EP#74- How to Generate Passive Income + Cash Flow Quickly with Justin Donald, the Lifestyle Investor

Foreign.

Hey, this is Mike Koenigs and right next to me is Justin Donald. He is the author of the brand new book The Lifestyle the 10 Commandments of Cash Flow Investing for Passive Income and Financial Freedom. And he's giving away the book on the show. Now, before I tell you anything more, Justin, what are we going to be talking about in this episode and why should people either listen to it or watch it right now?

Well, I share in this episode how to transition from having earned income or needing to have a job or a business to not needing to have one, to having income that just provides for your lifestyle. I also talk about invisible deals, how to find them and why those deals benefit you. And additionally I talk about my strategy. Stack all the ways that I improve a deal and increase the terms, but also reduce the risk at the same time.

So even if you've never invested before, or if you are a sophisticated investor, watching to this episode, listening to it, viewing it is going to change the way you think about money and investing. And if you're like me and you're looking for ways to set yourself up the rest of your life with a great lifestyle, with passive income so you don't have to work unless you want to, you've got to listen to or watch this episode right now. And like I said, you're gonna find out how to get a copy of Justin's brand new book for free. Which is something I did not expect him to do, but he's a generous guy. And oh, by the way, if you decide you wanna buy the book, he gives away all the money to charity anyway. So no matter what, everyone wins in this deal. Check out that episode right now. Justin. Anything else before I let you go?

Yeah, this is an awesome episode. If you are looking for financial freedom in any way, shape or form to be able live life on your terms by your design, not limited by a job or a business, this episode's for you. Wow.

Couldn't have said it better myself. Thanks, Justin. All that and more on this episode of Capability Amplifier.

The pinnacle of investing and making money is cash flow investing. Meaning you don't have to do much at all and you've got more money coming in than you are spending. I think that's all of our goals, right? Well, it's one of mine too. I met our guest today, Justin Donald, on a trip to Fiji a year and a half ago. And in a really short period of time, he changed the way I thought about investing forever. I have a confession to make. I've invested well over seven figures over the past few years in lots and lots of small businesses. And they've been equity investments, which basically means I gave zero interest loans for an indefinite period of time to a whole bunch of businesses and very few of them have had liquidation events. In fact, a bunch of them have just flat out tanked. Well, Justin has a really, really unique strategy and a way of investing and that's what we're going to be talking about today. He also has a brand new book that's available right now called the Lifestyle Investor. It's the ten Commandments of Cash Flow Investing for Passive Income and Financial Freedom. First of all, Justin is a brilliant guy. He adheres to some really, really strong values, family values. He and I really deeply connected and full disclosure, I've been working with him, helping him build his brand and his platform over the past year or so. And I wanted to bring him on just because first of all, he is an action taking machine. And secondly, he has taken his platform and generated well over seven figures with it in about eight months, which is really, really impressive. So we're going to hit a whole bunch of interesting topics today that I think you're going to absolutely appreciate and enjoy. Especially the fact that he's got some great secrets and some great strategies for investing and he may change the way you think about investing forever. So, Justin, now that that's over, how you doing, my brother?

I'm doing great. Thanks for the kind words. Thanks for having me on your show. I'm excited to hang out as always. I always have a blast whenever we connect. So looking forward to it today too.

Well, let's. I suppose we've got to do a little short story which is just so everyone's got a little bit of framing about your background and what you were doing before you decided to invest and how you started making your money. Before we get into the strategies and tactics.

We'Ll touch on a bunch of little ideas along the way because we're going to, as usual, drift into some interesting topics. But I'm going to nail a few specifics because I always want to provide some big value and also help people have their minds blown the same way. Mine was the first time we sat down and chatted. I think it was at an airport in Fiji when we really started going deep and talking about what it is you're doing and how you did it. But I love to say you're the who in my howland, which is rethinking and reshaping the way I think about investing. You completely changed the way I'm approaching things now. So a little bit about you. Why don't you give us a little bit of framing in your backstory?

Sure, yeah. And I just love the way that we met and the way that everything's come together. It's just been so fun. So as far as investing is concerned, I have been investing since I was 18. Now, these are small investments. Back then. I made my first investment into a Roth IRA as an 18 year old after hearing a talk that I should be saving for my future. And after that, I mean, I really kind of got hooked. And so I invested money for every year since I was 18 until now I'm 40. And I really appreciate that in the beginning it wasn't a lot. I was investing as I was making money, trying to pay my way through my education. University of Illinois for college. And it really just was at that point in time, more of I don't know what to do. I'm just going to put my money somewhere and get it to start working for me. And at that time I was working with Cutco and their organization and that's how I paid my way through college. And I looked at it at first it's just a college job and it was a great college job. I learned some valuable life lessons, I made some great friendships and I ended up really excelling with the company and more than covering the cost of my education, which was $15,000 a year at the University of Illinois for room and board. And I graduated debt free because of that. And so I ended up continuing to work with them and to kind of grow in that business and really kind of take on more and more territory as a manager, a division manager for that company and performed well in that role as well. And so it's an aspect or partial, I don't want to fully say I had my own business, but there are aspects of it that were mine even though I didn't fully own the asset. I went through a lot of the mechanics, behaviors, systems that a business owner would go through. And I think it was just a great foundation for me in the business world and to have some cash to be able to invest because I was very aggressive at saving and investing even at a young age.

It's really good. And let's talk a little bit about.

Your first big win, which was when you let your. Well, when you started generating enough cash flow income from your investments so your wife could quit her job and then the breakthrough when you could do it too. And then we're going to get tactical here. And talk a little bit about the strategies and the stacks.

Because I think that's where the rubber really meets the road. So, yeah, why don't you talk about what some of your first breakthrough investments were and that enabled freedom, really, which is the goal I have. You have, and you continue to build, on top of which is financial freedom, meaning enough passive income coming in, pays all your expenses, never touches your principal, and you can live happily ever after. Amen.

Yeah, well, and actually there's a backstory to that backstory. And the backstory is my wife was a teacher at that time. She was teaching business classes to high school students and earning about $36,000 a year.

As kind of like base salary. And there were, you know, when I think about her schedule, she had a pretty rigid schedule. She didn't have a lot of flexibility during the school year. So 7:00am to 3:30pm, 3:00', clock, 3:15 right in there each day and then some things after that. And then during the weekends she didn't have to work. And then on the, you know, during summer she didn't have to work. Now my job at that time, my busiest season was in the summers and I periodically did have to work on the weekends. This is early before having our daughter. And so when I think about that schedule and what we wanted, we wanted to be able to travel together and kind of live life on our terms. And so that was kind of the limiter at that point. And so I figured, well, if I can replace her income with passive income, then she won't have to work. I mean, if she wants to, she can. I was pretty sure if we could replace it, she could find other ways to spend her time that would still fill her up, which she has been able to do. And so I found a mobile home park that cash flowed enough to be able to replace her income. So I knew just by buying this park, I had run the numbers. And I like cash flow investments that pay today. I don't want to invest in real estate and hope that appreciation kicks in and I make money in the future. I hope that also happens. But I actually want to buy based on cash flow today. And that's what I did. And so the cash flow from our very first purchase was able to replace her $36,000 a year. It ended up being her after tax income was high, 20,000. So let's call it 26, 27, $28,000. And so our first purchase was able to cover that. And so we bought her freedom, which was nice because we started our family Shortly after that, and it was nice that she could be home and really spend time the way that she wanted to. And then shortly after that, I replaced my income. And before replacing my income, I first replaced what it cost us to live at a bare minimum. So not quite our lifestyle, but more just the bare necessities, what it costs for our mortgage and our groceries and our utilities and vehicles and all that. And so once that was done, there was just this huge, huge sense of relief knowing that I didn't technically have to work. And I was getting even closer to not really needing to based on lifestyle. So then the next step after that was, how do I replace my current lifestyle income, what it cost me to live today based on the lifestyle I've become accustomed to? And so our next property, really the second mobile home park that I purchased, really covered the bare minimum expenses. And then our third mobile home park covered all of our expenses.

Yeah. And I think what's important here is when you told me it was mobile home parks, I was like, God, that's the least sexy investment. And here I am, I've been doing startups and software and all this.

One of the things that I felt like such a fool when I was with you is like, God, I've been working way too hard. I make it so hard on myself. And when you started revealing the kind of portfolio investments you have, because now you're in a whole bunch of different ones, well over a hundred. But before we get into the tactical stuff, next, which I really want to lay into, which are your strategies, why don't you, I'm curious, what were your hard expenses? Like, what was your number in your nut you needed to reach in order to know you had your financial freedom?

What was that? And also by this time, once you had.

Well, yeah, let's start there. And then I've got another tactical question before we get into some of the more sophistications.

Yeah. So in order to cover our bare minimum expenses, it was about $52,000 a year. And technically we probably could have gotten by a little bit less if we wanted to really do it as thinly as we could. It was probably right at $46,000 a year. But $52,000, I think, was a pretty fair number to cover anything and everything we needed so that if anything happened to me and I couldn't work, we were fine. And I wanted to get there as quick as I could. The next level, I basically floated anywhere between 100 and $120,000 a year as a lifestyle income for a Good stretch of time. I was making more than that, but I was saving.

Probably for the last decade of having more of a formal job. I was saving about 50% or more of what I was making per year and just investing that. I was very aggressive, and that really served me well.

Yeah, Very unusually disciplined. So that, I think is something that I've learned about you, is part of it's your mindset, some of it's your work ethic. And also, I don't know about anyone else who's listening to this or watching it. The thought of a $50,000 a year lifestyle. I don't remember when the hell I last had that. I mean, there was a period of time, and I'm not proud to say this, I was. There was a period of time I was making so much freaking money every month. I was blowing 50 grand a month. And I didn't. I didn't even. I had nothing to show for it. Like, right before I got married, it was like during the heyday of the dot com thing and I'd sold my business, and I think that's another area that just spun out of control for me for years, was just like, burn, burn, burn, burn, burn. It was crazy. So, well, let's get practical and tactical. Yeah, go for it.

The 52,000, that was just what it costs for mortgage, utilities, groceries, the bare minimums, you know, lifestyle at that point in time was probably closer to 120,000. So about $10,000 a month.

Okay, good. I think that's worth mentioning. And I think, again, depending on where you are in your life.

It all comes down to what's important. So. So let's get practical and tactical and pop into some of the more advanced mindsets. Because.

Again, full disclosure for everyone who knows this. When I met Justin and he told me his story.

He had a system he had created to generate and do what he was doing. But if I asked him to articulate it in a way that I could apply it and use it now, there really wasn't a system there, so to speak. And we started having a conversation. I'm like, dude, you've got to write a book. Do you teach? No, I want to. Do you speak? No, I want to. Or I've spoken, but I don't, you know, I'm not doing it. And do you have an offer? You know, do you. Can you work with people and teach them? It's like, yeah, I've thought about that. I just don't know exactly how to build it. And that's really what brought us together. So now at this point, you've got the book, you've got a product, you've got a mastermind, and then you do one on one where you basically coach people the mindset and strategies you're using.

In a way that doesn't break any laws. It's like the world of investing and advising is a dicey one, and when you start divvying out advice. But what you have managed to do that I love is you've got this amazing community, a ton of connections, you see a lot of deals, and you negotiate some really interesting.

Deals that are advantageous. So what I'd like to do now is explore a few of those and maybe we can talk about a recent deal that you've done and how you structured it, how you organized it, and maybe even go so far as. So let's, let's start sophisticated first and then we'll work backwards. Like you've. You negotiate on a lot of different levels. And what I'm most impressed with, and I'm going to take, let you take it from here, is you stack the odds in your favor right away by negotiating a better deal than is even available or presented. So let's begin there. Talk about, you know, recent sophisticated negotiation, how you did a deal and what kind of a deal it was. And then we'll break this down into some of the other types of investments you're doing. Because again, you started with mobile homes, very unsexy, but you've done tech deals, you've done real estate deals, done all sorts of things. You've done retail. And we'll, you know, break this down so people can understand the system and model and replicate it.

Yeah, I think it's interesting. I'm happy that I started the way that I started because I learned a very good cash flow model. Mobile home park's very much cash flow in a way that is as advantageous as an investor could get. And so my framework because of that for future investments was potentially skewed. I knew what I wanted. I knew that I wanted cash flow every single month, or at least in some sort of regular occurrences. And I knew that I wanted to be able to get a quick return of my initial investment. And I knew that I wanted to protect my investment so that the odds were really low that I could lose money, if not impossible, but the odds of making money were really high, and that there was upside tied in. And ideally it's upside that I didn't have to pay for. And so we could get into all the nuances But I think first and foremost I wanted something that really protected my lifestyle so that it didn't cause me to work more hours. I want all my investments to be independent of my time because my goal is to buy my time back. I don't want to work for money. If I'm going to work for money, I want it to be because either A, I love that thing that I'm doing, I have so much passion for it that it, you know, I would do it for free, or B, that I'm being so well compensated for something that I actually enjoy doing that I'm very comfortable with that. And ideally it's a combination of both. But outside of that, I don't want to have to work. I want everything to be independent of my time. I want assets producing income, not time producing income. And so the way that mobile home parks really set me up and the framework of it really got me in the mindset of cash flow investing. And so that's kind of the framework that I look out of today. And so is cash flow investing the only type of investing I do? No. Is it kind of the foundation? You bet. And to me, I think it should be the foundation for the way most people invest. Because once you can cover your expenses and then your lifestyle, then it creates a lot more time and space to think and to focus on what is most important in life and where you should be spending your most valuable treasure, which is time.

And it actually gives you the space to get even better, smarter, more sophisticated with the way that you invest. At least that's how it's been for me. And so I often will look at my investments first and foremost, how does it support my lifestyle? Is this going to be an advantage to my lifestyle? Is this going to be a hindrance to my lifestyle? And then secondly, immediately after that is what is the risk profile? How do I de risk this deal? How do I ensure that I don't lose money? Or if I'm going to lose money, I don't lose everything that maybe it's a small percentage that I could lose, but the win could be pretty massive. And so that's kind of the framework that I operate out of. And you know, I really try and structure my deals around that.

All right, so let's get really, really specific with the deal. Let's talk about.

Use a real example. You don't have to mention the real name unless you are allowed to do so. I'd like to know like a typical investment range.

The return that you start getting and when you get it and how you reduce your risk.

Maybe how you handle getting your, you know, your, your focus and goal on getting your initial equity back and then how you protect your downside. Because again, you've got a variety of ways that prior to meeting you, I hadn't seen done before. And again, I think that this is important through a couple different lenses, which is this is going to sound ridiculous, but when you're a relatively unsophisticated investor, which I've been for years, it just didn't dawn on me when someone put a document in front of me and knowing that there had been other investors who'd put money in that I could just make up my own rules. And also that very frequently what you do is find a way to maybe double the shares you got and say, well, I'm going to become an advisor for you. And then all the ands. And we call this stacking in your world, where you start stacking all these strategies together. So that's what I want to do is let's tear apart one of your deals and it could be a recent one. Or like I say, you can either do this anonymously or use the real.

Real name. And then after that I want to do.

I've got another one in mind that I know of that I want you to talk about as well. But I think this is a great way to get our audience educated for how you think and how to rethink investing overall.

Sure. And you bring up a good point, Mike, because the terms that someone provides you with are terms that are good for them and that's why they presented them. Does that mean that they're going to be good for you? Well, they might be, they might not be. And what I like to do is I like to push back on terms to get to a point where I personally feel comfortable. So I'm okay walking away from a deal. I don't have to, you know, if someone doesn't want to, you know, kind of honor terms that I've asked for, I've got no issue with that. I don't want them to have any issue with it. There's no judgment here. But I ask for terms on my behalf to de risk the deal and, or to increase the return or the return profile in a way that really kind of skews towards me as the investor. And so I think that that is an important just framework to begin this conversation with, is that whatever terms I'm given, that doesn't mean that that's the end of the day terms. I just look at it as a starting point. And so if I like the investment enough with the terms the way they are, I'm fine doing it. But nine times out of ten I don't. And if I can protect my investment, then I might as well try it because it's a no by default if I don't try. And so let's take a look at. I mean, we could do an example like of a debt deal. We could do an example of a real estate deal. We've talked a little bit about real estate where I directly own it and I've got a team that runs that part of the real estate portfolio. So at one point in time it did. Did require my time. Today it doesn't require my time.

Yeah, let's do something that's not a real estate deal just because I think I want to get into some of the uniqueness and also how you've, you know, you started in real estate. But let's, let's do something a little bit different. Although you could. I know one in particular, that one that was a big property that may or may not have been an airport at one time or something like that. It was a big property that was interesting. That was a stack deal where you protected yourself. But yeah, I'm going to let you be creative here and I know a little too much, so I don't want to give anything away about my own knowledge of what you've done. But at the same time, I want to direct you because I want to find.

Here's another one. You've done a couple of big brand deals that have been super interesting and I think that's a good setup, especially post pandemic with what's going to be happening where a property got separated and divided. Do you want to tear one of those things apart and how you renegotiated and actually helped with a group as an advisor?

Yeah, sure. I think that'd be a lot of fun. That'd be a good one.

Yeah, let's do that one. Any one of the few that you're involved in, I'll leave it at that.

Okay, well, there's a very strong retail brand that, you know, has a great brand, has a good presence. And from a brick and mortar standpoint, these brands are getting crushed pre Covid. You know, of course, during COVID it was even amplified that much more. And so there's a way, though. There's this idea of a strategy where you close all the brick and mortar stores and you just scale it online. And I thought it was A brilliant strategy. And in fact it's a strategy that has worked tremendously well. And really it's something that no one had ever done before. So for example, you've had brick and mortar that have had an E Commerce component. You've never really had a brick and mortar shut down completely and then just solely scale online, at least not that I'm aware of. And so the group that I worked with on this, we did some great work. I'm happy to be one of the first people to be part of this. The first project we did was small. There were only 12 of us. And in order to buy this in time, we literally had 48 hours to make a decision. So it's the fastest I've ever made a decision on an investment. Typically I take a good amount of time and I pride myself on the quality and diligence that I do to dissect a deal. This one, I felt like I had done enough and I knew what I wanted to do and I felt like I had enough pieces of the puzzle. And so we invested in this brand, we bought it, we scaled it online, and really inside of a year, this thing has become a juggernaut. We're almost to the point where this retail brand was doing about $100 million in revenue just on E Commerce only in a very broken model. And we were able to basically replicate that run rate at about the midway point of this year, opening in January. And so this particular investment was structured with a one year note and that one year note was paying 20% interest. The note was collateralized by the IP, so the brand name, the customer database, I mean anything in terms of buying behaviors, all the information that we were able to gather from the corporate company, the largest actually female retail.

Conglomerate that exists. And we just, I felt very protected in that because we bought it so cheap. There were businesses that at auction this thing went, it was a pre bankruptcy and so there was an auction for it to see who was going to buy it. And there were groups that auctioned or made offers higher than ours. It wasn't a bankruptcy auction because they would have had to go that price, you know, the higher one. But in this case, they went with our group because they liked our model, they liked our team, and they liked the fact that we were going to kind of take everything from them and not require them to stay actively on giving us information and helping run the business for a year's period of time. Like most of these groups, we did it in two months. We said, hey, we can have this thing up and running on our own in two months. And so we did. It was a fast turnaround. It ended up being really successful. And that one year note, at the end of a year we got a balloon payment. And then in addition to that balloon payment, there was an option to either reinvest at another note with more preferred terms with some warrants, with a bonus kicker, or to invest.

And for someone who doesn't know what the warrants and a bonus kicker mean, what are those?

So bonus kicker would just be a cash bonus. Hey, invest at this loan term for one year or two years, and at the end of the term you get 20% in a cash bonus of whatever your loan amount was.

And that's in addition to whatever you were already getting.

Correct. And also one of the other options was in warrants. So you can agree to basically today's current price, a strike price based on today's value. That is an option to execute at a later period in time. So if the company does well, you'd exercise it and if they don't, you wouldn't. So you're not out anything. It's just basically a right or an option that you have to exercise at a future point in time. Now here's the cool part that I haven't even talked about yet. So with this investment, we were able to get a percentage of equity on our investment as a kicker. So technically it was a loan. That loan, we got a balloon at one year. However, we got an equity kicker day one, meaning a piece of equity of the company for free because we got all of our money out of that deal. And that equity was effective as of the day that we closed. So we were on the cap table, which is really just a cool thing. So I've got all my money out of that deal. I have equity into perpetuity. The brand is scaling really well. So it's all house money at this point. If the company doesn't make it, it doesn't make it. I've got all my money out of the deal. I figured there's no way this company's gonna fail inside of one year with the customer base that they have and the team that we have in place that is great at scaling products online.

And so everything really has worked out well in this group.

So.

That'S a good example. The bottom line is you stacked it, you got your cash flow, you're getting paid 20% plus a bonus. And that was a one year deal that you had an option to continue on. So fairly low risk. So let's Talk about finding a quick.

I should jump in. Because when I ran this deal by a lot of my friends, a lot of smart investors, people actually thought this was a very risky deal because it had never been done before. I had brought this to a handful of people that decided not to invest. Very smart people. And so I remember thinking, gosh, am I missing something here? Like, should I. What should I be worried about that I'm not worried about? I saw the trend of e commerce pre Covid. It didn't matter. E commerce was booming. Retail was hurting. That's a fact. That was an easy one. It's a brand that already had a good customer base with really good online presence that. I mean, the company was doing a horrible job with their online presence. It's almost like they were doing 100 million revenue in spite of the company because they were doing a lot of stuff wrong. And so I just saw the potential of what it could be. And especially with a brand that even if there was no customer base or wasn't much of a customer base, you've got a brand that's been around for 50, 60 years.

With a startup, you got to start it up and create the brand presence. You got to create your brand from nothing. No one knows who you are when you got a brand for 60 years. Like, that's the hard work. All you gotta do is market it. And so, you know, there's a little more behind the scenes than that. But I mean, truly in my mind, that's what it was. And so to me, this one seemed like a layup. If the company was gonna fail, which is a possibility, they could have failed. I just didn't see it happening inside of a year or two years or even three years. And so this is one where I thought it was very low risk, but a lot of sophisticated investors weren't even willing to get in it because they thought that it was too risky.

Yeah.

And I think knowing you.

You get exposed to so many different kinds of deals and you've figured out and managed a way to filter them very, very quickly. So I think the last big thing that I really want to touch on.

Is how you filter and do your due diligence, because you do have some people you rely on and depend on. You've got a great team, you've developed and evolved over the past few years. It's like a strikeforce team. And then.

You'Re in a variety of groups that you get exposed to deals. So maybe the first thing is, how do you find the deals? Because there's an old saying.

About investing, which is by the time the ordinary person has seen it about it or heard about it, all the good parts of it are already gone. In other words, the only great deals are the ones you never hear about. That's true and not true, but you get exposed, you get access to deals because you're doing deals. But for someone who wants to dance and start playing in this space, how would they get exposed to some great deals and talk a little bit about those networks and those connections.

Yeah, I like to call these invisible deals. And Mike, you're right. There's this world of deals that exist that most people don't know about. There's this world of arbitrage, meaning that it's a risk free opportunity or risk free investment. This exists. It's not, it's not necessarily prevalent, it's certainly not for the masses, but it exists when you have enough education and when you have enough connections. And so for me, I've been very blessed to have developed great relationships over the years. I really take a lot of joy in my friends and relationships and that's where I spend a lot of my time and energy. And so I've got a lot of deals that have materialized just because of relationships that I established decades ago. You know, in some cases it's helping people out, expecting nothing in return. And then years later they're in a position and they want to repay that favor. I don't feel like they need to, but they want to. It's like a great joy for them to say, hey, I can take care of you now. I appreciate you helping me out years ago. And so I have situations like that all the time. I have situations where I just have networked in the right crowds that know other people that I want to be connected to. I'm in a bunch of investment groups, some pretty high level exclusive investment groups. And so in a lot of these groups, there's tons of vetting that happens there and we get access to deals that just aren't open to the public.

And can you talk about any of the groups that you can share just so people have a starting point?

Yeah. So I'm part of Tiger 21. It's an investment group that's internationally based. It's mainly in the US and there are chapters in most major cities and your larger cities have multiple chapters, but this is kind of like your highest level investment group that's out there. So you have your EOs and YPOs for kind of like the business world. And maybe depending on the size of your business or kind of your level as an entrepreneur. You may pick one or the other or I know a bunch of friends that are in both.

And you've got Vistage and that could be another one in that tier. But these are all business related operations. Running an organization, you have employees, you have a certain amount of gross revenue or profit in order to qualify. And so Tiger 21 is for the investment world. So there's a criteria or qualification that you need to hit to be eligible for that group as well. But this one's not based on running a business. This one's based on learning how to invest and being exposed to create deals. I'm also part of a group called Sovereign man that I love because.

It'S very worldly in its view and in the investments that it considers. So this is how I get outside of the US for a lot of my investments. And I love their worldview. I love how strategic and educated the people that run this group are. And so I'm just really pleased with both of them. And I get access to great deals and I get access to great connections that then lead to other deals. And then we have tons of people coming in pitching their investment opportunities. And I get to know these CEOs and often I can help them as an advisor to their company, or I can help them by investing directly into their company, whether for one of my unique structures or whether it's maybe I'm just giving them a loan with some pretty preferred terms.

Yeah, I know one of the deals that you did that again was super smart. And maybe I'm just a guy who didn't think this way before because it was just a different kind of thinking. I'm so used to being an entrepreneur, being trapped in that world and building and growing businesses on cash flow. I always did it more or less debt free without partners and outside influence. And before I do want you to go over like one of the deals you did which was with a major brand chain and you worked with a couple of. And I can't remember in the book if you mentioned the specific brand or not. You'll have to remind me if that ended up making it in there, if we ended up not putting it in. You know what I'm talking about?

I did.

Okay, so why don't you talk about that deal and how you set that up, because this was another one of those things where you preserved.

Your passive involvement, yet you got really great terms. And it had to do with just negotiating the right deal with a couple of entrepreneurs in a way that really ended up being win win. It wasn't a predatory deal.

Yeah. And so for me, I love investing. So, you know, I talked a little bit about a debt deal. I talked a little bit about real estate. In fact, you know, if there's time, I can even expand on some of the cool strategies that I have with syndications and funds to be able to get principal back quickly, to then take that money and reinvest it somewhere else where I still have equity, but I have all my cash back. And so I can really amplify and multiply that principal investment many times over. And so I love those strategies. I do those with debt deals, I do those with equity deals. But now you're asking me about one of my favorite ways to invest, which is in operating companies. And in this standpoint, we're talking about a franchise. And so this particular one is orangetheory Fitness. I did end up including the name. I went back and forth on whether I was gonna. On these investments that I list in the book, am I gonna say exactly what the investment is and exactly who the group is, you know, exactly what the company is, or am I just going to kind of leave it as is? And so this one, I decided to name it because it's such a powerful brand. It's got such great brand recognition internationally, especially in the US but internationally it's just blowing up. And so on this particular deal, I've wanted to get into the franchise space for a while with a strong brand that.

Basically helps from the standpoint of corporate with marketing. And just when you have a good brand, there's a lot of passive help that happens that you don't have to do. You can just be the natural recipient of because the parent company does such a great job. And so Orange Street Fitness is one of those brands. And it's one of the highest profit margins of any of your. Your franchises as well. And so I like that I've had friends that were involved. I've got a dear, dear friend that has a couple of studios and has done so well. And so I'd seen his P&LS and I knew what he was able to do. And it was very impressive. And so I knew I wanted a piece. And so I had tried to get a license for a good stretch of time. No one would sell them. Anytime one came available. People had rights of first refusal, wanted them. The area managers, people already had franchises with people that were running the different regions. And so they just didn't want any outsiders in. And we got lucky based on a couple that I'm good friends with and that they were part of one of my businesses early on in my career. And so these two, I had coached and trained and they had run their own businesses as young college students and post college. And it was really neat watching them grow. And we developed a great friendship. Well, they had connections with one of the largest owners of orangetheory fitness franchises, and he was in the process of selling them and he really, I can't give all the backstory on it, but he was really glad for us to get one of them and not for it to go to the group that he was selling to. He really wanted to take care of of my partner that had worked for him for five years and kind of give her and her husband a start in this world. And so they had the opportunity to get this license. They didn't have the money to do it. And so I had the money. I was happy to, but I didn't want to put any time in it. And so I was very clear. I'm a capital partner. When I invest in operating companies, my job is to be the capital and be a support system. I probably have dealt with a lot of situations that they're going to go through, so I'm good from that standpoint. I'm good at looking at financials, so I can help. But I want it to be more because I want to or choose to, not as an expectation or an obligation. So capital partner first. Everything else beyond that is just a bonus. And so they were fine with that. And so they invested their life savings into this brand. And I like that because we really had a vested interest. Their life savings wasn't much in comparison to what I was putting into the deal, but it was substantial in the fact that this is everything they have. And I know they're going to work hard on their behalf, but also on my behalf because they want it to do well and they don't want to let me down also. And so in this particular investment, I came up with the equity investment for the down payment. We ended up getting an SBA loan through a local bank. It ended up being about $800,000. And the down payment was right around $120,000 or $130,000.

And then for that, I ended up getting one third of the company. And so what we ended up doing though, on the distributions though, is we did a flip flop for an accelerated distribution. And so instead of earning 33% until my initial equity investment was repaid, I earned 67%. So once all my money is out of the deal. Then it reverts back to my 33%. So that's called an accelerated distribution schedule. I use those all the time. I love them because it's a way for me to invest in equity and get my money back quickly. Typically, when you invest in equity, you don't see that money ever again. You might have an exit, you might not have an exit. You talked about it at the beginning of the show where you've put multiple seven figures in and haven't seen anything. And that's because you could be the smartest investor out there. Those take luck. That one's not about being smart.

You could even be in the space and not do well, especially in the startup phase, where it's not completely proven yet. Naval Ravikant, who's one of the best angel investors and started Angellist, he talks about how.

If you want to be a successful angel investor, a successful angel investor has one good win. One company out of all of their investments. One company, that success ratio is really bad. He said that very few people even get there. And then if you get two, you're a unicorn in the space. And so he's obviously a unicorn in the space. Most people lose money. And so that's not the type of investing I want to do. I don't want to invest in equity and just hope that it works out. I want to invest in equity, and if I'm going to invest in equity, I want some sort of accelerated distribution schedule to get that cash back quickly to then repurpose into another investment. So if the business tanks, that's okay. I mean, I don't want it to, but at least I'm not out that money. And so that's kind of the worldview I have. And in addition, I was able to negotiate the bank down from 100% personal guarantee. Since I'm the largest.

Contributing partner and I have the largest net worth, I was able to go from 100% personal guarantee to the bank down to a 20% personal guarantee. So that one I'm really proud of and with the opportunity to have that fall off in the future as well, and have no personal guarantee, liability, or, you know, I guess anything that kind of ties me in a negative way to the. The bad ramifications that can happen with the business going under.

Right. Especially these days, where, let's just face it, during years of a pandemic and a business that was dependent on people actually coming in the doors, you know, that's. That's a risk. And.

There'S the stuff you can control, the stuff you can't control. And I do really want to go back to what you were saying earlier. What I love about the investments and how you've been thinking about them is first of all, you find these little hidden gems, you negotiate better terms. And.

My mindset when I supported these equity deals that I did, some of them have been software deals, some of them have been dot com sorts of things. I've got a couple of bio, got a couple very high visibility brands.

And.

You know, for whatever reason the moment hasn't happened. And again, looking back, if I would have just taken that, you know, million plus dollars and invested in the kinds of deals you are where you're very commonly getting 20% a year. And just out of the I just want to present this so other people understand this. The number of deals you've done so far and the number that have actually tanked and fallen apart, what are the two numbers?

I mean, I've done.

Well over a hundred deals. I'd have to really check in to see what the number is.

But I really have only had a handful, three not work out. Now keep in mind that the jury's still out on some of these. So some may not work out that I'm in right now and hopefully they all do. I know as an investor at some point I'm going to lose money. At some point, some of the money that I have exposed right now is not going to work out, something's going to go bad, something unanticipated or just bad operators or bad concept. But I'm not investing in high risk stuff. I'm not investing in startups, I'm not investing in seed round. And when I do, it comes from cash flow, not from. It's not my first investment I make. I get all my cash flow in front of me and then when I have overage in that cash flow, meaning I can cover my lifestyle, I can donate to charity, I can save and invest and anything above and beyond that, I can put into maybe a seed round type of investment or into some sort of a tech startup, which I do like that space. It's just really risky. I mean, instead of putting a million dollars into one of those deals, I'd rather take a million dollars and earn 15 to 20% on it in some sort of debt or real estate deal that is safe and secure where I make 150 to $200,000 a year on that money and then take whatever I don't need for lifestyle and put that into A riskier deal. So that way I'm not putting my principal in, I'm just putting some cash flow in. That's the way I look at it.

Yeah. And that's something else that you have a very different mindset, investing mindset, than I've seen in a lot of other ones, which is you're constantly edging, getting close. And some of it's your age. Granted, at 40, you're in a very different mental place than a 50, 60, 70 year old would be. But it's also how you manage risk and think about it that I find fascinating. So I feel as though we could do two more episodes and get even more specific now that we've actually created a little framework here. But I want to send our viewers and our listeners to your website because one of the things that you did and one of the first things that we worked on when we started working together was the ten Commandments of lifestyle investing. And you've got a free guide that people can download on your website. You've also got your new book and then for folks who are interested in actually working with you, they can learn more on your site about your mastermind or the one on one coaching. And you've got, well, and you have very limited access because again, you preserve and protect your lifestyle like no one's business. It's one thing I really admire about you, but why don't you talk about where to go and what you have available and any other recommendations we have for our audience here before I let you move on?

Sure, yeah. Thank you for the kind words. Yeah, for me, time is everything. I worked really hard to buy my time back, so I want to make sure I stay in charge of it. So that's why for my private coaching at this point, I'm only doing six private coaching clients a year and likely in 2021, I'm going to move it down to four. So that one's real limited. I've got a wait list for that and the right fit is the right fit, but I'm very selective on that one. I've got a mastermind that is really great for people that are looking for group collaboration and other people that are successful in whatever their craft or trade are. I've got some very successful entrepreneurs, executives, doctors. I mean, we've got really a smorgasbord of different professions and different levels of success. But all these people are eager to learn how to get better at investing and specifically at lifestyle investing. And so that's a really cool group of people that I love and I'm really particular about that group. I screen everyone myself. Not a single person has gotten in this group without an interview with me and plenty of people have not gotten in. But those are kind of the more higher.

I could call them higher ticket. But they're also more specialized and catered content. But I also have kind of your more entry level and foundational options such as our online course. That online course, if you go to justin donald justindonald.com.

Course you can find that and that's a fantastic program to kind of get your feet wet. And then I've got a masterclass as an option as well. And if anyone wants to get the book for free, you can go to justindonald.com freebook and I've got an opportunity for that. Plus you'd pay shipping and a few other free perks with that. But with the book all the proceeds are going to charity. So my big thing is that I want to create freedom, lifestyle freedom. And that's for people that are going to read the book and coach and all these different things. But there are a lot of people in the world that don't even have your basic human rights freedoms and that's where this money is going to go to, to buying those freedom back to stop people that are.

Doing any form of human trafficking and taking away, stripping human beings rights to just having some form of freedom in the world.

Well first of all I didn't know and expect you to be giving away your book. That is awesome. And I think that's going to pay big dividends for you for sure. And also.

It'S awesome. That's something that you and I did talk about and you give back and you do give a lot, you and your wife and the fact that you're giving everything away to charity as well. So that means yes, you can go and buy Justin's book and then he's going to give all the money away anyway or you can just go to his website and get it for free. So what's that link again? To get the free book?

Justindonald.com freebook well that's obvious.

So that's fabulous. Okay, so I don't know what else to say except you've got an amazing platform you built in a very short period of time that just flat out works. I've been blown away with how well you've executed. How you've built this platform as we've been working together is representative of that old saying. How you do one thing is how you do everything and.

When I look at and hear and have studied what you've done from an investing point of view, I'm blown away with the volume of deals you've gotten done and continue to do and get exposed to, because I get all your emails right now as well.

I think what I want to say to our audience is I've had the time to get to know this man and he's really extraordinary at everything he does, everything he touches, and the way he treats his wife and his daughter and everyone that he works with with the highest degree of respect says a lot about who he is. And so if you ever get a chance to work with Justin, do it. I can assure you as soon as this book gets out like it's going to and I'm participating. And one of my goals is just to get this out to as many people as possible because I love the way you think you're going to be so busy and as busy as you want to be.

And getting access to Justin is just going to get harder. So now's the time to get in on the ground floor while you have a chance. And I've already sent people, a couple of people who are in your private coaching or folks that I recommended.

And they're really ecstatic. What they say about you behind your back is amazing. So I want to leave it at that. I don't have anything else to say. Do you have anything else to wrap this up from your perspective, Justin?

Well, I've got a nice layup. I often even forget to mention that I have my own podcast called the Lifestyle Investor. So I probably should mention that, you know, you can find that on itunes or my website, justin donald.com podcast and so, yeah, give it a listen. We've gotten great feedback. I'd love to have more opportunity to impact people in a way that is very easy or very low bar from a cost standpoint, since it's free.

Right on. And that is. I'm glad you brought that up. It is another way to get exposed to Justin's thinking and the people that he spends his time with. And you'll meet some of the people in his toolbox of resources who think differently about money. And again, what this all is about is freedom. I think that's what's great about the whole brand lifestyle investor and lifestyle investing. So this is Justin Donald. My name is Mike Koenigs. This is Capability Amplifier. If you enjoyed this episode, make sure you head over to capabilityamplifier.com you can leave a message for Dan Sullivan myself. Also make sure that if you enjoyed this and think there's someone you know who could benefit from thinking this way or this education, share this episode with them and leave a comment on itunes. Because that is the way podcasts grow is by word of mouth and by sharing. So with that, thank you for listening. Thank you for watching watching. Looking forward to seeing you in another episode soon.

Bye Bye.