10
UNCONVENTIONAL INVESTING
“Fortune sides with he who dares.”
—Virgil
In May 2017, I fired up Facebook Live on my phone and filmed myself walking around Rainey Street in Austin with my checkbook in hand. I was at the city’s food truck hub and I wasn’t leaving without writing an investment check to one of them.
1.2M WATCHED ME DO THIS FOOD TRUCK DEAL LIVE ON FACEBOOK
About 1.2 million people watched while some cheered and gave advice in the comments. Others called me a con man. Just as many said I should stop being so obnoxious as I flashed my checkbook and complained about having so much money in the bank and nowhere to invest it. I’m sure I was annoying as hell to some. But I don’t care—especially since my afternoon ended with an investment deal that’s still one of my best to date. I hope the trolls stopped watching in time to miss that part. Less competition for the rest of us chasing off-the-beaten-path investment opportunities.
That day I wrote a $6K check to Ming, owner of the Yummy Thai Food Truck. She’d pay me $0.75 per meal until I earned back my investment, and if we liked doing business together, I would get $0.10 per meal in perpetuity.
Our partnership started with me randomly walking up to her, ordering Pad Thai (Ming’s recommendation), and striking up a conversation about her business. The whole deal was done in less than twenty minutes.
Ming now sends me checks every month that I don’t have to think about. And my Facebook Live video that captured the deal was picked up as a reality show called Latka Money. New episodes post every Tuesday at 8 p.m. EST on Facebook. You can watch at NathanLatka.com/facebook.
Most people who hear this story have one of two reactions:
Dude, you’re an idiot.
Or
Tell me more—I want to do that.
Then there are the people who want me to write them a check. If that’s you, we’re casting for Latka Money. Send your pitch to sarah@nathanlatka.com. I’m always looking for ways to invest my money that the herd isn’t thinking of. It’s a big part of how I—and most megamillionaires—got rich.
If your dream is money in the bank and an empty calendar, you’ll have to start thinking this way, too. Your business ventures will get you far, but remember the goal is to do as little work as possible. That won’t be because you’re lazy. It will be because you’re smart with your work and your investments.
This is the part where you say, “Sure, Nathan, easy for you when you have so much cash burning up your checking account.”
I feel you—I hate when rich kids whine, too. But you should know by now that I’m not a trust-fund baby. And I didn’t always have this “too much money” problem. I got to this point by starting small and finding opportunities where others didn’t think to look.
Think about this: the average net worth of people under thirty-five years old in the United States is $4,138.* If the typical person is this poor, you have to do the opposite of what everyone else is doing to get rich. People will call you an idiot, or crazy, but that’s a good thing. The more your ideas sound insane to the masses, the more you’re likely to be onto something. Remember, the masses are broke!
Most poor people brush off the rich as just being lucky. Who hasn’t heard: “Oh, how lucky was she for investing in Apple back in the day?” “Who’d have thought that start-up he dumped his money into would go anywhere?” “She’s so lucky the sketchy neighborhood where she bought that apartment is now trendy and expensive.”
It’s not luck. Rich people purposely plant seeds off the beaten path, and when a few of them bloom they create their own luck. I’ve said this for business, but it’s especially relevant when it comes to investing. The rich get richer because they’re not thinking like the herd.
Keep reading even if you’re just scraping by financially. Your dream of that extra $10K or $20K in your bank account isn’t as far off as you think if you follow this movement. And when you get there, you’ll do yourself a huge favor by investing that extra cash in unexpected places with 20 percent+ annual returns.
HOW TO SPOT UNCONVENTIONAL INVESTMENT OPPORTUNITIES
The best way to find off-the-beaten-path investments is to source them yourself. You can literally put up a Facebook status that says, “I have $5K to invest. I can’t find any good investments. Do you know of any?” Then see what responses you get. Most will be crap, but some might turn into real conversations and real opportunities for you.
Otherwise, just keeping the mindset that you’re looking for fresh investment opportunities will help you see them where others don’t.
RICHES IN HOSTELS
One of my favorite investments is with Firehouse Hostel in Austin. I met Collin, one of the owners, during a meet-up Firehouse was hosting at their bar. As we talked, I started complaining about the fact that I couldn’t find any good places to invest my money. The stock market and real estate were booming and I didn’t want to buy high. So I asked him what he was doing, and sure enough, he said he was raising capital for Firehouse and asked if I wanted to invest. He had my attention.
I’d heard about Firehouse before. When I first moved to Austin a few months earlier, I was searching for a good drinking hole, and everyone raved about this bar with the bookcase door. After talking to Collin at the meet-up I went to check it out.
I walked into the lobby and put all my weight on this little rusted handle tucked in a bookshelf. It moved to reveal a dimly lit bar with a seductive band playing in the corner. The liquor shelf looked like it belonged in the Hogwarts teachers’ lounge, with elaborate craft cocktail accessories surrounded by drips of candle wax.
That night I ordered two Moscow mules and found myself chatting with travelers from all over the world who had come down to drink from the hostel upstairs. I overheard languages I couldn’t identify. I immediately wanted to invest. Prime location. Great vibe. Interesting mix of locals and travelers. Totally Austin.
I ultimately invested $11K, which earns me about $1,200 per quarter, or $4,800 per year. Almost a 40 percent annual cash on cash return. Daddy likes. The trouble with this kind of investment is that there’s not enough of it. Your tongue gets hungry for more returns like this, but there just aren’t enough “bar and hostel” deals to buy.
I milked this as much as I could and asked the founders for introductions to other equity holders and proceeded to buy out someone else’s 3 percent stake to increase my quarterly dividends since I knew returns were so great.
I’m a big fan of Kent and Collin, the two blue-collar guys who launched the bar. They know how to hustle, and because of that the business is growing fast. I also like when investors and founders are aligned, and Kent is a perfect example of that. Firehouse is Kent’s main source of income, and he and his wife just had a baby. His family is absolutely dependent on making this business work. I like that. The founders are all in, so I’m happy to put more money in.
Most people looking to invest would miss an opportunity like Firehouse because they just don’t think to ask. They’re busy trolling stock prices and picking index funds that will maybe get them the average 7 percent return over too many years of waiting. They’re thinking the average way and because of it they’re missing the high return opportunities their last bar chat could have led to if they had been thinking about it.
So keep your investment radar on at all times. Forget index funds, financial advisers, and all that. They have their place, but you won’t get rich through them. It’s the unconventional investments that will set your portfolio on fire. Just pay attention to the companies or entrepreneurs you encounter in your everyday life. It could be your local hot dog stand, the coworking space you work out of, the indoor play yard where all your friends host their kids’ birthday parties, the new microbrewery in your town. . . . You get it. Pay attention to what’s working. When a business looks hot to you, and you have money with which to experiment, introduce yourself to the owner. Tell them you’re looking to invest in a business and see if they bite. At worst they’ll say no, but you’ll make a new friend. At best you’ll be on your way to a cash-printing investment.
PLAYING WITH JUDGMENT-CALL INVESTMENTS
Sexy as it sounds, I don’t actually walk up to people and just hand them checks—well, not all the time. I did it with Ming, but that’s because I could afford to lose the $6K investment if everything went up in flames. For most people and most investments, writing a check without running due diligence is way more stupid than it is sexy.
The smarter thing to do, and what I do when I’m interested in making a larger investment in a company, is ask to see their numbers. I need them to show me at least a three- or four-year financial history before I consider investing. Anything less is too risky. And if they don’t have a structure for reporting that lets me look at their historical financials and see growth, I’m out. I also need to have confidence that once I put money in, I’ll get updated financial reports every month. If that doesn’t exist I stay away from the investment.
You should absolutely do all these things if you’re investing a sizable percentage of your net worth (your definition of “sizable” will depend on your comfort level). But do also give yourself room to make judgment-call investments like the one I made in Ming’s food truck. On paper my approach to that deal is a grand example of what not to do. I did not verify financials with Ming or get anything in writing. I just took her at her word and we moved forward on a handshake—strangers to $6K check in twenty minutes.
Anyone will tell you this investment strategy is insane. And it is if you’re risking the only extra money you have. Don’t ever do that. But it can be a huge time and money saver, and open you up to opportunities that others can’t see, if the money is small enough that you can afford to lose it.
I took the risk with Ming because the six or so hours it would have taken me to analyze her financials, go back and forth on details, etc., was not worth $6K to me. Six hours of my time is worth way more than that. So it was easier for me to just write the check and use the $6K to figure out if Ming was someone I could work with over the long term, which she has proved to be. She’s a good person. She’s given me the monthly report of meal volume and written me the monthly checks. I took the same approach with Firehouse, and Kent and Collin are also proving to be great partners.
These judgment-call investments are a quick, efficient way to run a test and see if you get a good cash return. Once you do earn your money back you can make even bigger investments. At that point, you’ll have been working with the person for many months. You’ll know their financials; you’ll know if they’re someone you can work with. But initially the investment is based entirely on your gut impression of the business and its owner. You can learn a lot about someone in the first twenty minutes of meeting them, so I just trust my gut and go with it. Sure, there are times when I lose money, but nine times out of ten my judgment call is dead-on.
I won’t try to teach you how to read another person’s demeanor. That’s a whole field of study in itself. You probably already have a sense of how well you can read people anyway. I’ll just emphasize that if you’re going to take a risk like this, only do it with a very conservative percentage of your net worth. Also consider putting together a one-page agreement that outlines your investment terms and have everyone sign it. I didn’t sign an agreement with Ming or Firehouse, but I was willing to take that risk. I won’t officially advise you to do the same, but it’s obviously your call.
Even though these investments are quick and simple, they shouldn’t be thoughtless. One of my key strategies is to look for a business that is making a big monthly payment on something. If I can pay for that thing up front, erasing the payment, it frees up their cash. I’ll then tie my return to the growth of the business, which I know I can help drive with my distribution channels.
That was exactly the case with Ming. As we talked I learned that she was paying $600/month on the truck she worked out of. She could buy the truck outright for $6K and lower her monthly expenses by not having to make that loan payment. So I wrote her a $6K check to buy the truck in exchange for her paying me $.75 per meal until I earned my investment back, and then $.10 per meal in perpetuity if we kept working together after that. She was doing about five hundred meals a month, but I knew I could help her grow that pretty quickly. So I estimated it would take about a year to get my money back and learn if Ming and I could work together in an advantageous way. So far, so good.
My distribution channels immediately helped—getting those 1.2 million eyeballs on Ming’s food truck boosted her sales that same day. I also helped her negotiate with the owner of the land to get her truck moved right up on the street. Previously it was three trucks back, so fewer people walking on the street saw it.
WHAT MY DIVIDEND CHECKS LOOK LIKE
Ming has written me seven checks over the seven months we’ve been working together, totaling $4,307. I almost have my $6K back and she’s now doing about 1,200 meals per month.
Ultimately, Ming wants more money to expand. I’d be happy to write a $100K check and tie my return to growth: $2 per meal until I’m paid back, then $.25 per meal in perpetuity. The numbers might change, but I’d keep that same structure. I make money if Ming makes money. And like the guys at Firehouse, I know Ming is all in on growing her business. It’s her only source of income and she’s built her legacy on it.
FINDING CASH WHEN THERE’S NONE TO SPARE
I know the idea of investing sounds impossible if you’re just getting by. But if that’s you, the fact that you’re reading this book proves you’re itching to break your slump. You can do it immediately, and while you’re at it build contacts who can later turn into business partners.
My top suggestion for bringing in cash builds on the idea of trading exposure that I talked about in chapter 7. If you have a big email list or online following you can sell email spots to build your income. But what if you don’t have a big following? That’s when you play the broker.
You can do this with no money. Literally anyone can profit from being a broker between two groups that each want what the other has. You’re just smart enough to have thought of it. Here’s what you’ll do:
-
Reach out to people with big email lists.
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Offer to sell placement in their emails for them, and negotiate yourself a good cut. I send emails like this all the time:
Nathan Latka
to brandon, bcc: me
Brandon, I have a friend who would pay you a pretty penny for a paid send to your list.
I also love his product and think it’s a great fit for your audience but not competitive.
Interested in this sort of thing?
--
Thanks,
Nathan Latka
That’s really it. If you target people in your industry you’ll get the added bonus of learning both sides of the marketplace. Then, eventually, when you have your own email list, you’ll know who to sell it to. Or if you want more exposure for something you’re working on, you’ll know the people with lists who are willing to take payment for exposure.
How you find people with big lists will depend on your industry. I’m in software, so I’d go to sites like G2Crowd.com or Siftery.com and see who has the most users. Obviously if they have a lot of users they have those users’ email addresses. Then I’d do cold outreach to those companies. Paved.com and Sponsored.tech are two more outlets for access to big email lists.
You can also do this with contacts from other projects you’re already running. I’ve pitched my podcast sponsors, asking if they’re interested in being featured in an email blast to 100,000 marketers. It’s a separate fee from their podcast sponsorship. On the back side of that deal I’ve negotiated a 60 percent cut of the fee to the person who owns that 100,000-person marketing list. So if I bring them a sponsor, I get 60 percent of the revenue. Here’s an email I’ve sent that led to a deal:
Potentially emailing my list for you (contify link?)
Nathan Latka █████████
to Mohit
Looking to test introducing my community to other products. Thought of you.
List is about 500,000 (mostly sales, marketing, CEO’s, founders, growth hackers)
Do you guys have an affiliate program already set up? Do you have someone at contify dedicated to partners/affiliates?
Heading out in DC tonight but will get backt o you tomorrow.
Make the note sound really personal. Saying something like “Heading out in DC tonight but will get back to you tomorrow” gives it the feel of a one-to-one note, which will increase your response rate.
For good measure, throw in a spelling error or two so they clearly understand it’s not a mass email.
In terms of finding people who’d want to buy access to lists, listen to podcasts and notice who is sponsoring them. Those same people are looking to pay for additional exposure. Also Google keywords associated with your industry, or whatever the list is about that you’re brokering a deal with. Notice who is running ads for that thing, then reach out to them and say:
Hey, I noticed you’re spending money on Google ads. You might get a better return if you spend some money with me and email this list, which is catered to the same keywords that you’re running on Google.
There can be huge money in brokering emails if you really get into it. Invest what you make into a few businesses and see where it takes you. Even if you can’t quit your day job and live off the profits, you’ll start building up those passive income streams that add up over time.
Obviously there’s more you can do to bring in cash than brokering email deals. I’m suggesting it because it’s worked for me, it’s superefficient, and it requires no cash. Any of the cash-generating strategies I mention in chapter 6 will also work. One other option I’ll highlight, and this one is more mainstream, is driving for Uber or Lyft. This is a great alternative if your schedule is limited and you want to control when you turn your work on and off. Anytime that you don’t have some other responsibility, you have the ability to make money. The hourly rate isn’t high, but you can hustle your way to some savings by driving when you want and keeping full control of your time. It’s grunt work. It’s not easy. But it’s a good way to build up a nest egg that you can start using to do other deals. And depending on your location, Uber and Lyft driving can be surprisingly lucrative. Some people are literal millionaires just from driving in big cities with lots of surge pricing, like Los Angeles or New York. Sure, they’re working twelve-hour days or longer, but they’re doing it on their terms.