In this episode we delve into why alternative investments aren’t usually at the forefront of peoples’ minds, despite their ability to catapult investors and their net worth to the next level. However, she also has a lot to say about how much net worth is really worth— or isn’t. Plus, predictable cash flow and passive income take centre stage as she details how a couple reached a $4 million net worth through time rather than taking an extreme approach.

Timestamps:
00:29 | Red Flags
02:32 | The Real (Life) Deal
05:02 | The Five Buckets of Strategies
07:17 | Efficiently Searching for Exceptional Deals
10:51 | Accessing Assets
12:30 | The Three Phases
17:26 | Hear Me Roar
19:21 | What Now?
28:12 | Wealth Imposter Syndrome

Resources and Links:

Transcript:
Salena Kulkarni:

[00:05:39] In my experience of years of buying and trading shares, and being a long term investor, I think traditional property is fantastic for developing capital and net worth. But it is really, really hard to get a comparable income stream from traditional property without trying to step outside the norm and do other things. 

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 delves into why lucrative alternative strategies aren’t always as straightforward as they may seem, but if you play your cards right, you can walk away with more freedom than just the financial kind.

Tyrone Shum:   

Despite alternative strategies offering such attractive possibilities, these methods of investing often fly under the radar. With so many investors looking to make incredible returns, how is it possible that alternative strategies aren’t more popular? Kulkarni has some theories and some examples.

Salena Kulkarni:   

[00:00:29] I was asked recently, during one of my blueprint strategy days, by someone, and I'll tell you about their situation. But basically, they were saying, 'This stuff is mind blowing. But if these alternative strategies and alternative investments are such a game changer, and if they're so lucrative, how come more people aren't doing them? It's almost like that becomes a red flag, if anything'. 

  

[00:00:48] And so I think it's really worthwhile to have a conversation about [how] there's lots of good reasons why more people aren't doing these kinds of strategies and deals.

Tyrone Shum:  

[00:00:56] And I totally agree with you, because it's not going to be for everyone. And that's the same with any type of investment opportunity, because there might be people who are pro shares, pro businesses, pro property, and it might not suit their risk appetite and so forth. 

  

[00:01:05] But this is the great topic, or this is the great podcast, that we can actually unpack this. Because you may not have crossed this or thought about it in your own journey. And I guess the thing is we're just trying to help you to have a think about more if it's something that you might sort of consider as part of your strategy and as part of your investment. 

  

[00:01:20] Because, as I said, it's not gonna be for everyone. But for people who have never really considered or thought about it, but don't really quite understand how it works, then this episode, I think, is probably going to be ideal for you, because we kind of unpack it and explain what happens. 

Salena Kulkarni:   

[00:01:26] Maybe a good starting point is actually to explain what we mean by alternative investments.

Tyrone Shum:   

[00:02:11] Yeah, let's jump into that. And let's just talk about alternative investments. I mean, there's so many different options, which we've done a specific podcast on. As you as most of you know, I'm mostly focused in the lending space, which is another alternative investment, but there's so many other ones, which I think I'll let you talk [about] because you're more familiar with those ones. Selena?

Salena Kulkarni:   

[00:02:32] When you talk about alternative strategies and alternative investments, that definitely conjures up images of hair-raising deals [that are] high risk, high reward. And certainly those are true. And alternative investment or alternative assets as an asset class is a very broad terminology.

  

[00:02:55] The deals that you and I tend to love more than any of those others are alternative investment strategies that are backed by real property, meaning there's an actual bricks and mortar securitised asset behind the deal. 

  

[00:03:10] And so for people who love property, alternative investments, in the context of how we talk about them, is a really easy, natural extension. Because you understand that alternative investing— when it's backed by real property— becomes a much safer asset class. And in a lot of senses, these strategies don't carry the same risk profile as a lot of your traditional developments or buy and holds, because you're participating in those deals as a passive investor and allowing somebody else to run the deal.

Tyrone Shum:   

[00:03:44] That's what I love about this space. Don't get me wrong: Still, for me, I still love property as it is, I still love property development. And Salena just as much, I know she's still involved in numerous property developments and has her own portfolio and so forth. This is just an add-on percentage of all the net assets that we've done to be able to help us accelerate parts of our property journey. 

 

[00:04:08] And I guess it helps you shave some time off to get to where you want to go. And this is where we're going to talk about it in a lot more detail, especially with an example that we've got coming up. But what I love about this is that it can be for really any market because you're not having to just wait and see the cycles of the market. This gives you an additional, let's say, income, or maybe some extra growth at any time at the market. And because these things are set up differently, it can actually allow you to tap into a different way of looking at investing as well. 

  

[00:04:42] So maybe, I think giving people examples of what the alternative investments strategies look like will probably give peoplea bit of understanding what these look like. So as I mentioned up front, lending is one of them. There's joint ventures, there's other ones that you probably can share as well with the audience, which you're a lot more familiar with as well. 

Salena Kulkarni:   

[00:05:02] I'm certainly happy to go into the five buckets of strategies. There's small private funds, there's joint ventures, there's syndications, lending opportunities, and then actual direct turnkey property. And I think we've covered that in a couple of other podcasts in the past. 

  

[00:05:20] But when we use the language around alternative investments being very lucrative, I think it's really important to give that some context. One of my primary reasons for investing in alternative is that I can develop really strong predictable cash flow, passive income. 

  

[00:05:39] And in my experience of years of buying and trading shares, and being a long term investor, I think traditional property is fantastic for developing capital and net worth. But it is really, really hard to get a comparable income stream from traditional property without trying to step outside the norm and do other things. 

 

[00:06:04] And so when we use the language like alternative investments being lucrative, I think it's worthwhile explaining that lucrative in the sense of developing really strong, predictable cash flow. 

 

[00:06:17] And to address the question of 'Why aren't more people doing this?', one of the key reasons that more people aren't doing alternative investments is that they are not part of mainstream investing. And when I say that, what I mean is that it sits outside of the share market, it definitely sits outside of mainstream investing. And so what that means is that the trusted advisors and the network that I have that specialise in that space, they're operating in very inefficient markets. 

  

[00:06:54] Now, even though people understand that the share market, for example, is relatively efficient, meaning when information is released to the market, it's automatically reflected in the price of the share, to some degree. Although property, and real estate in our part of the world anyway, has historically been seen as inefficient. And that's why there's money to be made. 

Salena Kulkarni:  

[00:07:17] But I would argue over the last 15 years that even the property market has become relatively inefficient. It's really hard to find exceptional deals. Even as a developer, you have to work really, really hard to find those opportunities that are worth pursuing. 

  

[00:07:35] And sometimes they come with a higher risk, and sometimes they don't. But the reason that alternative sits, you almost have to think of it as a separate asset class because that market, and the way those deals are secured, and the way those deals are structured, is incredibly inefficient. 

  

[00:07:53] And so number one, people just don't know about them. And number two, the market is incredibly inefficient. And so in a market like the one we're in now, where fear becomes the order of the day, the markets that we currently believe to be efficient could in fact become more inefficient, as investors move more to liquidity. 

 

[00:08:20] So what I do love about alternative is that that inefficiency is what makes people like us, that dabble in that space, able to win more easily. Because we're able to be more selective about the deals. There's not as many people trying to fish in that pond. The permutations of how deals get structured is so much more creative. 

 

[00:08:41] And when we work with our network of deal sponsors and trusted advisors, what we're really doing is taking advantage of specific opportunities in markets that are not well tapped. So it's really important, I think, to keep that principle in mind when you're making decisions to stay out or jump into opportunities.

Tyrone Shum:   

[00:09:03] I totally agree with you. And this is what I love about real estate, just like exactly what you've said, comparison to the share market. [The] share market is pretty much automated. You can imagine 20 years ago maybe, they had stockbrokers standing on the floor to be able to raise their hands, you know, 'Buy, buy, sell, sell', and it's just crazy, in this one room that's so noisy. And that's how the markets evolved.  

  

[00:09:25] Now it's just these computers silently in the background just doing all these transactions automatically. Let's just hope property doesn't go that way! If it does, then I guess that completely changes the whole dynamics. 

  

[00:09:36] But as you can see, in order for people to be able to buy property, they've got to visit the home, then they put an offer through. That takes time. Even settlement. Six weeks to settle a property seems insane, because realistically, it could be done within a few hours. But I guess there's just so many inefficiencies, that's what makes this industry very, very popular, and also a great way to be able to make some profit out of it, as well, too. 

  

[00:10:00] And especially when we're dealing with these type of strategies that we're involved in, there are so many different ways to look at it. And I guess at the end of the day, you've got to see what strategy are you trying to look for to be able to generate and reach the goal that you want to achieve? 

 

[00:10:15] Because not every strategy in alternative investing would suit everyone. And [it] depends on your risk appetite, your interest, and what your capital you have as well, that will also determine what alternative investment you go into, as well, too. 

Coming up after the break, Kulkarni reveals the strategies she’s seen make the largest returns…

[00:13:52] I think their strategy you were describing of building up a portfolio and then using the equity to pay down and pay off all the debt at some point... It's not that that's an invalid strategy… 

How it’s possible to have your cake and eat it too…

[00:16:00] But what I'm saying is at a point in time, much sooner than people realise, you can take a step sideways. 

She explains how teamwork can make the dream work, but only if you pick the right players.

[00:17:45] Because the real issue with alternative investments is who you're investing with. That's the real risk. 

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

Tyrone Shum:   

Kulkarni recognises that alternative strategies aren’t suitable for everybody, as each investor has their own risk appetite and preferred strategies. Ultimately, there’s one factor she considers to be most important when considering investing outside of the box.

Salena Kulkarni:   

[00:10:51] My philosophy around alternative investments is that it makes sense for you to kind of access this asset class when you've got a bit of capital behind you. And the reason I say that is that I think for most people, investments take time, energy, bandwidth, and understanding. And one of the things I'm a huge advocate of is you always want to understand what you're investing in. And you always want to be the decision maker, so you never want to abdicate decision making. 

  

[00:11:21] So one real driver around whether or not alternative is the right fit for you is to do with: Where are you on your investing journey? So if you're just starting out, and you really need to just get traction, put aside surplus, use leverage, and buy, say, for example, property or other investments to grow your net worth, then focus on that. 

 

[00:11:46] But I guess where I see alternative fitting in is where you have a reasonable asset base behind you. But maybe you've reached that point where either you're tapping out with the banks, or maybe you've kind of allowed your portfolio to grow. And you're now in a point where you're just simply frustrated with the cash flow. And you don't particularly like the idea of waiting another 20 to 40 years for the investment base to reach however multiple millions is the right number, and you want to actually switch into that cash flow sooner. So putting a small percentage of your portfolio into those alternatives can literally mean game over for people.

Tyrone Shum:   

[00:12:30] In a few years as well, too, compared to, say, two or three decades. And this is the thing, I remember when I first started the podcast and I interviewed a lot of successful property investors who'd been holding on to property portfolios for 20 plus years, or 30 years. 

  

[00:12:43] And they explained to me, usually, there's three phases. The first phase is the growth phase, which is basically accumulation of properties. Then the second phase is usually consolidation, to be able to actually sell down the assets or reduce debt, etc. And then final phase is usually the passive, or the income stage, which is basically to live off that when they retire. 

  

[00:13:05] But to do that, they're relying just on that one asset class, which is property. So typically, we buy a lot of property, say 10 properties. When you get to consolidation, you sell down five, which will pay down the loan after, say, 10 years or something like that, or 20 years, whatever it is. 

  

[00:13:20] And then by that time, you hope, while you reach retirement, by that stage, you have income generated from your assets, which is your property. If that goes all smooth sailing, that's great. But that's such a long method, in my opinion. Not that I don't mind waiting that kind of time, because this stuff is supposed to be long term and happening in background. But if you can accelerate that, and not have to wait 20 years or something like that and you can do it within, say, three [or] five years [or] even seven years using these kind of strategies, and still keeping all your properties without having to sell anything down. Why not?

Salena Kulkarni:   

[00:13:52] I think their strategy you were describing of building up a portfolio and then using the equity to pay down and pay off all the debt at some point... It's not that that's an invalid strategy, but it's certainly one that doesn't necessarily yield the most lucrative returns.

  

[00:14:11] The average net— and when I say net, I mean, after all expenses— for assets that don't have any debt on them is maybe one to two and a half percent at best. And so, if you imagine, even on one $1 million unit, having a one to two and a half percent kind of income stream, you kind of get a sense of, 'Geez, I'm going to really need a fair few of those paid off assets to make a meaningful income'. 

Tyrone Shum:   

[00:14:39] That's right. 

Salena Kulkarni:   

[00:14:40] And so I've definitely worked with investors who [have] done all the right things, they've built a multimillion dollar portfolio. And it's only just dawned on them that actually the income stream coming off that multimillion dollar portfolio is nowhere near enough for me to live off. 

 

[00:15:00] And to be honest, if they'd undertaken no investments and just lived off the pension, there wouldn't be too much of a discrepancy. That's pretty awful. 

  

[00:15:10] So for me, alternative investments and doing well in that space is really about triangulating amongst the smartest possible people, like-minded people. Building those super connections, building that trusted advisor network, and then really educating yourself on: 'How much of those investments do I need to have in order for me to get life-altering wealth now or in the next few years rather than in 20 or 30 years?'

  

[00:15:43] I think we've said this before, we're not saying traditional property is bad or wrong. But it's, in fact, quite the opposite. I love real estate, and it is the ultimate tool for anyone, regardless of income, to get to financial freedom. 

  

[00:16:00] But what I'm saying is at a point in time, much sooner than people realise, you can take a step sideways. And as you said, keep your property portfolio, keep that ticking along. And have your cake and eat it too. And that's really the game that I think we're playing. And I think the reason that people don't know about it, or don't recognise it, is it's just not well understood. There's very little good quality information out there on what these things are and how they work.

Tyrone Shum:   

[00:16:32] Absolutely true. And I guess, in a selfish way, I kind of don't want everyone to know about it, because if everyone does, then the deals become very, very hard to get. So that's probably one other thing, I guess is just to mention, like, we could go out and promote all this. But at the end of the day, it's only really for a selected type of few people that would be interested in these type of deals, and just to make it work. 

  

[00:16:53] And obviously, if you are one of them, that's where I guess we would love to be able to share these and help you on that side of things. But I guess if it was mass media, which is what property and realestate.com and all those kind of places have done. And they've made such a big business out of it, that they rely on that to be able to survive. 

 

[00:17:11] Whereas here, we're just kind of just plodding along to enjoy our life, but at the same time, offering some different ways of thinking so that way can potentially change your life and change our lives and so forth like that, as well. So it's really interesting. 

Salena Kulkarni:   

[00:17:26] I think I would just add to that, Tyrone. I agree with what you're saying. But I'm actually not even in the slightest bit worried about— in fact, if anything, I'm shouting to the hilltops— if you're not thinking about alternative investments, then you're kind of cutting your performance of your portfolio short. And I want more people to know about it. 

  

[00:17:45] Because the real issue with alternative investments is who you're investing with. That's the real risk. So the world is saturated with people trying to take advantage of alternative deals. But I don't think there's that many people who are doing a good job of it. So the experience of most investors is they're trying to work it out by themselves. But I've said this before, I think there's never been a worse time in history to be trying to do it yourself.

Tyrone Shum:   

[00:18:17] Absolutely. And I think that's true, because at the end of the day, you want to be able to work with people. Property itself in this game is all about working with the right people and being able to get knowledge and come up with the support. Because obviously, it's not a game that you do yourself. And I think that's where this podcast comes into play, because we want to be able to share that knowledge and help each other as well, too, because you can't do this on your own at the end of the day.

Salena Kulkarni:   

[00:18:43] Absolutely.

Tyrone Shum:   

[00:18:44] So let's talk about an example. I'd love to be able to just jump in and understand from that point of view. What kind of person, or typical example that you've actually come across that has actually looked into this alternative investment and have been able to sort of jump into and understand how it works and successfully apply it really well? I mean, we don't need to go into all the details and stuff like that, but just maybe an example of somebody who's who's actually been interested.

Salena Kulkarni:   

[00:19:21] I've got a couple that I'm working with at the moment who are... I would say on the younger side of middle aged. They are both professionals, they both work. They've got young children, and they've really tried to do everything by the investing playbook. 

  

[00:19:40] So they've contributed well to superannuation. They have bought a small portfolio of investment properties in their local market. And that's just kind of ticking along in the background. I think at the moment there's maybe $10,000 to $20,000 cash flow coming off the portfolio. So it's holding its own, it's nothing terribly exciting, but it's holding its own. 

  

[00:20:07] They're in a situation where the house debt is sort of negligible. It's not a huge debt. And they're trying to work out: 'What is our next step?' One partner, one person in this couple, has a very high earning potential, and the other one's kind of doing work that they don't really like. 

  

[00:20:31] And so their motivation for even thinking about 'What could we do with our investment portfolio?' is more to do with 'One of us is really hating the work that they do and needs to get out'. 

  

[00:20:47] There's an idea that maybe one of them could transition into being basically a dedicated part-time investor. And so alternative investments really appeal because of that very kind of creative, active nature that you can have a bit more of play and fun with, and do deals that kind of start and finish and be involved. 

  

[00:21:13] So they've worked out that with the cash reserves that they've got sitting around, that they could put a small percentage of that into alternative, and effectively replace one income within a couple of years. 

  

[00:21:23] And what that would do is then give them the freedom to choose whether or not one of them works. I would say these guys are relatively frugal. They're not extravagant, they live in a house that they're happy to stay in, they're not looking to upsize, they're not necessarily needing a new sports car every year. Their net worth is probably somewhere around the $3 million to $4 million mark. So it's a healthy net worth for sure. They've been at it for a long time. And they've mostly achieved that through time, rather than being super active. 

  

[00:22:09] But for them, the idea of taking a very small percentage of their portfolio and putting it into investments that pay them anywhere from eight to 12% net cash flow returns each year, that's going to get them to a stage where they can make some pretty big life decisions in terms of one of them [will be] working or not working. 

  

[00:22:34] And the alternative to that is probably a retirement that's probably at least 15 to 20 years away. 

  

[00:22:47] They haven't done anything crazy. They're not taking on any big risks. It's pretty small stuff. But for these guys, I guess the hesitation, initially with working in this stuff is: 'Well, if this stuff is so lucrative, how come I've never heard of it?' And I think that's sort of part of what we've talked about today.

Tyrone Shum:   

[00:23:07] It's a common question. When I first worked with new investors that come on board, they asked me that exact same question. And I say to them exactly what we've just discussed so far in this podcast. It's not going to be for everyone. There's a pre-qualification process that we've got to go through, making sure that you're wholesale or a sophisticated investor. 

  

[00:23:28] But at the same time, we've got to understand that there are going to be inherent risks that are involved in this. And you've got to also have some experience in terms of property. If you're a property investor and you've invested in numerous properties, you understand what happens during that property process. 

  

[00:23:41] And even better, if you do and you've got experience in development, that's even better, because then it kind of explains what happens with these ones. Because the only difference is that you're not physically hands on involved in these deals anymore, it's basically we would facilitate and get you the best deals, and then you choose which one is and you just leave it there to passively do what it needs to do. 

  

[00:23:59] And as long as you're not needing these funds for right now or living off these funds, then it's the perfect opportunity just to put it in, because it's like your portfolio. You build it up, you don't touch it unless you really need to make adjustments and make decisions to change it, but you let it continue to do the thing. And it's your golden goose that just continues to lay eggs. And hopefully those eggs that you're getting is coming with a substantial amount of passive income rather than one or 2% just from your portfolio. 

  

[00:24:28] That's the biggest change. And that's what I've noticed since during it and with your assistance and help Salena, it's completely changed my life for sure. Because without going into these I think I would have been struggling and still thinking. And as much as I enjoyed the work that I was doing, I was working at the university and on very, very good pay, it just changes your life to go, 'Okay look, you've got that stability coming in without having to think much more about that'. And that allows you that headspace, the freedom to go, 'Okay, I can do other things'. 

  

[00:24:58] The reason why we're talking about this right now is, ultimately, if it's not like you and me, we want to be able to just not have to worry about finances. We just let the things do on the side, and then just focus on things that we really enjoy in our life. 

  

[00:25:12] And that's what really that kind of freedom gives you. Because that headspace of not having to worry about going to work every day, and finding how you're gonna pay the next bill, etc, that kind of stuff. It's very stressful. If you take that away and have something that works for you like a golden goose laying eggs for you all the time, then you can really do much more meaningful things in life. And that's what alternative strategies, or investing allows us to do as well. But it will take time, obviously.

Salena Kulkarni:   

[00:25:40] Absolutely. I would say I've spoken to some really amazing people over the last few months, some of whom are in dire financial pain. Business owners who are suffering, maybe they're barely keeping their heads above water. But the thing that I found fascinating is on the surface of it, they would be classified as high net worth individuals. 

  

[00:26:06] And where they're at is they're holding very high value assets that are not performing for them. And they're at a stage in their life where they cannot afford for their net worth to go backwards. They can't afford to put a foot wrong. But there's a recognition that if they don't shift the focus to assets that actually develop cash flow, they will have to start eating the cow. And that means selling assets down at potentially discounted rates, just to create the liquidity to live off. And that's a heartbreaking situation to be in.

Tyrone Shum:   

[00:26:45] Yeah, and that's the challenge. Growing up, because I saw from my own parents, a lot of my uncles and aunties, even my father, they all had great assets. But I kept wondering how come Dad was constantly working so much. And he ran his own business as well. And the amount of debt that they had against these businesses, because you need operating capital, you need inventory, etc. Because we ran a very physical base product type of business back then. And my uncles still do, all of them. But they require their time to do actually work within the business, e.g. to be hands on, and fixing repairs, and all that kind of stuff. Because it's a very laborious type of business that all of them have run. 

  

[00:27:25] But I never saw one of them that could actually just go, 'I don't have to worry about operating the business', because ultimately, they've got something else that's coming in. And that's my perception and shift that I have discovered during this investment journey that I've been on through property. 

  

[00:27:41] I didn't realise it was possible to do it this way, until I met so many wonderful people who shared knowledge just like you, Salena, who have shared this knowledge with me that has transformed [my life]. Because I don't have to rely on my business to survive or live or whatever it is. If today business just stopped shop, I don't have to worry. 

  

[00:27:56] And that's the thing that I noticed is the big perception shift in my own journey, in my own life, just to see that happen for my own family. Because today, unfortunately my dad's still working, because he still hasn't set up those assets that generate passive income, even though he's got very high net worth as well, too.

Salena Kulkarni:   

[00:28:12] It's [an] interesting idea that I've had the privilege of working with a lot of high net worth individuals. But I would actually argue that most of them don't feel wealthy. They're rich on paper. And they know they're wealthy by any definition, but they don't feel it. 

  

[00:28:34] And the reason they don't feel it is because they have no freedom to choose how they spend their time. So I think by really thinking about 'How do I create a plan here that's going to give me the freedom to choose?', that's a really different question to be asking yourself instead of 'How do I grow my net worth?' Because net worth and an extra $1 million in your back pocket, at some point is only going to get you so far.

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