69: The Cashflow Quadrant & Sharon Lechter

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It gives me great pleasure to welcome Sharon Lecter back to the show. And we've got a special announcement for you in this episode. Episode as we want to talk about her cash flow quadrant. You've all heard of this, of course. There is a very renowned book about the cash flow quadrant. It was the first rich dad book I ever read and really, really impacted me in a big, big way. Sharon, welcome back. How are you?

I'm fantastic. Jason, excited to be with you and excited to talk about this, particularly with what's happening in the world today about women taking ownership of their own financial life.

Absolutely. And when you say what's happening in today, these episodes are typically pretty evergreen and perennial. But of course, the world is facing something it has never faced in modern history, and that is COVID 19, the coronavirus. And it is just upending so many parts of life. And Sharon, why is the cash flow quadrant particularly important with what's going on in the world?

Well, Jason, most of us were taught in school to become employees or self employed. And that's basically exchanging time for money. And if there's anything that's being impacted dramatically today, the number of people that are losing their jobs because of shutdowns, that's the left side of the quadrant. It's top left is an E for employee. Bottom left is S for self employed or small business owner. And that's the left side of the quadrant. That's us working for money. That's what school teaches us. There's only so income you can earn because there's so many hours in the day and only so many days in the week. The right side of the cash flow quadrant, the top right is B for business owner. The bottom right is I for investor. And that can be a real estate investor. Or you could be investing in stocks or investing in other businesses. The right side of the quadrant, your income potential is infinite because it's not you exchanging time. You're investing time to buy, build, or create assets. My favorite word on earth, assets. And that's on the right side of the quadrant. That's not what school teaches us. That's what we learn by educating ourselves, by listening to you, Jason, to listening to other programs, to reading our books. That's what it's all about is becoming an owner, investor, or Creator of income producing assets. And that's the cash flow quadrant. And for women, it's very important that you pay attention to the fact that every asset you create becomes an economic engine that you can rely on. So people that are going through this economic downturn that are surviving without being too scathed, are those that have assets that have those economic engines. Yes, many of them are suffering right now, but they're still there. And particularly when we talk about a recession, we talk about rental real estate. That's about the best asset there is for being recession proof. Everybody needs somewhere to live, right?

Right. And you know, Sharon, it's interesting. I mean, as we record this, many tenants aren't able to pay rent. And this is kind of a pivotal month for the US Economy and the world economy. A lot is going to be revealed this month. Okay. And things are changing so quickly, it's sort of impossible to keep up with. But I predicted two weeks ago that residential income property, the typical humble single family home, will be the best performing asset class throughout this crisis. And there are so many dimensions to it, so many ways that you can adjust the strategy and do things. And what we've seen is that all those bigwigs that thought they were too good to invest in little single family homes and they said, oh, I got to do commercial real estate. I'm a bigwig. I own office buildings and this kind of stuff. Well, guess what? The center of the universe is, is the home. And the world has proven that because that's where they told everybody to go. And now the world, to whatever extent possible, has learned to work virtually and use technology to do their work. Rather than having to come to an office, you lessen the need for office space. And obviously we've lessened the need for retail space over the past 10 years or more of the retail apocalypse. While this is just hastening that. And so having assets, especially that have universal need like housing, I think very important.

Oh, I couldn't agree with you more. And I had an interview earlier today about that very fact. I said, you know, right now I wouldn't touch commercial property because we don't know how everything's gonna fall out. And the business world was already moving to virtual and paperless. And so we were already seeing an impact on the commercial side of things. And now, of course, this, the rug has just been pulled out from under bricks and mortar businesses. And so from a standpoint of investments, that's where you kind of slide over into the paper side of that technology. And communications has not been as badly damaged as other areas. But certainly the bricks and mortar world has changed. And I even say the same thing, Jason, for type A Class A residential rental, I think now is the time for really to support the B and C properties, because those are the ones that people are going to be able to continue afford. And as you said, the tenants, there's all kinds of special programs out now to support the tenants and support the landlords. But I'm also seeing landlords offer special incentives to keep their cash flow coming in, and some of the tenants are taking advantage of it. So now's the time to be a little creative.

Absolutely. No question about that. We just did an episode for my Creating wealth podcast on that. Different ways that you can work with your tenants and make sure you all get through this. But the nice thing about it is it's sort of a game of hot potato, right? If your tenant says you can't pay, well, you just go to the lender and say, I need a forbearance. And the lender says, okay, don't pay us for 90 days. They'll pretty much rubber stamp that without any question right now. So let's just review the cash flow quadrant. Maybe I'll say it in a different way and you can correct me if I'm wrong on any of this, but most of us start out in life as an employee, and then maybe we become an independent contractor, right? The gig economy is a big deal nowadays. Or maybe we're a real estate agent or a mortgage person or something. Independent contractor of some sort. Maybe we drive a Lyft or an Uber car. Independent contractor, right? Except in the Socialist Republic of California. But that's another discussion. I won't go there right now. So we're trading our time for money. If we do that, we're simply selling our time for money in those cases and we don't have much leverage, then the next step some of us take is we become a business owner. And hopefully what we're doing there is we're taking advantage of ope other people's efforts, right? Where we have a system and other people that create income for us. Now, the problem with owning a business, although I'm a full supporter of entrepreneurship, is that businesses have a lot of moving parts and they get out of whack pretty easily, right? We all have to keep those moving parts together at all times, right? But the idea is we get it working and we have a system that creates income for us. So then we become an investor, right? And as an investor, we have an Asset that creates income for us. And you and I would agree that, that the asset level is the top of the hierarchy, right?

Absolutely. No doubt about it. And as you said, ope, I always, I call it other people's time, other people's money, other people's resources, opm op T opr.

Right.

And that's, you know, the beauty of people saying you don't have to have money to make money. If you the right product, the right investment tool, people come to you and they have the resources and the time to support you. And in today's world, speed to market is everything. So why recreate the wheel when other people have it and you can use their expertise, their resources to speed your success along?

Yeah, that's really good. So I guess the million dollar question is how do people get there? How do they move up this ladder? I mean, you express it as a quadrant and that's a great way to express it. I might also look at as like a staircase. Like we sort of move up the stairs or up the ladder, if you will, and our life becomes better when we have assets. Now, I guess the distinction too between the assets and the business, right, are that with the assets, those have fewer moving parts. I mean, certainly you could consider a business as an asset, but usually most people in the real world, they need to really spend a lot of time managing that business, right? They get some leverage. It's better than being an employee, it's even better than being an independent contractor. But the best thing is the asset. Do you want to comment on that at all?

Well, certainly. And I do look at a business as an asset. But your first rental property is an asset, all right? And typically you're going to hold that into an entity. So it is a business unto itself. So if you think about each rental property as a separate little business, and once you determine how to do it, I tell people, stay on track. Learn how to do one type of acquisition and then repeat it so that you've learned how to do it right. And you get better and better and better and it becomes easier and easier and easier. But you used a word earlier that's like my second or third favorite word, and that is systems. Having the systems on how you're going to manage it and the people around you having the right associations, the right people on your team, and then the beauty of leverage and having leverage that allows you to let the bank give you 80% of the money, but you own 100% of the upside.

Isn't that a great deal, though? That's opm. Yeah.

That's a beautiful model. Right.

And you won't get that in a business, by the way. You'll only get it on real estate investments, so.

Yeah, exactly. And that's the beauty because if you bring in an investor, you gotta share the upside potential. So if you get the bank to loan the money, and once you get good at it, Jason, you get to the point where you potentially could get to where you have. It's a non recourse loan. So the loans are based on the property, but you also have to have a good track record in order to get to that point. So you're maybe giving, putting 20% down, you're getting 80% from the bank. The bank just wants that 80% back. So you get 100% of the appreciation, you have 100% of the ownership, and therefore you have the ability to accelerate and exponentially grow your wealth as the market continues to go up.

Yeah, that's fantastic. Okay, so more on how does someone move around that quadrant or climb that ladder? So they start out as an employee most of the time, or maybe an independent contractor and they save some money. You got to have capital formation. Right. Or you got to go find a deal that attracts money, right?

That's right. That's right. And you know, having the goal in mind and then finding the right people, make sure you're finding the people that are successful in what you want to do and learn from. There's a lot of people out there selling a lot of courses and they are not successful in what they're pitching. Make sure you find somebody who has been successful and walks the talk and can train you and share with you. Make sure you surround yourself with people who want you to be successful. Because a lot of times when people that are employees, their friends, are all kind of in the same situation. And so you start trying to do something different and step into the world of investing. And the fact that you're making an effort and you're changing may be seen as a threat to them. Not because they don't want you to succeed, but because they see you're doing something and they're not. So be aware of that, because that's not a reflection on you, that's a reflection on them. Maybe you want to limit your time with them and make sure you're spending time with people who are already successful with where you want to go. Sharon. Getting through the energy.

Yeah, let's make sure we don't pass that for just a moment. Okay. I think this is worth expanding on even More. There is no rule that you have to be friends with the people you were friends with in college or high school all your life. When things change for you, friendships are going to change. Relationships will come and go. Some people will be intimidated by your success or by the fact that you're wanting to do bigger things than they're wanting to do. And that's okay. That's the natural order of things.

So that's important. The other thing I think it's worth noting is sometimes the people closest to you can be the most limiting factor. They may love you, they may mean well, but that doesn't mean that they support your success necessarily. Right. They'll talk you out of stuff. They'll sometimes be your worst advisors. Any thoughts on that?

The way that I say it, Jason, is that the very people that are the closest to you are the ones that are going to try and hold you back. It's that old adage of, you put a crab in a box and it gets right out. You put two in a. Two crabs in a box, and they pull each other down. And, you know, I want to highlight that it's usually not because they don't want you to be successful psychologically, but they're feeling insecure because you're doing something productive and they're not. And their reaction is to try and get you to stop so that they feel more comfortable. But what happens is, once you start having some success, they will turn around and be your greatest supporter because they see you're successful, and then they'll ask you for a loan. So go into it. Yeah, go into it with your eyes wide open, that you need to surround yourself with people who want you to succeed and that you don't want to ever be the smartest person in the room.

Exactly. And thus the value of a mastermind, which we've talked about with you on prior episodes, and I know you're a Napoleon Hill biographer. Maybe I should put it that way. And do you want to mention your book about the way?

Oh, absolutely.

Well, I've got.

I've done several. So obviously, the Napoleon Hill one, that I was going to say, okay. With Napoleon Hill, I did Three Feet From Gold, Outwitting the Devil, which is by far a must read right now, deals with fear, how to Overcome fear, Think and grow rich for women. Obviously, we'll do a lot of that on the show. And then my most recent one is Success and Something Greater. All four of those have been in affiliation with the Napoleon Hill Foundation.

Yeah. Yeah, that's great. That's great. You know, one other thing I think worth mentioning here, Sharon, is that there's this sort of old fashioned idea that it's sort of better to have a few close friends than a lot of acquaintances. And what's interesting about that, and I've read about this a little bit and I can't remember what business book this was, really sort of an in depth issue. But they did studies on this and they discovered that most of your or really anybody's advancements in life, in whatever endeavor, career or anything else for that matter, comes from what they call weak ties. And I guess part of the reason is that your close associations only have a small limited number of resources in their network. Whereas your weak ties, the people that you're just sort of acquaintances with, they're the people that can connect you with a new person because there's just a much bigger field there. And so it's sort of interesting, it sort of debunks this old idea of it's better to have a few close friends than a lot of acquaintances. I just found that to be interesting. I can't remember who was the thinker behind that, but it's fairly well known nowadays.

Well, and I agree, Jason, I think in Three Feet from Gold, I announced the personal success equation, which is combining your passion and your talent. That's all about you. Times association, times a power of association, times a taking the right action plus faith, having faith in yourself. But that power of association is so critical. And when I'm working with a new client, I walk them through that power of association and say, who are you hanging out with? Have you been to a new networking group, expanding your network and it's not the term you use, but it truly does, that allows you to impact a greater number of people. Yes, I have my close circle of friends, but if I want to continue expanding, I want to continue meeting new people and having the opportunity to share and to learn from more and more people. Because when we stop, we start to die. It's always moving forward. Finding that new power of association and that personal success equation is something that is a foundational element of everything I teach. In fact, you can go to personalsuccessequation.com to learn more about that because I want people to really analyze their own life, their own passion, their own talent, but also understand.

Business is a team sport. Don't do it alone. Have that power of association. You and I are together today talking, Jason, because of that power of association and because of that, we can now impact more people. Nine times out of 10, when I see people that have a successful business that has stalled, it's because they have not continued to network and not continue to expand that association. And yes, many of them are casual acquaintances, not close friends, but those casual acquaintances meet you for the first time and they find value and they tell other people about it. Another way to look at it is it's hard to be a hero in your hometown.

Right? Right. Yeah. Yeah, that's right. No, no prophet is ever revered in their own time or town. Yeah, that's. That's true. So those weak ties can be far more valuable. So, in other words, what that's really saying is don't be a big fish in a small pond. Get out of your pond. And there's a lot more in the world for all of us. So don't be afraid to get out there and network and do all that stuff. So very good. Sharon, the announcement we wanted to share today is that you are going to be guest hosting our Women Investing Network podcast, the Win Podcast. And we're so excited to have you. You're literally the perfect guest host. So we're very excited about that. Did you have any thoughts or ideas or future of the show that you want to share with anybody?

Well, I'm so looking forward to this, Jason, and I appreciate the opportunity. And so I want to ask everybody listening, if you have ideas or you have suggestions for guests topics, send them to me. Infoeronlecter.com is easy to get to me. I'm excited about doing this, and I think together we'll make, you know, we just bring again, it's a team effort, and many of us need mentors. We need that guidance. And I want to be able to serve that role for people, to help them identify that opportunity that may be right in front of your face and then help you take the next step and get that confidence to create and be proactive, not reactive.

Excellent, Excellent points, Sharon. This is super exciting. We're so happy you're on board with this and really look forward to a lot of great episodes in the future. Go ahead and give out your website if you would. I know you gave out the email, but the actual website.

Oh, absolutely. Sharonlecter.com, s H A R O N L E C H T E R.

Please visit me. And also I'm on Facebook, LinkedIn, Instagram, all under Sharon Lecter. And then I have my own podcast, Play Big Movement with Sharon Lecter. And I have a private Facebook group. I invite everybody to come. It's free Everything's free. The private Facebook group is Play Big Movement with Sharon Lecter, where I talk about the things that I'm doing, how to establish the Play Big Movement is all about being number one in your field, living your legacy, and creating maximum impact.

Excellent. Good stuff. Sharon Lechter thanks for joining us and we look forward to a lot more great episodes.

Thank you Jason and thank you everybody for listening.

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