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Erwin Szeto [00:00:07] Hello, message across Canada, this Erwin Szeto bringing you the truth about real estate investing while on vacation and engagement work done, I was gone for about two weeks. Just a little bit of emails and communicating with my team over instant messaging. That’s all I got that I was on vacation with my kids, so no hard core work was getting done. But I did my thinking, such as how many people are working for the weekend. My family and I were in Hong Kong for my brother in law’s wedding for about two weeks. So there was lots of notice to all that we were coming. This may be a cultural thing, and probably because my wife’s parents are both entrepreneurs, the owner and businesses. They each took maybe one or two days off during our whole two week stay. My in-laws only see their daughter and their grandkids once a year, but again, they can only afford one or two days off between the wedding of their son. The visit of their grandkids, again, I’m not judging is just how would you like to design your life? Is that OK with you, or would you prefer something different if you prefer something different? You may have to design your life that way. And to elaborate on what they didn’t join us were to occur kids, grandparents. They did not join us for any of the activities that we were where we were sightseeing. We went quiet bicycling. We went to see all the major sights and attractions, including two days that we spent at Disneyland in Hong Kong. On the flip side, my cousin’s wife, who retired a year ago from her executive position and one of the big banks, she’s I to share her age, but she’s a little bit older than me, not that much older. She spent the whole day driving us around town, sightseeing, taking us to the peak, which is a top two attraction, the peak being the tallest viewpoint in Hong Kong. So you get a beautiful oversight over seeing position of the city. And she took us to the beach as well. My cousin, her husband, and she embodies all these your typical beach toys like shovels and pails and stuff. They make good money so they don’t care about these things. So my cousin’s wife, she doesn’t have kids of her own, but she’s crazy about kids pets. They’re spending less time with us. And also, there’s been this. I think we’re kind of OK people to be around, but they love our kids. Funny story. Yes, she had a job offer from another big bank after resigning her position with a salary in the $300000 zone per year. Right. Two million dollars, $300000 plus or minus many of the tens of thousands of dollars. Her competing offer was to be a personal chauffeur to her teenage niece, who is a competitive swimmer in her early teens. She’s yet to practice before and after school, and the pool is not on set site at school. It’s probably 20 minutes away from school, stuff like that. And she has dreams are going to the Olympics. The niece know my cousin’s wife. Which would you choose? Which would you choose if money was no object? Which would you choose if money was no object and kids are your thing? Spending time with kids is your dream. Well, she turned down the bank’s offer, informing them she had a better offer. My conversation? Sorry, I’m taking this no pay job to just drive around my knees. I think about it. It was stress. Understand that in Hong Kong jobs, people work like crazy. And that’s just another side story is when people are worried about foreigners taking our jobs. Think about foreigners who are coming from China and Hong Kong, who are used to working, you know, seven two seven without blinking an eye. How your work ethic compares theirs. Anyways, she doesn’t have to do that. No stress. No long hours. No responsibilities defined by others. No corporate greed. To me, this is what investing is all about. Her and my cousin. Invest in second mortgages now. They’re making money passively. Before that, my cousin was making very good money in the stock market. Anyways, they’re now making money passively so they can do whatever their heart desires. To me, that’s living the dream. A quick announcement before we get to our business buying just I’m still getting questions on a regular basis, almost daily. People still think that real estate investing is investing, and that’s not an active business or at least that are treated that way. It’s actually my father in law asked me, like, what about you? Asked me, What am I going to do when the bubble bursts so I won’t go into detail about my answer now? But I get these questions all the time. The future of real estate blockchain in Real Estate Am I worried about interest rates and bubbles et? So come January 2019? Can’t believe it. The year is almost over. Oh my god. I went to the networking meeting. I go over how I see the world. I’ll share the research that I’ve done that drives my decisions. Do you remember I am not an economist, I am a business school graduate, but I’m not an economist. I did two undergraduate credits of economics, but again, I am not an economist. I am, however, a multi-millionaire investor. I’ve coached multiple multi-millionaire investors. I spent a lot of time around other real estate investors who are multi-millionaires. Grant Cardone posted something just the other day you said, Don’t take advice from millionaires, only take advice from multimillionaires. So hopefully I’ve learned something along the way. I said the research anyways, so you may make your own decisions. If you’re interested in attending, go to W WW Dot Truth about real estate investing. Garcia meeting again. This W WW Dot Truth about real estate investing dossier slash meeting to get on the invite list on onto this week’s show. How to buy a Business with aging. It seems like we’ve all read Rich Dad, Poor Dad by Rob Break use. If you haven’t. Please do so before you continue listening. I will wait. Rob Break, you suck. You wrote about starting a business or buying a business instead of getting a job. As I start out an expert on buying businesses, which is how my friend and client RJ Jain got on the show. RJ has his chartered accountant designation from India, is MBA from a Moderately OK school, Rotman School of Business from the University of Toronto. See, I went to a competing business school, so we always make fun of each other. It is had a much more successful corporate career than I have. You worked in mergers and acquisitions of CIBC mergers and acquisitions, or M&A for short. Is the department at a bank whose role actually these departments exist that many and very large, very large companies. But their role is to acquire businesses and to stay at the banking example. Whenever you see a bank, a Canadian bank in the states, it’s because they bought the local bank that was part of the benefit of having a strong banking system. Our Canadian banks are very, very healthy, had very healthy balance sheets coming out of the credit crisis, so they were able to buy cheap U.S. banks anyway. AIG is licensed to work as an agent, brokering the purchase and sale businesses. So he is here today to share how that works, how he values businesses and structures deals. If you’re an existing business owner, pay special attention as AJ is giving guidance how to increase the value of your business and how to get paid out faster. Because yeah, I don’t think our business owners understand the sale and valuation of businesses, and it’s no different than Real Estate. Sellers often overvalue whatever it is they’re selling either their home or their businesses. It just going to give you some insight into how the world works. So without further ado, I give you. So you start off start off with telling us a little about yourself. I know you have your MBA from Rotman, right? That’s right. That’s a decent one. Is not as good as Western,
Ajay Jain [00:07:28] though, besides the fact that it nevertheless is good enough for me.
Erwin Szeto [00:07:33] I think that’s why I want to do. I have you on the show is, you know, based a lot of us read Rich dad, poor dad. I should be curious how many people who listen to this haven’t read it. So if you haven’t joined the rest of us and go and read Rich Dad, Poor Dad by Robert Kiyosaki, but he talks about, you know, three things like three things everyone should do, he said, to start a business or buy a business, right? Invest in real estate. Something like that. Right, right. So you’re in the business of trading businesses. So right.
Ajay Jain [00:08:05] That’s right. That’s right. So, yeah, you’re right. Erwin. I work for a brokerage that only specializes in buying and selling businesses. We help owners of businesses sell their business and prospective buyers buy one. That’s essentially what we do, and that’s the niche space that we operate in. A bit of background about me, I did my MBA from Rob and graduated in 2009, probably one of the toughest times to graduate and taught me a lot. Did my CPA from India work there for a few years? Moved here to do my MBA post? MBA worked with CIBC for a couple of years, spent some time in mergers and acquisitions. Investment banking like that gigs and started doing took a role to do mergers and acquisitions for an insurance company. Yeah, yeah. And at the time, the insurance company that I started working for were doing a lot of acquisitions anywhere between three to five in a year, which is a lot for a company to do because it takes a lot of time and effort and resources to even evaluate a transaction. Even close a transaction needs to close three to five, which means we should look at probably seven to 10 a year
Erwin Szeto [00:09:16] aged just to slow down for listeners who aren’t as familiar with this lingo. I went to business school, so I understand what you’re talking about. I just I just. But so mergers and acquisitions. So let’s take it back when you started with CIBC. What is the role of someone who works in mergers and acquisitions? When what is your job?
Ajay Jain [00:09:35] So in CIBC, when I was working for the investment banking group, I spent about six months in that group as an investment banker advising clients on one to one to either buy or sell their company, advise them on the entire transaction. You advise them on the value. You advise them on the price to put in your bid. So very similar to what a realtor would do in a risky transaction. You advise them on the transaction from start to finish, and then you see the transaction to close again, very similar to what realtor would do so. So to make it simple. Just think of it as a risky transaction, except it’s a business you’re buying. So there’s a lot more in-depth analysis and due diligence you do. But the role of your advisor is fairly similar. Again, given the complexity of buying or selling a business, the advisor would have to be a little bit more sophisticated in terms of how you value different businesses, how you compare to previous transactions. Again, the foundations the basic is still the same is just the more complex. That’s all.
Erwin Szeto [00:10:32] And then what kind of dollar figure we’re talking about? Like a million five I’ve done.
Ajay Jain [00:10:36] I’ve done transactions ranging from in my career from a half a million to half a billion.
Erwin Szeto [00:10:44] Yeah, just like real estate and the risks of the same rate between a business and a Real Estate.
Ajay Jain [00:10:49] Yes. Yes, yes. Fairly similar. Although I haven’t seen that many, they probably would be, but few and far in between, like multi $100 million transactions. It’s a lot more common to find them in the business space because. Sometimes you’re inviting small businesses, sometimes advising mid-sized and sometimes advising large corporates. So, you know, it depends, for example, if you guys try. But Wal-Mart recently bought an Indian online retailer called Flipkart for $16 billion, so that would be mergers and acquisitions transaction that Wal-Mart would have hired many advisers. And Flipkart, on the other hand, folks have hired them and advisers to advise each of them for the transaction. Right?
Erwin Szeto [00:11:29] So maybe it’s not a good example, but this is stay with your example of Walmart buying Flipkart. So they would just go to a bank and then they the bank would give them 80 percent loan to value and they pay like three percent interest rate.
Ajay Jain [00:11:39] No, it’s so financing in a business transaction can be very, very different from and this is where I think financing the transaction start diverging from each other. Real Estate is a hard asset. You can you can get a lot more financing, as you can see, maybe up to ninety five percent in some cases on Real Estate. Businesses not necessarily always have a hard asset like someone like an online retailer. What is really your heart asset? There is no vehicles. There is no Real Estate. There isn’t a hard, tangible asset to fall back on. All you have is your online platform and the fact that subscribers go on the platform to buy and sell stuff. So it’s an it’s a fairly intangible asset and it’s hard to value that level on finance that. So a lot of times you probably wouldn’t get a whole lot of financing on those kind of transactions. Again, that’s just a case in point. There would be other transactions like you’re buying, say, a car rental company. You have cars that you have as assets to fall back on. So you could get 50, 60 percent financing on that one, and you would still have to end up putting 40 50 percent of your own money. So it really varies from transaction to transaction on how much financing you could get. And again, similar to buying Real Estate, it depends on your personal credit as well. How good is your credit? So similarly, how good is the business credit? How long has the business been in existence for and for its life? How well or not has it performed? Has it been fairly stable? It hasn’t been growing. Has it been declining? All those factors go into a bank making decision on whether they want to finance the transaction or not. Incidentally, I also worked on the lending side for a bank. I used to lend to small and medium businesses, not for mergers and acquisitions, but just for their working capital and expansion needs. So I kind of know from that perspective as well what banks look at the way we almost always look to have some form of security or the other should things fall off one side. So sometimes the business may not have enough assets, then they would expect the buyer to give their personal guarantee, along with personal assets to be securitized, a mortgage to fall back on to security for the bank so you can get creative with the kind of financing deals you can you can do with a business transaction.
Erwin Szeto [00:13:47] Interesting. So what I want to get to is I hear investor. You hear two people say investing in real estate is risky. So I think you qualify as an expert in this area because you are a real estate investor. Yeah. What is the cost of financing all these different businesses or assets, right? Most people I know on this call understand pretty cheap to get financing on buying a house, even if it’s rental property, and then everything pretty much goes up from there. Right. Buy by car, you buy a business. Everything progressively gets much more expensive.
Ajay Jain [00:14:19] It does. It does. So you’re right. Erwin investing in real estate is risky, but investing in a business, especially if you’re buying one, is riskier, in my view. And not just my view. I mean, you look at interest rates when you go to borrow money for your business, your interest rates are higher than what you would get if you were buying a house. You don’t get you don’t get business loans at two percent and three percent and even four percent. You’re probably looking at for small to medium businesses. You’re probably looking at starting it in the current market rate environment. You’re probably starting off at six seven percent and that you feel like really prime business customers. It goes up to eight, 10, 12, 15 percent even through banks. And then you start going to non-bank lenders that could easily creep up to upwards of 15 to 20 25 percent. Even so, that itself tells you that not just people like me or you, but even financial institutions and lenders consider businesses riskier than investing in the state.
Erwin Szeto [00:15:16] So I don’t know if you can answer this. So again, for the listeners benefit, AJ doesn’t have his questions in advance. So you mentioned online business, so say I am online entrepreneur. I want to sell product on Amazon so online and I go to the bank and ask them for a loan. What could I get?
Ajay Jain [00:15:35] If you’re starting off, you’re like, You’re probably not going to get anything, anything. That’s the hard truth.
Erwin Szeto [00:15:41] That’s not 80 percent loan to value. I’ll put that 30 percent me. They give me the 80. I’ll put down 20 yourself.
Ajay Jain [00:15:48] Let’s flip the table for a moment. Think you’re the lender? OK, I’m coming you to tell you, Hey, Erwin, I’m starting this online gig or whatever. I’m going to sell whatever online. I’m going to say my. Keyboards online? Yeah. Can you give me $8000? I’m putting in 10000 of my own money and you’re going to ask me, OK? Sure, what happens if you don’t make money? How are you going to retain you back? I don’t know. I’m sure it’ll make money, so don’t worry about that. How are you going to react to that as a lender? Right?
Erwin Szeto [00:16:19] And I only say this because a lot of people haven’t gone through this process before. They don’t understand. I think a lot of people don’t have context for what? Four different levels of risk. Yes, it’s risky. Yes. Yes, there’s things can go bad in Real Estate, especially when you don’t know what you’re doing, especially when you when you, you buy a house in a city and then Ontario. I’ve never heard of. That’s usually that’s usually when things start going bad, when I have to say I haven’t heard of that place before. Right? And when things go to bad things, when things go bad, like what did you expect in the city of like 400 people?
Ajay Jain [00:16:54] I visited Erwin. I couldn’t agree more with you. Like I, you know, fully there is risk involved with investing in real estate, so you need to be smart on their investing and how you’re structuring yourself in terms of the transaction. Like, for example, what I generally look at and this is what I’ve done with my investment in real estate is I put down 20 percent and then I look at and this is again one strategy Erwin. You can talk more about other strategies and you’ve done them yourself. So you know better. But this is one strategy, and probably I would say, feel free to give your opinion that Erwin. But I would say relatively lower in terms of risk profile is you. Let’s say you put on 20 percent. You do the math. But the mortgage and with the rent that you’re going to receive and as long as your rent can more than cover your cost of ownership and your property taxes and your mortgage and all that and the entire cost of ownership, including mortgage, as long as your positive cash flow, I generally am pretty OK investing in those kind of properties, because here’s the thing. Someday things will go bad. You like things are never going to be good all the time. But when they do, at least you know that you’re not putting in money from your pocket to own that property, the property services itself in terms of its entire cost of ownership. You know, that’s the simple math I do. So as long as that’s the case and you’re not putting in anything more once you have it up and running, I think it’s a good investment. The second part that you need to look at is, you know, the location that you’re buying it in the city, as you said, the demographic, what’s happening there, you know, what’s the future prospect of that place? So you combine those two. I don’t think you can go wrong with a Real Estate investment, even if markets turn and at some date, they will turn. You have to think about holding longer term, not two or three or four years and flip it 10, 15 years, 20 years. You know, your mortgage is significantly paid off in that timeframe. Your rent is paying off the most of your mortgage during that period, and then you also have capital appreciation on top. So even if there’s a downturn in five or seven years, you have enough time to recover back from the downturn because at some point prices will start going up. Look at that, look at the population explosion for our planet by 20, 30 or 20 50. I can’t remember actually about 20 30. The population is supposed to go up to eight billion and probably nine and a half by 2050. We are at seven point something today. All these people need space to live on. And you know what is only one thing that is of limited supply land? Everything else probably can be manufactured. You can figure out something else. But till now, with the technology we have, land is still of limited supply. You cannot manufacture more of land. So from that macro view, come down, look at Canada, look at the immigrants coming in and whether immigrants like to go mostly in or around you. It as a most bulker place when you want to come and settle down just in terms of job prospects, just in terms of, you know, good living standards and whatnot. So you combine all of those pieces of information and then you make a decision and then you say, OK, I’ve gotta find somewhere and overall not make sense and returns make sense, then generally you wouldn’t go wrong with those kind of investments. Right, right, right.
Erwin Szeto [00:19:54] And I know recently you hired a property manager. And so where I want to go to next is around businesses, the businesses that you’re looking to acquire, even for yourself, what kind of returns like, what are you looking for in a business that you’re looking to acquire and add to it that it’s something I want you to suggest? That’s passive as in someone, you can hire someone so that you’re not, you know, the same effort you would put into your investment property.
Ajay Jain [00:20:17] Right, right. Generally, what I look at in businesses is fairly similar to what I’ve been so far deploying in terms of my Real Estate strategy, which is cash flows right end of the day. Whether you’re putting your own money entirely or you’re taking a loan on that, you need to ensure you’re able to service the financing you’ve taken on or you’re able to get a healthy return for your money from this business. So cash flow is very, very critical here. You need to see go back and see probably last three years, four years how the businesses performed. What has the owner taken home in terms of after paying off all expenses and, you know, paying off everything else? What’s left for the owner? That’s important. We call that seller’s discretion on the earnings or SD in. In sort of our world of buying and selling businesses, another metric that you would look at is CBD. It stands for earnings before interest, tax, depreciation and amortization. It’s a good quasi proxy for cash flows because you know your depreciation is a non-cash expense. Interest can vary based on how much loan or not you take. So the idea is that a business should not get impacted by the financing structures. You might prefer to put in all of your money so you have no interest. I might take 50 percent loan, so I might have an interest component there. So you ideally want to nullify the impact of interest. And that’s why you look at earnings before interest, before depreciation and before taxes. Taxes are something that we all live with, and that should not change. You know, it impacts your business decisions, but you have to look at a pretax basis to get a clear view of comparison between one investment versus the other.
Erwin Szeto [00:21:51] This is the whole point where you’re trying to compare apples to apples, at least.
Ajay Jain [00:21:54] Exactly, exactly. You know, one good metric to look at is payback, period. What is a payback period tell you? It tells you; how quickly can you recover the money that you invested in buying the business? So, for example, let’s say you bought a business which cost you $100000. Forget whether it’s your own money or you financed it. Leave that aside, it cost you hundred thousand dollars and it makes $50000 a year in Profits after paying off all expenses before being yourself. So in year one, you get fifty thousand in year two, you get another fifty thousand assuming it continues, so you recover one hundred thousand that you paid for it in two years. So that’s the payback period. If you can find something with two year payback, it’s phenomenal. Generally, you wouldn’t find something of that kind of a payback.
Erwin Szeto [00:22:37] But it’s funny because you use a similar payback when we decide renovations.
Ajay Jain [00:22:41] Yes, yes we do. Again, you know, the kind of analysis you would do is fairly similar. Like you tried to get onto the same question. It may be a bit more sophisticated or complicated because it’s a business and you have a few other variables involved there. But what you’re trying to get at is how soon can you recover money? As simple as that, what is my money on in terms of return on investment?
Erwin Szeto [00:23:02] Just a quick example for the listeners benefit. Just to bring it back to Real Estate is I don’t wanna spend too much of the time Real Estate because I want I want to extract as much of value out of you for buying businesses, but just for the listeners benefit. An example would be like a dishwasher. Very, very common upgrade for people put into kitchens, especially apartment buildings. Yeah. You put in a dishwasher. You can often charge more rent because people love them. And so seeking 20 bucks more a month, that means you can get in
Ajay Jain [00:23:28] two hundred and forty your extra
Erwin Szeto [00:23:30] 20 four extra hours over two years. You can probably pay for that dishwasher. So that’s a good that’s a good investment.
Ajay Jain [00:23:37] Exactly. And just to continue on that line of thought Erwin your dishwasher doesn’t break doesn’t go bad in two years. It’s probably going to last you for 10 years. So the remaining eight years you’re earning, you already recovered. What? You invest in it and the rest is all Profits. So it’s a good investment. And might you
Erwin Szeto [00:23:52] bring down your vacancy too? So we didn’t use that
Ajay Jain [00:23:55] and it makes the property more marketable as well. So that’s an intangible benefit that it’s hard to place a value on. But there’s a benefit in all that. So that’s exactly the kind of thinking you would have in analyzing or assessing a business as well. Payback is one criteria. You have another one called IRR internal rate of return. Essentially, what that tells you, it’s a there’s a function in Excel that one can use once you’re familiar with how to build, you know, a cash flow model in Excel. But essentially, what IRR tells you is what is your money to turning you based on the cash flows and what you paid for it? Very similar. Very simple example would be, let’s say, if you’re paying something hundred thousand for something and you recover 100000 in the first year, i.e. your first year Profits hundred thousand, your IRR will be 100 percent because you’re recovering everything the first year. So it changes as your payback extends further. So in many ways, you know, IRR is a converse of payback. The longer payback period, the lower your IRR, the shorter your payback period, the higher you are. Mm hmm. So that’s another metric that you would look at. And then once you have IRR for Project B and you have had our Project B in this case, Business C and Business B and Business C, you can compare which one gives you the better return and go for that one. Another common, you know, metric or we are analyzing a business’s net present value. You would have heard this. Many people say this a dollar today is worth a lot more than a dollar one year from now, right? That’s because that’s where
Erwin Szeto [00:25:32] about real estate
Ajay Jain [00:25:35] in any in any realm of business or whatever a daughter today is worth a lot more than a dollar tomorrow.
Erwin Szeto [00:25:42] So just really quickly for the listeners benefit, this is a whole point of inflation. Exactly. That’s why I why to real estate? We were defending against inflation.
Ajay Jain [00:25:48] Inflation plus interest rate opportunity cost. What not. Right. So if you’re putting in a hundred thousand out today to buy a business and you get fifty thousand dollars next year, a year from now and then? Fifty thousand another year from now, because that’s what the business makes you recover your money to in in two years. But what is your NPV? Your NPV or net present value is not simply a hundred thousand that you already recover and one hundred thousand you put today, that’s zero. But your business then keeps earning you even after that, right? So the assumption is if the business keeps going on general, you will make an assumption saying it goes on forever. Then you have to discount the value of those future cash flows to today’s value and then compare. And the net of that is your net present value. So as long as your net present value is positive, i.e. you return, you get back more than what you paid, then it’s a good project to look at if it’s negative NPV. Stay away from it by all means. And again, NPV can be used across different businesses or across different projects to analyze business. They might give you one hundred thousand NPV business might give you two hundred thousand NPV and business. He might give you $500000 NPV, all for the same investment. They could have the same investment profile, but they could have different earnings potential and therefore different NPV story.
Erwin Szeto [00:27:08] You said its cash flow though, right? So even if it’s like a small cash flow investment properties such as cash flows on her box, would you ever compare the two? Should I put my money into real estate or put my money into her business?
Ajay Jain [00:27:20] You would, you know, the complication that arises here is you also have to factor in at the end of, let’s say, whatever I choose in this case, just to make the comparison easier. Choose a 10 year or 20 year timeframe and see at the end of twenty years, what would my business fetch me if I sell this model? My Szeto fetch me if I sell that 20 years out and then discount that to today’s value. And then you get the full NPV of both of these. This is where you use net present value because it’s hard to compare my Real Estate giving me $100 per month, which is my business, giving me two thousand dollars per month. It’s hard to compare that on the face of it, but when you do net present value on both of these, you know which one gives you a higher value and then you can look at should I invest in this or invest in that net present value in, you know, just to simplify it is what’s the net wealth addition to my net worth? That’s how you look at it. Just to simplify, to give more REIN.
Erwin Szeto [00:28:12] It’s interesting because I see I always hear so many people are trying to get into real estate for cash flow, but no one. I made it just to me, just my who is people who are who I speak to or who are attracted to talking to me. But they’re not. People are saying I want to buy business so I can get more cash flow.
Ajay Jain [00:28:28] You wouldn’t believe it. I live in a two bedroom condo. I have a one year old daughter. I bought this five years ago, and when we started planning for a family and whatnot, we thought we’ll need a bigger space. And now, even more so. She’s a year old and we definitely need a bigger space. But I’ve been holding off buying a bigger space because I think, you know, investing in a business probably is far more cash flowing for me at this point in time than buying a house. If I buy a house just to get, you know, I get the bigger space. It’s good for my family, what not, but my money that I’ve put into my house. I live in Toronto, so I you’re looking at nothing less than a million dollars for a detached in Toronto. The money that I put down as a and put down 20 percent to $200000 that I put down. It’s not only me a return every year. Yes, when I sell the house 15, 20 years from now, I get a big chunk. But along those 20 years, it hasn’t given me any cash flows on the other side. But as you might find a good business which makes one hundred and fifty thousand dollars a year and a half to spend even half a million of my money to get that in five years’ time, I’ve recovered actually. In three years’ time I’ve recovered my entire investment. And beyond that, I’m making another hundred and fifty thousand every year extra on top. How does that sound versus putting it against a house for a million dollars and not getting anything in return? Now, don’t get me wrong. Yeah, don’t get me wrong. If you’re if you’re investing in real estate and renting it out, then you’re getting a return there. So that’s different, right? This is a bigger house for yourself. That’s the kind of thinking I have in my mind is, you know, let me hold off on buying the house for a little bit more. If I can find the right business which has cash flows, then I can probably get an even bigger house in five years’ time than I can now.
Erwin Szeto [00:30:09] Just get a bigger house and Airbnbs. Some rooms. Another good agent. True.
Ajay Jain [00:30:13] True, you can do that. Yeah, that will give you a cash flows, for sure.
Erwin Szeto [00:30:19] This is an interesting question. You hear a lot of people saying, especially on social media, which, whatever people say, build a business in your passion and then you’ll never work another day in your life. I’ve heard some of the businesses that you’ve been looking into. Are you passionate about those businesses?
Ajay Jain [00:30:36] I’m passionate about making money. How does that sound?
Erwin Szeto [00:30:40] Yes, you never worked on that day in your life because you’re making money.
Ajay Jain [00:30:42] Exactly. It’s just like that. Listen, you know, some people are passionate about certain ideas, about certain issues, and you should absolutely pursue those passions. But that does not mean that if you don’t have or if you don’t feel very strongly or passionately about something, you cannot do a business that corollaries is incorrect. You can actually do any kind of business you want to. You just need to one, when I look at a business, you tend to first look at the industry itself. Is it something that I can wrap my head around? I am.
Erwin Szeto [00:31:13] Well, I like this conversation we had before. Yeah, sorry. Continue.
Ajay Jain [00:31:17] Sure, I am, you know, a finance professional by training, by education. What most of my work experience has been predominantly in finance the last four years I’ve spent in operations. I know a bit of that too. But like, I don’t know science, I don’t know technology like I am not the innovative kind. It’s not like I’m going to suddenly come up with something that’s really new. That’s going to be a massive, massive draw to investors and becomes suddenly a big thing. I’m not the Elon Musk that invented
Erwin Szeto [00:31:46] the electric bill. You’re going to build an electric plane. No electric planes.
Ajay Jain [00:31:50] The kind of businesses I’ve looked at is I look at a food franchise. You know why? Because I think I can wrap my head around how a restaurant works. You need to be smart about certain things. You need to be able to go in and see, you know what? What are the variables that drive that business essentially in the food business? There are four big costs that drive that business. One is the food cost itself. Second is the lease or rental payments. Third is your labor cost and food is if it’s a franchise. Fourth is the royalty or advertising for you pay to the franchise, or you can wrap your head around. These four costs of these four paws look fairly in range to what they should be, or if they’re not. And you think you can add value by coming in and reducing food costs, then you should absolutely go ahead and buy the business right? That’s what I look at. Location matters where you are. What kind of food you’re selling. Who’s your demographic around? All of that stuff matters. So you look at that too. But I have no background in in running a restaurant or having a food business. But I think you need to be able to someone who can pick up things, take up a challenge and learn along the way. And you know what, most people when you have your money put on the line, you end up end up doing that. I’m a strong believer of you should you should put people throw them in the water. They’ll either learn to swim and stay afloat or they drown. So, you know, when push comes to shove, you figure out a way. That’s my strong belief. Other businesses I’ve looked at are an online beauty products company. I’ve looked at a passion
Erwin Szeto [00:33:17] of you, right? That’s a passion subject for you.
Ajay Jain [00:33:20] Yes, that’s a very passionate online beauty products.
Erwin Szeto [00:33:24] You know, beauty products, not the fact that sometimes I
Ajay Jain [00:33:27] feel I feel very strongly about that. I’m sitting. I know it makes money, and that’s what I like about it, right? Relatively low inventory, big margins, single man operation. You don’t need anyone. You get orders, you pack up stuff and you ship them. That’s it. You get payments. When the orders come in, people pay my credit card. When you place an order so they don’t receivables, you have minimal inventory. There are no payables. You don’t need a separate office space you stored in your basement or your condo where we live. You know, the products are fairly small so they can be stored anywhere. Great business model. Why wouldn’t you look at that business makes really good money. I can’t. I can’t disclose the details of all of these businesses because they are confidential. But I’m more than happy to chat with anyone who wants to know more about these on a one to one basis. But again, a great business, not a business I’ve looked at is a car rental business, not like one of the enterprises or one of these bigger ones. This guy, this business only services insurance accident. So when you have an accident, you stranded in the middle of the highway or whatever the train company takes your car, the auto take you to the nearest car rental place. You can go get an alternative while the car is being fixed. That’s all he does. He gets, he gets a rental car like he has a fleet of cars. Someone comes in. Generally when you were in an accident, your car is gone for anywhere between a few weeks and maybe a couple of months. So you rent out a car. To someone like that, you’re not seeing your car back in your garage, in your in your parking lot for a month, which is fantastic because you’re making money because you’re making money for the entire month that you don’t have to worry about maintaining that car. Compare this to a weakened renter. Someone who rents just on the weekends to your walk and cleans your car goes out on a Friday, comes back on Monday morning. You have to wash you to clean it. And if you do that four times a week, which is in this case, you only wash and maintain your car once a month because it’s gone for that time was good business, great business like and you get payments directly from insurance companies so you don’t have a whole lot of receivables and you turn over your car like, you know, you have leases for these cars, these cars and on board their knees and you have a two year or three year lease at the end of the two years or three years. These are fairly popular cars, so they have a value aftermarket as well. So if you’re buying back from the lease is lower than the market value, you buy it back and right away, sell for the profit in the aftermarket after non dealer or, you know, the second the second sales market and you make some money there too. So very interesting business again. So you look at a whole spectrum of businesses from car rental to manufacturing to food businesses. What really? Again, you know, my strong feeling and my strong belief and thought. You don’t need to be an expert in that industry. You need to be able to be someone who can learn things quickly in that industry, but you need to first make up your mind. Is this something that I can handle? This is something I can tackle. Is this industry attractive to me? Is this industry attractive in general? What’s the future of this? Once you answer those questions, then you go into the financials and look at how the business is performing, what the cash flows are, what you going to, you know, what do you value and how do you finance it? All those come off that
Erwin Szeto [00:36:29] how you add value. Exactly. And then just to go back, you talk about food business. I know you’re looking at a hamburger business not disclosing too much and you’re passionate about hamburgers. I am. And then my concern is because my concern is anything that you’re passionate about. So you are passionate about hamburgers. I like hamburgers, right? Yes. My concern is if I spend too much time in it, I will not Long Island no longer like hamburgers.
Ajay Jain [00:36:55] So then you should not buy that business. Erwin.
Erwin Szeto [00:36:59] That’s the scary part. And now one concern I have for people who are getting into business is seeing someone new. Acquiring a business is and also you hear this a lot. I’m sure you hear this a ton from people selling their businesses is they think, Oh, my business is worth a lot. And then just simply look at how far does the business go when you’re not working there? This is when the when the owner doesn’t work in the business,
Ajay Jain [00:37:24] you mean how far to the bicycle when owners don’t work in the business, i.e. they can do
Erwin Szeto [00:37:29] business and operate within the owner? And then on the flip side, like when a buyer is buying your business, there’s a potential you may be buying a job which they sell, which is like scary to me.
Ajay Jain [00:37:43] No. So there are certain businesses that can function without the owners being present, i.e. a passive investment business opportunity.
Erwin Szeto [00:37:51] Right? Because that’s partly why Real Estate so popular,
Ajay Jain [00:37:54] because it’s largely passive hands off. You put your money in. If you’re doing it right now, you’d be on right now. But once that’s done, engender doubt. It runs itself. You don’t need to do a whole lot. And especially if you have a property manager that you probably don’t do anything, don’t except pay the bills or whatever and collect rent and that comes in your bank account directly. But there are. There are businesses. So one of the businesses that I’m working with right now with a client is fairly the owners are not deeply involved in that. It’s an it’s in the health care space that are doctors that come visit that place. There’s the front office admin staff who runs the, you know, the entire show for that clinic. They have about two or three of those clinics that they own. And these guys are not doctors, they are not healthcare professionals. But what they do is they stay on top of, you know, how business is going, how the sales numbers are doing, how is the cost coming along? And you can do that staying at home, you get reports so they are fairly hands off. And that could be a good opportunity for someone who’s looking at passive investment opportunities. Another one that I, you know, it’s fairly popular in Canada and probably the states as well is gas stations. You know, you have a convenience store with the gas station, you hire a manager and you have the staff underneath. You don’t need to go run the place. Of course, if you go run the place, you’ll see the manager salary that you’re paying anywhere between 40 to 60 K, so that’s extra income to you. But even without that, they generally tend to have good returns on investment and in terms of investment profile. Gas stations again fit that bill of passive investments. I’ve seen a lot of them do that, actually. Office buildings, you know, it again goes to Real Estate, but sometimes in the commercial side, I don’t know. You know, not many people know this, but larger commercial spaces. They sometimes get creative with how they structure their rents. They have a base rent and then they have a percentage of sales done from that location. So in some ways, you’re investing in the business as well because higher the turnover of the business that’s renting your office, building higher, your rent also gets. This is quite common with, especially with retail outlets and big shopping malls. They have a best friend and they have a percentage of revenue that. And generally you’re doing well as a business, then the landlord as well as a landlord because they get higher rent. So you could you could get into that. You could, you know, there are a bunch of these possibilities and opportunities that you that you could look at, but you need to you still need to be on top of those things. It’s not I wouldn’t say it’s as hands off or as passive as a residential real estate can get. They would still need a little bit of monitoring, maybe on a monthly basis or see a biweekly basis, but there’s still a little bit of effort required there.
Erwin Szeto [00:40:34] The other cities, one thing that we share this with our clients around like property management, for example, is, you know, sometimes the client is the best property manager. It’s possible, sometimes, right? But you can’t be everywhere.
Ajay Jain [00:40:49] No, no, no. Case in point, I tried to be a property manager when I got my first one. I live in Toronto on my property. What was in Katharine’s the first few months of fine, but then issues are coming in. Then I had to go down every time from Kronos and Katharine’s, and I also have, you know, I had a day job back then. So I try going from China to St. Catharines at 5:00 in the evening. I did a few of those trips, and that was it. Like, you know, my time was worth my time with work a lot more than saving that five or eight percent or 10 percent, whatever you pay every month to your property manager. And I think in general, the also because they are professionals and they do this in and out, they’re more well-versed with the laws and regulations and what to do and what not to do. And safety hazards and whatnot. There’s one time my tenant called me and said the fire alarm was beeping and when I opened it says carbon monoxide leak. What am I supposed to do? I’m like, I don’t know. What am I supposed to do? So I went up red and then told them back what to do? And then the next day started again. The same carbon monoxide went off. So, you know, things like those, sometimes it’s nothing. But sometimes it can end up being a big, big issue, especially if you know there are health concerns or there are health impacts to your tenants. You don’t want to take that risk with people’s lives, so it’s better than professional death.
Erwin Szeto [00:42:14] Right, right. And just a quick tip for anyone who has a situation. What I do is I’ll tell my tenant to go a perfect world. You already have a brand new inbox carbon monoxide detector in the property, so you simply go, tell them to go. Get it. Plug it in and see if that if that if that sets off the if the carbon dioxide sets off, the alarm goes off. Actually, the first step is usually shot the furnace right switch off the front. Yeah, right. And then once you have the redundant carbon monoxide test duster, plug it in, turn the FIRs back on and play one open windows. Maybe one two stand outside away during this time. Yeah. And then see if the second one goes off, if the second one goes off, you probably have a problem. And the point is, carbon and oxide detectors are that accurate? For example, there was a massive recall by Kitty, not that kid I just recently saw, like millions of units had to be recalled and designed to take like almost no units in the air. It’s crazy how accurate they’re supposed to be, and they’re only thirty dollars each. Wow. So quick tip on that. So, yeah. Perfect World have a brand new in-box carbon monoxide detector in your properties that the you can go get it and open it up so that you don’t want to make that three hour drive to St. Catharines. Szeto.
Ajay Jain [00:43:29] Absolutely. Thank you for that Erwin.
Erwin Szeto [00:43:31] Anytime. Anytime. And what I was alluding to with the like the investor may be the best person to manage a property. Maybe, right? In some cases, in many cases, the business purchaser, the new owner may be the best person to run the business. So people have to keep that in mind as well, because if you want to like drive like sales and implement new marketing and implement new like culture and things like that, those things are not easy to define talent for right now. No. And expensive,
Ajay Jain [00:44:01] yeah. And expensive. And you know what? No one is going to pound the pavement like you would for your business. End of the day, whoever’s in there gets their salary, regardless of how your business does. You’re the only one who’s going to care if your sales are going down. Wanted to see how it’s going down and customers getting the right service? If not, what do I need to do? You’re the only one who’s going to care about it. If you don’t, you shouldn’t get into a business, but you’re the only ones who care about it and do something about it. In most cases, unlike in Real Estate, you know, the owner is probably the best manager of the business, especially in the small to medium space. Once you get at the large corporate space, obviously you have a different management team, the professionals they in for you. There are public companies that have shareholders and the shareholders are the owners, and all that comes in at a very large scale. The small business owners, you are the best manager. You are the one who should be managing them only get into a business to not manage it as long as it fits that bill of being a passive investment. Otherwise, don’t expect to buy a business and then give to someone else to run because they will run it to the ground for you. Believe me about that?
Erwin Szeto [00:45:14] Yeah, it sounds easier. The second, or rather than your investment property now
Ajay Jain [00:45:19] generally is an easy investment that investing in business. No doubt about that. And that’s why you know, business is high risk but also high return.
Erwin Szeto [00:45:26] Very and for anyone, and I’m not saying nothing that people should be buying businesses like, I run a business, you run a business, right? It can work. It’s just understand, like AJ and I like we work or tails off to be good, right? And not just to be does. Not just that we’re motivated pounding the pavement, but we’re continuously investing in ourselves to develop our skills, our communication skills, our presentation skills, all those things like we’re trying to do everything to make ourselves well-rounded and anyone who wants to excel in business needs to do the same.
Ajay Jain [00:45:59] Absolutely. Business, again, entails a lot of hard work, Erwin knows that he’s been running his business for 10+ years now. Yes. Yeah. So it entails a lot of hard work, especially in the beginning. It’s, you know, you don’t have a life. And that’s true. I’ve come to know ever since I’ve been in this business, I’ve come to know of places I never even knew, often in Ontario. Have you heard of Tillsonburg Erwin?
Erwin Szeto [00:46:22] Yeah. Yeah, I’ve heard you had. I don’t know where that’s the funny thing, though, about knowing places in Ontario because I’m I was a hockey fan. I still am a hockey fan. I don’t have time. Got it. But ice hockey players are all from Canada, so they’re all like this. Defenseman on our team is from Tillsonburg, Ontario, and that’s how I know I couldn’t find it on the map.
Ajay Jain [00:46:43] I couldn’t see anyone. Anyone living in the GTA would probably in general not know Tillsonburg unless they met someone from there, or they know it from before. But I had to go there to go see a client’s business and we finally got the listings and it was a one and a half two hour drive. But you have to do it. And the client lived in Kitchener, so I had to first go to Kitchener to meet him, get to know details about the business and then go to Altenburg and drive through that. And, you know, get to know about the business and then go back and forth and see, you know, in my business, you get to travel a lot and travel and not take flights, but by road, and it can be crappy sometimes. And you know what, when someone else was out of business, they don’t care if it’s November or December or January, they don’t care if it’s minus 30 outside. If it’s snowing, you still have to get there. What I’m trying to say is, you know, it’s not easy. There are these challenges with my business or with Erwin business. There are other businesses would have other challenges which will take up your time. You need to be prepared to put in that time and effort and energy to make it successful. And if you can get through that and if you can get a decent level, you will reap the benefits offered. Case in point. Another client that we had, he bought a business, another car rental business when he bought it. It was one car, literally within a year and a half. He’s made it into 15 cars and he’s selling it for or pretty much like seven, eight times of what he bought it within one and a half years. So if you’re willing to put in that kind of effort, you reap the benefits too. Right, right, right.
Erwin Szeto [00:48:11] So I looked at Pillsbury, I go with it. And obviously, how do we not know it’s right next to me? And again, now again, it’s just west of Waterville. But I’m really sorry for anyone from these places or just it’s 15000 people. I had no idea where it was, and there’s actually no major city near close to it.
Ajay Jain [00:48:36] But this one was probably Woodstock. It’s between Woodstock and London, but you have to go south for there.
Erwin Szeto [00:48:43] I want to see how many people can find Woodstock on a map because people know that like when you hear Woodstock, you think of a concert, but that’s not where they had the concert.
Ajay Jain [00:48:52] No. So I went to Woodstock as well for another business that was looking at. So you know, it is it is a lot of hard work. Having your own business. One other thing that comes, I don’t know why it is, so it shouldn’t be this way. But generally with businesses, it becomes a lot harder to get a mortgage from a Schedule one bank. They like people with a steady job and a salary coming in. They hardly ever like people with a business background who are business owners. You could. You could be making half a million dollars a year and you would still probably most likely get a more expensive mortgage than the person who’s making a hundred thousand but working for a large company. Erwin creating some wrong in that.
Erwin Szeto [00:49:33] Well, it’s just more rules. And the first one that most people are familiar about with being self-employed is the lender will qualify you based on your average last two years, your income for the last two years. And then one of the realities of being self-employed is we have we had the benefit of many things we can deduct from our income. Like our cell phones, home office expenses are our vehicles, our gas or lease, right? So then then all these things, a regular person with a T for a job has to pay all these things too. But that doesn’t come off of their income, as it does for self-employed. So then you look like you make less money, even though really your take home is the same as the other guy. Yeah, yeah, that’s just the reality. But again, I still do want to discourage people from investing in businesses because I know so many people who’ve lost their jobs recently. This is crazy, and they hear the person who has a job is, you know, you lost your job recently. Yes. For people who rely on a single income, you know you think you think of me having several properties is risky. It’s just a completely different mindset. What they consider risky versus I consider risky. Right, right, right. I go record when corporations read the world international. Better yet, put yourself as a shareholders point of view. All right, shareholders of the company, what do they want? It’s all about the bottom line. It’s not about making sure you have a job. Know you have job purity, right? They don’t want you to have a pension. No, no, no. Take away your pension as soon as you get the sense they can
Ajay Jain [00:51:06] appeal the bottom line, everyone cares about the same thing. What is my money going to make, right? And sometimes that can have conflicting sort of end results, you know, as a shareholder for your money, you want the best bang for the buck. But then as an employee, that may not necessarily translate into the same thing that a shareholder wants because shareholders obviously want lower expenses, so profits go up. But then you also want fair wages for your work and your time and your effort, and that’s conflicting interests right there. So a whole bunch of these things, you know, end of the day, the story is you want the best but the best bet for your money, the best return for your money. How do you do that? Real Estate is a great way. I found investing in the right business as also a great thing. Mm-Hmm.
Erwin Szeto [00:51:52] I think part of the decision making is, for example, if you can score 50 goals in an NHL, go get a single income job, joy scoring 50 goals a year and then NHL, right? If you can do that. Yeah, that’s smart. That’s yeah. I don’t think that’s really risky, right? But if you’re talented and you feel like you’re getting paid less than what you’d be worth on the open market, especially if you’re running your own business, then why wouldn’t you? Yeah. Why are you making money for somebody else? Why don’t you take it for yourself?
Ajay Jain [00:52:20] Absolutely. Absolutely agree on that. That is essentially true. But then would you also have to think is, you know, not everyone can. And again, it varies from different life stages that sometimes you want to do a business, you want to do a lot of things on your own, but you may not be the right life stage or career stage to take the plunge. Like I knew. I want to do a business ever since high school, but I also knew that working for someone else would teach me a lot of things, and that will help me later on and in doing my own business. So I went out getting a corporate job, getting all the education I wanted to get and learn things you know, on someone else’s dime, in essence, and then use that for yourself. So you need to figure out the right time, right place in your in your life to be able to do that and take the plunge. Right? Right.
Erwin Szeto [00:53:09] And then sorry, I was reading thinking grow rich this morning. So and it’s so much come down to how determined are you? Yes, right?
Ajay Jain [00:53:19] Absolutely. Determination, dedication, grit. Very, very important. I saw this recent thing on and reminds me from grit. There’s this article or there’s this podcast going in on LinkedIn, where there was a US psychologist, a researcher who had done research on kids in a particular age group and what set aside kids from being more successful than others. Some kids being more successful than others was not their IQ or intelligence, but really the greed factor. How determined are you to go get what you want? That’s what determines, based on that research, how successful you can be in life. So don’t underestimate that grit factor. If you don’t have the highest IQ, does it matter? Not to say people who have high IQ don’t go far. Obviously, they have that added advantage and the benefit off of being ahead of the curve already, but good plays a big role. You can you can catch up just based on the sheer grit and determination
Erwin Szeto [00:54:20] people like Elon Musk, I think is a good example of grit and IQ. Yeah, right. Yeah, I think Real Estate, even if you have low IQ, you can do very well if you have a high IQ and start solving some
Ajay Jain [00:54:32] nut example, for the latter part, is the most recent US president.
Erwin Szeto [00:54:38] I don’t know. I think he’s just jerking us all. I think he’s just playing.
Ajay Jain [00:54:42] No, look, look, look. Look at it. Well, could be. But listen, I don’t think again, this is my personal view stone. Don’t judge me for this, but I don’t think he’s one of those high IQ superintelligent guys. But business, regardless of what kind of person he is, business wise, he’s done well for himself. That fact you cannot ignore, right? And even through his is, you know, how he runs his current office. There’s one thing in him that you will definitely notice. He’s got determination that he’ll never give up. No, I remember the time when Obama was a president and there was this White House dinner reception for journalists and Donald Trump was there, and Obama was making fun of Donald Trump wanting to be the next president because by then, he had already made his plans clear and public that he wanted to be the next president. And Obama was making fun, and the entire room was laughing. And fast forward a few years, he is the president today. Despite that, he’s got in here now working for a president. He is. That’s a different question. And, you know, we don’t get into that. But to achieve what he wanted to do, he had the determination to do it despite all odds and he did it. Mm hmm.
Erwin Szeto [00:55:53] Mm hmm. And I’m pretty confident he works a lot of hours.
Ajay Jain [00:55:56] I’m sure he does. I’m pretty sure he does. How productive. There, I don’t know, but I’m sure he does.
Erwin Szeto [00:56:02] Any Golfs, every like, all the time. But, you know, based on how many, how much I think I think he does it put it in a lot of hours and he’s to get up early kind of guy. And I think he’s working late because we know he’s working like his tweet only. Okay, so AJ, we’re running out of time. So I want to ask you, have you seen cooking of books?
Ajay Jain [00:56:24] No, I haven’t. No kidding. Wow, really? I haven’t even heard of that until now.
Erwin Szeto [00:56:30] No kidding. Hey, Billy, how come that happens in the in the public markets? But it doesn’t happen here. It’s like, you know, you think, Wow, really, you think, you know, thinking small business would be much easier to get away with, just like, you know, trap, you count and signs off on your statement.
Ajay Jain [00:56:47] You mean actually happening in small businesses?
Erwin Szeto [00:56:51] Yeah, yeah. Like, say, a small business wants to sell.
Ajay Jain [00:56:54] Oh yeah. Treats like it’s so much harder to evaluate small businesses because especially
Erwin Szeto [00:57:00] cash ones, cash business,
Ajay Jain [00:57:02] especially cash ones, because these are like these guys don’t put everything on their books. That’s the problem. A lot of this business that I’ve looked at have a cash component that never goes into their box. It never goes into their bank account. But the guys making money, you can see it like you can see it from the card he drives. You can see it from his lifestyle. You can see it from the business he owns. You can see it from where he lives. And then, you know, there are ways to even figure that out. Let’s assume on average, someone who runs a small business and lives in a particular location. I’m going to make up things here has, let’s say, 40 or 50 thousand dollars in annual expenses. Now, if you go back and look, is you drawing anything from the business? If he’s not, he’s got to pay those expenses, some of his personal expenses to live right? The fuel for the car, his cell phone bills, his groceries, his house, mortgage, whatever. That’s where you know that there is some cash component, which he takes all cash and then he pays his expenses. So he lives off the cash and doesn’t take a whole lot out of his business in terms of a salary or dividend or what have you. So there’s one. There’s one way of looking at it the other way. Generally, you know, I generally tend not to put a value on the cash component of the business, i.e. if you’re not showing your sales on your box and you’re saying I make a hundred thousand in cash above the three hundred I’m making on my box, then whatever multiple, I’m paying them on to be in the thousand. I generally tend not to pay that same multiple. I tend to, you know, negotiate a lower multiple for that cash component. And even that is paid only six months or a year out after I’ve seen that kind of cash as while running the business after we’ve closed the transaction. Otherwise, I generally just if they disagree with that, I walk away from the transaction. I don’t want to pay for something that is not verifiable. It may well be there, but I cannot verify it. So the other way is, you know, once we close. Let me run for a year, and if I hit the same kind of cash, then you get your money as well.
Erwin Szeto [00:58:56] It sounds like very complicated transacting on businesses not that dissimilar from transacting on investment property.
Ajay Jain [00:59:03] No, it is. It is a little bit more complicated. You know, you have to look at a number of things you have to look at other than just the revenue and the cost and the profit. You have to look at working capital. How much money do I need every month in my bank account to run the business? What does that constitute? I have to pay my rent for the for the office building or for the factory. I have to pay my wages for the people who work for me. I have receivables. People don’t pay me when I sell to them, they don’t pay me right away. They pay me in 30 years and 60 days. I have to hold inventory, so I need money, a certain amount of money to run the business every month, and you need to factor that over and above what you’re paying for the business or cash flows, right? You have to look at the Langley’s. Sometimes the business may be running at a place that the owner owns the Real Estate as well, but in a separate corporation. So he’s doing whatever he wants there. But the business that is running there, it may not be zoned for that. So you have to be careful because it’s my land, so I’m running my business here. No one’s questioning me about that. But it may not be the right zoning. It to be a commercial zoning, but it may not allow for that specific business to be run over there. I haven’t come across any of that, but those are things that you could come across in evaluating a business for the car rental business. A good question would be So where do you wash your cars when you clean them? And are you authorized to do that on the land because there’s land contamination, right? What does that do? Well, my landlord let me do it. If I’m running a car rental business in that place and washing my cars in the same place as my lease, let me do that. So, you know, there are those complications. So each business has its own complications. In a franchise business, for example, you need to be approved by the franchisor. Let’s say you and I as a buyer and seller, agree on a price. We have an agreement. The deal can still fall through if the franchisor does not approve the new buyer. So that’s another that’s another complication. The buyer’s agent needs to have a condition in the offer, saying this is conditional upon the franchise on approving if the franchisor does not approve me the. The deal’s gone. Know it won’t close. So there are those things that need to be careful about each business and a business broker, it would be able to tell you that if your broker is not telling you that, then don’t hire them.
Erwin Szeto [01:01:11] All right, A.J., how can people follow you if they want to, if they want to connect with you by business or a business?
Ajay Jain [01:01:18] Happy too happy to give my email Erwin and you can put it in the email that you send out. They can connect with me by email, and I’m usually good at responding back and then we can take it from there.
Erwin Szeto [01:01:28] Okay, very cool. And for folks who want to see the contact Georges contact information, I’ll share it in. The show notes at Truth about real estate investing Dot S.A..
Ajay Jain [01:01:36] Thank you so much. And thank you for having me on your podcast.
Erwin Szeto [01:01:40] I’d say, you know, thank you because like I said, owning a business is a pillar of getting ahead in life. So, you know, I don’t know what, I don’t know what it is. But like so many people graduate school and they think I need to get a job right.
Ajay Jain [01:01:51] I agree. Not a whole lot of them have the courage to go on their own, but the ones do and do come out, you know, further out in life than the others. And even, hey, not necessarily that every business that you buy or the first business that you buy will be a blockbuster. You also learn from your failures. A lot of the other clients I’ve dealt with have had multiple businesses over their lifetime, and not every single one of them has been successful and they’ve still had the courage to start the next one or by the next one and make it a success because they’ve learned something from the previous failures. That’s the important part.
Erwin Szeto [01:02:26] RJ, thank you again. Thank you, Aaron. Thanks again. Have a great weekend. Are you thankful to the Greater Toronto Hamilton area? Are you interested in becoming a real estate investor, earning extra income in your sleep without getting calls from tenants or unplugging toilets? Then please join us live and in person at the Halton Real Estate Investors Group meetings at the prestigious Sheridan College in Oakville, Ontario. Our meetings are catered to both seasoned and novice investors to share and educate the fundamentals and truth about real estate investing so you two can earn seven figure net worth like our clients and guests of the show, how great it would be to be financially free to take more time off their family, retire earlier and more comfortably, or to support your favorite charity. If this is of interest to you, then get on the invite list at WW W Dot Truth about real estate investing slash meeting. The host of the meeting is yours truly Erwin Szeto? That’s me, a four time winner of the real estate agent of the Year to investors for the years 2015, 2016, 2017 and 2018. Results are not guaranteed by our investor clients who’ve been with us since 2012, earning over 400 percent returns on cash flow and investment property. So come check us out soon, as you can do to enter your fire code regulations. We can only have so many attendees and we have been waitlisted in the past, so don’t to register at WW Dot Truth about real estate investing dossier meeting. Thank you for listening in if you enjoyed this episode, please subscribe button. Whatever after using or we can email you episodes of the podcast right to your inbox as soon as they become available each week, simply go to our website. The truth about real estate investing dossier again, this WW truth about real estate investing dossier. Interview your name and email on the right. If you really know the episode, please leave me a five star review and comment on iTunes. I read every comment and am grateful for every five star review. Thank you again for listening. Now go forth. Be awesome. Take action. Never give up because I believe in you. So next time this is Erwin Szeto bringing you the truth about real estate investing.