How To Make A Million Dollars, Seriously

At the age of 50, the average American has a net worth of $132,384. At the age of 50, the average American engineer has a net worth of $973,028. Aside from the partial explanatory difference that can be attributed to engineer’s earnings a higher salary than the typical American, the large reason why engineers do so well is because they take life cycle costs into consideration before making every decision and are darn efficient when it comes to deploying capital.

I had an acquaintance of mine reach out to me for consulting advice on the two-store bakery and cafe chain that he founded and hoped to expand into a million-dollar business. I will share with you the process by which I helped him achieve his goal.

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Wal-Mart Stock: Nice To Meet You Again

Rose Blumkin, the founder of the Nebraska Furniture Mart, once said: “If you have the lowest price, they will find you at the bottom of a river.” For operators that seek to compete on price, that insight is both a blessing and a curse. The low-cost operator can quickly accumulate customers when it is the cheapest guy in the neighborhood, but because there is no inherent loyalty, can also quickly lose customers when a lower-cost operator enters the scene.

Wal-Mart stock (WMT), which had traded at $63 before the 2008-2009 financial crisis, was still trading in that range five years thereafter when the stock was at $67 in 2013, before investors pushed it towards $110 (a valuation of 24x trailing earnings!) in January 2018.

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Bad Investments In 2018

A newspaper article recently disclosed the purchase of a trophy office building that sold for approximately $10 million, on a fully occupied property in which the tenants currently pay a combined $300,000. The frictional costs no doubt involved five-figure attorney bills, high title insurance costs, broker fees, and the other costs that are typically associated with such transactions.

The rental income from this property offers an initial capitalization rate of only 3%.

There are only three ways that this could work out.

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