wants to follow the recipes of master chefs, and not self proclaimed gurus. 

 

[00:15:01] We start to meet some good people along the way, who can connect him to the kinds of investment opportunities he needs. And he realises that those people become his most prized resource. He's busy. Work is very intense. So he wants a network of A grade investors that can help him build a pipeline of deals that he can just tap into whenever he's got the money. 

 

[00:15:25] He does hear about investors making crazy returns on exceptional opportunities. And he's tempted, but he decides to focus on consistent deals that are easily replicable.

  

[00:15:38] Number four: Wealth is a three part game. So Tom figures out that there's three parts to the wealth game. The first part requires him to find investments that grow his capital. The second part is about finding opportunities that increase his passive income and reduce his timeline to freedom. And then the final part is about structuring all of his investments so that they form a predictable sustainable income into the future. 

  

[00:16:09] He likes alternative investments that are backed by real property to really push up his passive income. Because he sees that if he chooses those well, they don't require a rising market. And they offer that sustainable, predictable income. And he sees that the reason that the returns in the alternative space completely outperform traditional is because the market's really inefficient. And so it just provides more opportunities for big gains. 

  

[00:16:40] Number five: He learns that he's got to keep identifying his blind spots. He knows that the four attributes he keeps on having to grow are his stewardship and how he cares for money, how well he chooses his investments, his knowledge, and his education, as well as his mindset, his relationship to money, how he thinks about money. He never assumes he has it all figured out. He's always thinking, 'How can I up my game?'

  

[00:17:11] Number six: He learns to allocate capital like a fund manager. So Tom gets to know successful investors along the way, and he starts to think like a fund manager. He knows when he's speculating, he knows how to protect against downside. He thinks about risk adjusted returns. He chooses carefully between cash flow opportunities and growth opportunities. 

  

[00:17:38] Number seven: Stewardship before earnings. So Tom's friends try to tell him, 'Go and start more cafes'. And he loves the idea of earning more income. But he knows that that would come at a price and he's just not prepared to pay it. He values his time above more money. He sees the immaculately groomed lawyers driving European cars that come in to buy coffee, looking harried and stressed out and he assumes they must be mega wealthy. 

 

[00:18:10] Number eight: Bring velocity to money. So Tom realises that the faster he can move his money and reinvest, the more inflated his returns. He keeps good cash reserves, but he's constantly monitoring when his investments can be redeployed, and when he can continue to grow his capital. 

  

[00:18:30] Number nine: Measuring opportunity cost. So as Tom starts to transition his investments to more cash flow opportunities, he's evaluating: How does one investment marry up against another? He knows that by buying more property, he can keep growing his net worth. And he's always weighing that up against investing in cash flowing assets. So his timeline now to financial freedom is approaching three years off. And he's crystal clear on what decisions he now needs to make. 

  

[00:19:04] And then finally, number 10, his rule number 10: Be sceptical of common wisdom. So over his life, Tom sees that common wisdom is starting to fail. Things like the 4% rule in retirement just isn't working anymore. And he starts to say, 'I've seen that there are people around me losing money, and I know that we're moving into a time of high volatility and uncertainty'. So he's very careful about where he takes advice from.

Salena Kulkarni:  

[00:19:40] Ultimately— and that's the final photograph of Tom there— he's quite young, still. He's about 40 here. He has spent most of his life appearing average. He has a reasonably high net worth on paper. with multiple sources of income, including his business. He doesn't worry about money at all. He isn't even sure how his success might compare to somebody else's. 

 

[00:20:13] The contrast is that Billy has spent most of his life appearing wealthy with one source of income. In contrast, Billy had a lot of setbacks. And [he] and Tom, having really started out with very similar income, have ended up in wildly different places because they're thinking and actions are very, very different. So I just wanted to kind of share those. I know this is more of a long story. But I'd love to get your thoughts on that, Tyrone. 

Tyrone Shum:   

[00:20:49] How did you come up with those 10 different rules for each Billy and Tom? Because it's really interesting. Were they observations when you asked the questions to them, or do they convey that to you over the period of time? 

Salena Kulkarni:   

[00:21:05] In putting those case studies together— and it was it was part of a longer training session that we did inside of Freedom Warrior— really, I was trying to summarise everything that I've learnt over 25 years in the two case studies, but that I keep seeing over and over and over again. 

  

[00:21:29] I should sort of put a big caption that there's no judgement in either of those. But it's really easy to look at someone who lives in a great house, drives a great car, and go, 'Wow, they must be killing it'. And then the other extreme, which is, you know, people wearing jeans and torn T shirts or whatever aren't killing it. 

  

[00:21:52] [How] I [came] with come up with those is just through speaking to the same types of people and gleaning that there was a thinking, and a framework that was being adopted, that either worked or didn't work. And I guess for me, the cafe owner fellow who's got clarity on what he wants, has probably a higher probability of reaching those goals quickly.

Tyrone Shum:   

[00:22:28] It's really fascinating, because I guess, ultimately, if the people that want to achieve financial freedom, or wealth, take control of their life, and also goals that they want to achieve, there's a greater chance that they can actually achieve that. 

 

[00:22:43] Because just from what I'm gauging and hearing from these stories, Billy was pretty much trusting on financial advice, and really didn't want to spend so much time building his wealth, because he just relied on someone else. Yes, he wanted to continue to build his business, which is great. And that's his specialty. 

[00:23:02] I've seen this happen to a lot of doctor friends, and so forth. And they've said the same things, that they would rather hand the money over to people, because they're just so busy in their operations, running their businesses, or being in surgeries and clinics and so forth, that they don't have the time and capacity [to] think about this. 

  

[00:23:18] And because of all this wealth that they're earning, they want to trust that someone else can do it. But no one does a better job than yourself at the end of the day, in my opinion.

Salena Kulkarni:   

[00:23:29] That's right. No one cares about your money more than you do.

Tyrone Shum:   

[00:23:32] Exactly. And even if you don't have the knowledge, it's easy to be able to go and find the people to get the knowledge from. But you've got to understand what to do, and also take control. And ultimately, if you know what it is that you want to achieve, then yeah, definitely hire the right people to help you manage that. But ultimately, you've got to make that final decision or that choice at the end.

Salena Kulkarni:   

[00:23:50] I think people look at the stories of Tom and Billy, and they might seem exaggerated. But I've peeked behind the curtain of hundreds of investors, and the stories are much more common than you might think. I mean, obviously, they might not be lawyers and cafe owners. But I think, fundamentally, the way that you need to be thinking as an investor for the next 30 to 50 years is completely different to what might have been accepted as conventional wisdom for the last 30 to 50 years. 

Salena Kulkarni:   

[00:24:27] I think your ability to adapt and change and articulate what your investing rules are is really what's gonna set you apart from other investors. Instead of just accepting, 'Well, this is how it's always been done, so that's what I'll do'— and this is the biggest tip I give people— go out there and find people who have the results that you want and find out how they do it. 

  

[00:24:57] Like, what worked, what didn't? Does it still work? Because you and I have talked about how there are investors who've made millions and millions of dollars with one particular strategy over the last 30 years. And so it can be easy to say, 'Well, that's the strategy I should adopt'. But if you ask them, 'Does that strategy actually still work today?' They'll say, 'No, that doesn't work anymore'. And so that's the missing link. And that's the missing piece that sometimes people overlook.

Tyrone Shum:   

[00:25:28] I'd love to be able to ask you this question as an example, because I agree with you. And that makes sense, because 30 years ago, and even I've interviewed property investors who have built a successful property portfolio 30 plus years ago, and they've been experts in their field as well, talking about property. And I think some of the listeners know who I'm referring to, [a] lovely lady. 

  

[00:25:47] She's written multiple books on that. She says, 'Yes, that strategy is great. But when we actually asked the question in the current environment that we have— and especially when property prices have increased so much— is it possible still to build 20 [or] 30 properties and still be able to generate that kind of income?' 

 

[00:26:07] I'm trying to make a little bit of a comparison, and what I'm seeing is it's gonna be very, very difficult, unless you [have] a lot of spare cash. Wages haven't risen as much to be able to help everyday Australians to be able to purchase that many properties. And even if you do, you will have a large mortgage and will the rent even cover that? I don't think so. Unless you're buying lots and lots of small, lower value social economic properties, or lower price range properties. But then you'd have to buy a lot of them. So you've got to ask, does that strategy still work as well? 

 

[00:26:14] And don't get me wrong. I know a lot of investors who have gone out and purchased so many properties as well, too, and they've done exceptionally well. But that takes a lot of effort and time. And you've got to ask [yourself], is that what you really want to do? Or do you want to spend more time doing other things that could probably achieve you a similar result in a short amount of time without having to put so much time and effort to go and buy so many properties?

Salena Kulkarni:   

[00:27:03] I think the reality that most budding property investors have to face today is that you can only borrow so much money. And that's one of the things I encourage people to get clarity on. If you know that you can only borrow X amount of money for the income level that you have— choose your investments carefully. 

  

[00:27:29] Someone that you and I both admire is someone like Steve McKnight. And he's written a couple of amazing books on building a portfolio in excess of 100 properties. But we know that's really hard to do today. Back in that time, the banks cared less about your income. So you could just keep going and going and going and going. Whereas now, if you know that there's a limit, the question then becomes, 'Well, if I can only buy so many traditional properties, what else am I going to do?'

Tyrone Shum:   

[00:28:01] And you've got to also ask yourself: Is it realistic to buy that many properties? Steve is an exception. I don't even see myself being able to go through that much. Because he is phenomenal in what he does. I mean, even the average investor I speak to owns maybe two or three, at most five properties. To go [to] even 10 is stretching it. And you'd really have to dedicate yourself. 

  

[00:28:25] It's coming to reality to ask yourself, is it possible? And can you do it within your own? Because you've got to ask yourself that question. Because if it's not achievable, or a goal that you can potentially reach, and you don't have belief, you're not [going to] take action. And that's the thing, you've got to make it easy for yourself to take that action step. 

 

[00:28:46] I'm in the same position as well. Speaking to you, Selena, about all these things, is that if it's not achievable for me, I'll probably just put on the backburner and not touch it for a while until I get pushed in some way that I need to do it. So it's also very, very important to look at the mindset side of things. And also to understand that what has happened in the past might not be applicable in today's environment as well.

Salena Kulkarni:   

[00:29:12] I think today was really just trying to bring together a lot of different ideas and different philosophies for how you can approach wealth building. And as I said, there's no right or wrong. It's just really interesting to see that conventional wisdom, it's time for that to be challenged, is my view.

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