The Wealth Tripod
There are 3 main areas to focus on when creating wealth, each of which corresponds to a leg of what I call the Wealth Tripod. Many of us focus on one, or maybe 2 of the legs of the Wealth Tripod, hoping to amass enough wealth to sustain us throughout our years. And you can balance on one or two of these legs to create enough wealth to get by. However, it is when you are able to coordinate and utilize all three legs of the Wealth Tripod that you are able to create substantial wealth quickly. The Wealth Tripod is the secret to getting rich with laundromats!
Below I will explain what the Wealth Tripod is, how laundromats utilize each leg of the Wealth Tripod. Then I will show you how you can leverage it to get rich with laundromats. Proper usage of each leg of the Wealth Tripod with laundromats can help you accelerate your journey toward financial freedom!
Let’s talk about what the Wealth Tripod is and how it helps you achieve the financial freedom and time freedom you crave. For even more details, see the video below.
Cash flow is the first leg of the Wealth Tripod. Cash flow refers to the money that your business or investment puts into your pocket after all expenses are paid and debts are serviced. This is what fuels our lives.
You are likely familiar with cash flow in your life, although you probably don’t think of it in these terms. If you have a job and receive a monthly paycheck then you receive cash flow every month. In this case, your cash flow likely comes from you trading your time and skills for money. This is great! There is nothing wrong with this at all.
However, you may want to to buy back some of your time through income that is not dependent on the number of hours you work. This is where laundromats can radically improve your life. By having cash flow coming in that is largely detached from your time investment, you can use that money to buy back time. You can do this through quitting your job or cutting the number of hours you work. Or, through reinvesting that money into more investments to accelerate your wealth growth.
Laundromats are a cash flow business. On a solid purchase, you should see 25-35% cash-on-cash returns. This is cash flowing into your pockets to do with what you please. Those kinds of returns are tough to come by elsewhere, especially considering the relatively little time you need to invest into this business. Focusing on cash flow alone will improve your life, but if you’re truly looking to get rich with laundromats, you need to prop up your wealth with the other two legs of the Wealth Tripod.
Equity is the value stored in your business (or real estate) above and beyond any debts owed. Most of us are familiar with this term through the homes we live in. If you bought a house for $300,000 and put down 20%, or $60,000, you have $60,000 in equity in that home on day 1. You owe $240,000 on your loan, plus your $60,000 in equity, equals the purchase price of your home.
$300,000-$60,000= $240,000 owed
If your home appreciates 5% in the first year, and you have made all of your mortgage payments (about $4,000 in principle), your new equity position is:
$300,000 x 5% + 300,000 = $315,000
$240,000 (loan) – $4,000 (principle pay down) = $236,000
$315,000 – $236,000 = $79,000 in equity
As you can see, your $60,000 has now grown to $79,000 in equity. $15,000 of that equity was gained by you through no effort of your own.
Equity in a business is very similar. The main difference is that our homes are valued based on the values of the homes surrounding our home. A business (and commercial real estate) is valued based on the Net Operating Income (NOI). NOI is the income of the business after paying expenses but before making loan payments.
This means that with laundromats, you are able to increase the value of the business, and therefore the equity. You can add equity by increasing the production of the business and decreasing expenses. Increased income and decreased expenses will cause the Net Operating Income to increase, and therefore the value of your business, to increase.
Paying down loans on your business has the same effect of paying down your mortgage, only ideally you are using the money from the business to pay down those loans. This, subsequently, also increases equity in your business.
Building equity into your business, and especially if you own the real estate the business is on, can rapidly increase your net worth. Increased business equity is the next step in getting rich with laundromats.
Here in the good ‘ol US of A, we pay our fair share of taxes. Some other countries pay more, some pay less. However, according the website taxfoundation.org the “tax freedom” day in 2018, or the day the average American has earned enough to pay all of their taxes for the year, was April 19th. April 19th! This means that the average American was working all of January, all of February, all of March, and more than half of April JUST TO PAY THEIR TAXES! That’s depressing.
This is why the wealthy know that often the best thing they can do for their financial well-being, is find ways to minimize their taxes. What if, instead of April 19th, your personal tax freedom day was February 19th? Or, like many savvy wealthy business owners and investors, January 1st? This would give you a significant amount of time to put money into your own pocket!
Some people have a moral conundrum when the subject of minimizing or even eliminating taxes. I understand that and once felt the same. However, I realized that the government has provided legal incentives to reduce or even eliminate taxes simply because they want you to take actions that benefit the country, your state, and your neighborhood. They allow us to reduce our taxes because we’re doing something good for our communities.
Taxes and the Wealthy
So when you hear about wealthy people who pay little to no tax, before you condemn them, ask yourself what they have done to deserve to decrease their tax burden. Often times you will find that they have contributed to society in ways that have benefited many other people. You have that same opportunity when you purchase a laundromat!
There are many ways to take advantage of the the tax breaks that the government offers to business owners. Below are two ways that I have used to reduce my taxes. I am not a CPA and I am not giving specific advice for your situation. I highly encourage you to speak to a good CPA to help you navigate the tax code and determine your best path.
The government recognizes that the property we use to conduct our business loses value over time. Therefore, they allow us to claim that loss in value over time for our business. If you have ever heard that a profitable business is cash flow negative on paper, this is likely why.
As an example, it is possible to make $25,000 in cash flow in a year, money that you put in your pocket, but on your tax forms, show that you actually lost money. This could be partially because you depreciated your equipment and that depreciation was over and above the $25,000 that you made that year. The result is that the $25,000 that you made will be tax free!
Again, speak with your CPA about this to get the details of how this works, but just know that depreciation can be a powerful tool for you in your business.
When we have a job, we get a salary. But, before we ever see our paycheck the government takes their share out of it first. So your salary could be $60,000 per year, or $5,000 per month, but your paycheck might only be $3,800 per month. The government takes their share first. It is only from what is leftover can you pay your bills, buy your groceries, and have your fun.
When you own a business, the order is reversed. You get your company’s income, you pay your bills and other expenses, and only then do you pay taxes on what is left over. What a massive tax advantage of owning a business. And this is an advantage that you can utilize when you own a laundromat. Again, speak with your CPA to determine how to fully maximize your business expense tax break.
You Can Get Rich With Laundromats
The three legs of the Wealth Tripod are cash flow, equity build-up, and tax advantages. Laundromats provide you with a strong probability of providing you with all three, helping you to grow your wealth quickly and to attain financial freedom sooner than you thought possible. The Wealth Tripod is the key to getting rich with laundromats!
If you’re excited about building your wealth through a time leveraged business like laundromats and want to get started, sign up for our FREE coaching program! We are committed to coaching you for free all the way up until you get your first laundromat under contract! As owners of multiple laundromats, we are committed to helping you achieve financial freedom through laundromat ownership! Sign up today and schedule your first phone call, FREE!