S2E16 Dana Cornell Investments that produce passive income

S2E16 – Dana Cornell – Investments that produce passive income

Dana Cornell

Dana Cornell – Investments that produce passive income. My next guest left his executive position at Morgan Stanley to start a private equity firm that generates passive income for his customers. In this episode, he talks about the asset classes he invests in, the average returns, and the minimum investment size. Please welcome Dana Cornell.

Payback Time Podcast

Payback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.

key timecodes

  • (00:52) – Background history
  • (02:06) – His business today
  • (03:35) – Why he decided to make a career switch
  • (05:37) – His working style
  • (08:52) – What to be aware of in this current market
  • (11:12) – His Stock Investment Journey
  • (13:33) – His strategy and companies that he invests in today
  • (14:10) – Amount invested at the start of his journey
  • (15:51) – What has changed in today’s market
  • (22:30) – The minimum amount of investment to start with
  • (23:41) – Tax advantages in running that type of business
  • (29:10) – A deep look into his private equity model 
  • (30:49) – The minimum amount of investment for that model
  • (31:04) – The importance of training the operators
  • (32:32) – Getting the right talents to run that business
  • (40:52) – The best investment advice he ever received
  • (41:46) – And the worst investment advice he ever received
  • (43:16)  – Get in touch with Dana 

Transcription

[00:00:03.430] – Intro
Payback Time is a podcast about building businesses’ wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s Payback Time. My next guest left his executive position at Morgan Stanley to start a private equity firm that generates passive income for his customers. In this episode, he talks about the asset classes he invests in, average returns, and the minimum investment size. Please welcome Dana Cornell. Dana, welcome to the show.
[00:00:50.700] – Dana
Hey, thanks for having me. Good to be here.
[00:00:52.760] – Sean
Yeah, good to have you here. So why don’t you take this off and tell us about your background?
[00:00:56.610] – Dana
Absolutely. So I grew up town about an hour south of Buffalo, New York. I always tell that story when people ask of where I started because I think it’s relevant to where I ended up. So I started my father’s next commission contractor. My mom was a kindergarten teacher, grew up pretty normal, but it’s a lower middle-class area. Came out of college, decided to try financial advising as a career choice voice, and started knocking on doors. I started knocking on about 1800 doors by the time I was done doing that, because I didn’t come from a network that knew about wealth, certainly didn’t grow up in that crowd of a country club or anything like that. And I credited that to my parents, just knowing how to work hard, but also knowing I needed to learn that skill set. So tried that, got out to a quick start. Like I said, knocked on a bunch of doors in the winter of Western New York. And fast forward, I ended up at Morgan Stanley until about a year and a half ago. When I was there, I managed about 1.4 billion in private client assets that ranged from a multitude of size of accounts and households.
[00:02:05.860] – Dana
Left that and started a smaller private equity firm that focuses on commercial real estate and some small business investment offerings. So that’s a very quick, high level version of my last 25 years.
[00:02:18.970] – Sean
Thank you for sharing that. Then I briefly want to ask a few questions here about your business, and then we’ll jump into your journey in the stock market. So right now you run a PE firm, is that correct?
[00:02:30.790] – Dana
It is, yeah. I mean, essentially what I do is offer private access to private investments in commercial real estate and small business ownership. So I’ll bring syndication. I’ll bring a group of ten or 20 investors that are the right fit to those types of projects that complement your traditional stock and bond investments.
[00:02:49.310] – Sean
Got it. Now, do you typically work with accredited investors, or is this open to anybody?
[00:02:54.340] – Dana
For the most part, it’s accredited. We do have some offerings that are open to non accredited, but it really is meant for a portion of an accredited portfolio.
[00:03:02.830] – Sean
Got it. And is it really focused on real estate, or do you focus a little more broad?
[00:03:09.150] – Dana
Mostly all asset classes of real estate. So the way I positioned it, as I’m more or less a guide or intermediary in some ways probably similar to your core business, helping them find the right developers, the right projects, doing the due diligence that the average investor doesn’t have time to or doesn’t have the team to, or the skill set to, or the desire to, and then helping them profile where they should fit and match them to the right style project.
[00:03:34.880] – Sean
Got you. I have to ask, since you have a pretty cushy position there, managing over a billion dollar in assets to make this move to this is a completely different audience. Well, I shouldn’t say completely. It can vary. Right. You’re very primarily focused on accredited investors. I know you said you do have alternatives there for those who don’t qualify, but yeah. And just focused on real estate. Why did you make the switch?
[00:04:03.070] – Dana
Quite honestly, you’re right. I mean, I was an executive director under the age of 40 at Morgan Stanley. It’s a pretty comfortable career path when you reach that. And the amount of assets that I had, honestly, I was just fed up with the way the corporate side of wealth management was treating clients, and specifically, of course, my clients. I just didn’t feel good about what I was doing for people. I had started investing in alternative investments myself over the last five, six years before I had left the firm, and I had started to get to know an audience that really had built their wealth in that manner, which was similar to what I was doing. I mean, I’m a financial planner by trade, so I was pretty traditional wealth management, but saw the advantages of that and really started to take a look at what was I doing for people and how much of an impact was I making and was I doing the best I could possibly do, or was I just doing the best that my firm kind of allowed me to do, so to speak? So covet hit. I took a hard look at that and got two little kids at home.
[00:05:06.770] – Dana
I said, Man, I really want them to be proud of what dad did, not just his title on his business card. Sure, I did some soul searching and just decided to walk away from that. And to your question, the first question I got back was, I need mental health counseling. Was I okay? And I said, what jury is still out on that? Probably. But yes, in that context, I was fine. And I just had a different calling at this point. So, yeah, it was a big leap to go do that, but it’s been fulfilling.
[00:05:36.100] – Sean
That’s awesome. Thanks for sharing. And I know running a PE firm is a little more flexible. Like you can kind of pick the projects and the products you want to present to your customers. Whereas at Morgan Stanley, I’m sure they kind of lay out your options and here you go.
[00:05:52.780] – Dana
Go.
[00:05:52.940] – Sean
So that’s it.
[00:05:54.170] – Dana
They do, yeah. It goes so many layers deeper. That’s why sometimes these conversations go to what should an investor I’m happy to talk about that. What should an investor really be looking into? Right. They try and paint a picture that not a lot is proprietary, but there’s always some sort of kickback somewhere to the detriment of the client. When I’m trained as a CFP in SEMA and in the mindset of being a fiduciary, I didn’t have that option based on the business model, which that’s a business model built for a corporation and as shareholders, it’s not built for the clients that they serve, in my humble opinion. Others would certainly disagree with that, but that just is what I felt like. And then on top of that, trying to be all things to all people per that business model, you can’t be everyone’s insurance guru, their lending specialist, their asset allocation, their financial planning, their estate planning, long term, you name it. They say they have experts in those spaces. That wasn’t my experience. So I just said, I can do this a different way. I can build things that people wouldn’t have access to normally, and I can go out and partner with the best people I can find in that respective category.
[00:07:11.830] – Dana
So when somebody comes to me and says, hey, I need help with my estate planning or my insurance right. Somebody who truly knows that market, not just how to add on that service to an asset allocation or financial plan.
[00:07:23.870] – Sean
Sure. There’s a hot topic point I think you have a lot of fun with and our audience wants to hear, which is discussing the traditional investments advisers don’t want you to know.
[00:07:35.160] – Dana
Yeah, so there’s a couple of things there, right? So what I would caution people, and I’ve spoken a lot on is really take a look. And I do have a lot of fun asking people with a traditional portfolio and full disclosure, this used to be my portfolio. If you’re a former client of mine, I would challenge people to ask if they know what are the top ten holdings in their portfolio. And then I would go a step further and challenge them to ask their advisor one of their top ten holdings in their portfolio. I think people will be shocked how many advisors, without looking it up, can’t actually ask that answer that so that begs the question, right, who is that portfolio built for? Is it built for the individual or is it built for that institution? And you can go down that rabbit hole. You really start looking at mutual funds and the revenue share that goes back to the firm and who pays more is on the top of the list and all of that stuff. And then you look at how the firms actually invest their money, which is private equity, private real estate, private debt, kind of start to wonder.
[00:08:36.270] – Dana
And that’s what happened to me. I started digging deeper and deeper, and that’s interesting. Why does this firm who’s recommending business and this have their money invested somewhere else? Yeah, we could do ten shows on all that kind of stuff. It’s fun. It gets me in trouble sometimes, but it’s fun.
[00:08:53.120] – Sean
I love it. And I know our audience loves this conversation too. We do have a few financial advisers and wealth managers that use Tykr, and we’ve had a few of those professionals on the show, and even they will agree with you. There like, there’s a lot of people in that space that they don’t even know what they’re selling you. What kind of businesses are going into. Yeah, I knew of a firm that they were so focused on life insurance because it provided 80% commission. They didn’t care about putting you in any kind of businesses like investments, ETF index funds, or mutual funds. They wanted to sell you life insurance because it made them the biggest dollar. It made me sick to my stomach when I found out they got 80% commission. Like, if you were to go to a car dealership and you’re about to buy a car and you find out that that person gets 80% commission, you roll over. You’d be like, Are you kidding me?
[00:09:47.710] – Dana
It’s crazy. And by all means, it’s certainly not a blanket statement on advisors themselves. Right. There are actual advisors out there in a wireless setting. Outside of it doesn’t matter. But I will say to your point, right, it’s positioned as, hey, we’re going to make your business easy. You plug in, you build relationships. We’re going to take care of the rest. Most people don’t scratch beneath the surface that far. What’s happening is things are strategically placed to make you think your business is being made easy. It’s just so happens it benefits everybody else besides the client.
[00:10:21.740]
Right.
[00:10:22.490] – Dana
If you have some sort of conscious and you know that right. It’s one thing if you’re in the dark about it and don’t know. It’s another thing if you know about it. And then what are you going to do? Stay there and continue to collect that paycheck because you’re going to pay well. Right. They’re essentially selling trust, so that was something I just couldn’t live with.
[00:10:43.510] – Sean
And thank you for diving into this a little deeper. It’s really good to know the why behind starting your own business slightly. A little bit of a pivot from what you were doing at Morgan Stanley, but really cool product. We’ve had a lot of real estate investors on the show, so it’s a hot topic, and it’s a great asset class to build wealth and reoccurring revenue. We’ve got investors in the show that they love investing in stocks for the compounding growth, but then they’ll go over to real estate to generate the reoccurring revenue. Absolutely right. What I’d like to do next is transition to your personal journey, getting into the stock market. So when did you start investing in the stock market?
[00:11:22.520] – Dana
Yes, so interesting timing. So just so happens I mentioned earlier in the show, I didn’t come from money, didn’t have a huge background in that. Just started getting out. First job was in finance, but just started to make a little bit of money that I had a few extra bucks. I started investing and started bringing on clients the end of 2007. So I write in 2008 down to 2009, I was very fortunate because I started investing basically at the bottom of that market, which was very interesting for me because I was on one side of the spectrum. The luck of good timing on my part was to the detriment of most of the people I was working with. Right. And I saw that fear. That’s something you don’t forget when you start out. That’s really your first year working with people as a young guy trying to figure out, man, these people are worried if they can actually retire now or what does this do to their life? And they can’t quantify it.
[00:12:22.590]
Right.
[00:12:23.590] – Dana
That’s something you don’t forget. And that was a big part of why I’ve always kind of had a little bit of a different mindset. So it was kind of bittersweet on both sides. I was benefiting from that few clients that had cash benefit along the way, of course, but a lot of people that was still top of mind for a lot of people that I talked to that live through that. So yeah, so I started investing in stocks, then did the traditional kind of dollar cost average, which is tried and true as a strategy, of course. And I started buying individual names because I like to know what I own. I think it was Rockefeller that said, which is an extreme to a sense. Right? But he said, don’t spread your eggs out in too many baskets. Put your eggs in one basket and wash that basket. You can fit a few eggs in one basket and wash that basket. So that’s kind of how I always invested myself and that’s how I manage money. Right. We can go through the modern portfolio theory of when diversification is essentially eroded after about 30 stocks. So that’s kind of how I use that philosophy.
[00:13:25.730] – Dana
And it worked really well for me personally, benefit from good timing, and it works for my clients through the years as well. So that’s kind of how I started.
[00:13:34.100] – Sean
And what was your strategy? What type of companies did you look at and why?
[00:13:40.330] – Dana
I was always, you know, I came from two mentors that were big in the American Funds portfolios, mutual fund portfolios, which, you know, I mean, if you really strip those down, those are good chip companies that pay rising dividends in a lot of cases. So that story made sense. It had made clients before me a ton of money. So I just kind of stuck with that, built on that. We’re a little more concentrated than the full fund when it made sense, but I really did that.
[00:14:10.750] – Sean
And when you got started, do you recall what kind of dollar amount did you start with? This is a great question for our beginners in the audience.
[00:14:17.790] – Dana
Oh, yeah, obviously I was training all the traditional results and everything. The reality is I always did as much as I could comfortably afford. I think my first few paychecks, I put $250 a month away. I just tried to scale it up as much as I could as time went on.
[00:14:35.500] – Sean
And what is your investment strategy today? Just with the stock market? Let’s focus on that and then I would let’s dump trail back over to your business since it’s focused on real estate with stocks, what do you focus on?
[00:14:47.140] – Dana
Yes, so I tend to follow advice that looks at more bigger picture economic trends. And I do think that things might have changed in the sense that markets are more efficient these days. So I do a lot of indexing and then I’ll kind of complement that as a core satellite strategy with some more thematic, certain tech stock, certain things that I think have a unique competitive advantage to kind of outpace the general markets. But I try to be very, quite honestly, I just try to be very cost efficient and just match market returns with a little bit of outperformance from a handful of names on the stock side.
[00:15:27.520] – Sean
Sure. And what kind of stocks do you currently own?
[00:15:31.970] – Dana
Again, mostly index, but things like Tesla, those types of names where they’re kind of disruptors in their marketplace. But I would say, to be fair, most of my wealth has transitioned from traditional investments to more private investments. What I’ve done now got you.
[00:15:51.660] – Sean
Okay, let’s talk about that. So with the private investments, give us a context of what did you invest in? And then we’ll go into a little bit what kind of returns?
[00:16:01.020] – Dana
Yeah, so it kind of stems back to that contrast of me investing in 2008 versus some of my more seasoned clients as far as how much money they had. What I realized and really started to study was how much the consistency of return mattered. So we’re always trained as an advisor. You’re trained to talk in averages, historical returns, which does not typically match your dollars and cents on your statement. So you can have the same average, is what I mean by that. But if your timing was different when you entered that, you can have drastically different results. So I started to look at what gives me consistent returns. One, and then has the ability to appreciate on the upside. So that led me down a path of I think it’s interesting that we try and save and I always got that question, what’s your number? What should my number be? Sure. What’s the pile of money I need to save to somehow, someday turn on income to live the rest of my life? It’s kind of this gray blind spot for a lot of investors. So we shoot that number high and project investment returns low and all that kind of good stuff to build in.
[00:17:08.620] – Dana
Some assurances there. I just started talking about why don’t we just reverse your financial plan? Why don’t we buy your time back now? So I focused on a lot of high income paying investments and that’s what led me to real estate initially, then private business, so on and so forth. So that’s really what I make up the majority of my personal wealth with. Private real estate is paying consistent income, very tax, efficiently, some private business investment that does the same thing and then has the ability to appreciate on the backside when there’s a liquidity event there.
[00:17:42.020] – Sean
Yes, I like it. So let’s dive into real estate a little bit first. Then I want to talk about the businesses as well, these private businesses, real estate. Are you talking about upfront investment and then your customers? And you are getting a reoccurring revenue stream every month.
[00:17:59.260] – Dana
Yeah, I’ll give you an example. So we just launched a self storage investment, new self storage project. They pay. This one is a little bit higher income. Usually you can get 7% to 10% is pretty typical on my side. This pays 10% very tax, efficiently, annually, chopped up and paid out in monthly income. And then once the property is turned around, kind of value added, so to speak, they will reposition that property, sell out, you get your money back plus the appreciation of the asset. So you have some security there because it’s a physical asset. You can go see it, feel it, touch it. Right. You understand how it works. So there’s a mental piece of that that’s also reassuring to people. You’re getting monthly tax advantage income that was higher than what most people have averaged with the bull market. And then you get some upside appreciation. So you’re looking at returns at twelve to sometimes 20% over a three year period. When I figured that out and then I figured, jeez, with that type of income, I can replace your income with much less of your assets. Take all the pressure off that, right.
[00:19:06.570] – Dana
Which then in turn of your stock portfolio. Because you do need liquidity. Right. I’m not saying any means it shouldn’t be invested in stocks, but you need some liquidity for that. It helps you weather those storms because that’s when people really get concerned and at least in my experience, is when your income is disrupted and you need it to live on. Yeah, well, I can do that with 30% of your assets where it used to take me 80%. So that’s a game changer, what I’m.
[00:19:30.050] – Sean
Looking at, I want to use some larger numbers or a larger number. And then a scenario like, let’s say you’re a little older, you’ve accumulated some wealth, and you want to put your money into this vehicle as opposed to the stock market and ride those waves up and down. Sure, you can make some great returns, but right now, unrealized gains would be really low. You don’t want to sell, of course. You’d see like, oh my gosh, I’m down 50% or more. But let’s say you put a million dollars in, it sounds like you’d be making 100 grand, 10% per year. Of course those payments have broken out. It sounds like if it’s not monthly, it’s maybe quarterly. Is that correct?
[00:20:07.350] – Dana
Yeah, quarterly. Usually monthly. I try and get monthly income, people like that. But yes, monthly or quarterly.
[00:20:13.070] – Sean
And then let’s say it’s this, I like storage units, investments, because there’s not a lot of maintenance there, from my perspective at least, you’ve got aluminum structures with.
[00:20:27.350] – Dana
Mission asset class.
[00:20:28.710] – Sean
Yeah. With not a lot of maintenance. And they’re right next to each other all at the same location. And let’s say your initial investment was that million, and let’s say it’s sold. Somebody came in and was like, hey, I really want to buy this. So you’re saying you could make another 20, 30% on top of that. Nice.
[00:20:48.340] – Dana
Yeah. So they’re either buying think of it as like an apartment complex, that you can renovate the apartment and raise rent, add more units. That’s a typical value add strategy for self storage because that particular subset of the real estate market is very interesting. 70% of it is still owned by the mom and pop operator. Right. So very different than every other type of real estate. So there’s a lot of room to come in and make things more efficient, scale add on more so on and so forth. But yes, that’s exactly what happens. So you’re getting your current income and then you’re getting appreciation from the add ons, the value adds, as they say, to increase the value of that. And it’s a very efficient asset class to run in terms of the self storage in particular. And it’s a very hot market because a lot of the bigger players, the few publicly traded guys, want to absorb the mom and pop markets, but they don’t want to go one by one by one. Right. They want to buy a portfolio of 20 properties. So it fits well for a middle market size company to come in and kind of be an aggregator in the middle there.
[00:21:59.190] – Dana
Or if you’re doing new development, we do a lot of new development as well. With the amount of population that’s migrated to certain states, certain areas of the country, there’s so much demand and housing demographics are changing. So, long story short, there’s a multitude of reasons that self storage makes a lot of sense. And that’s essentially why you get very consistent returns in that particular category of an asset. And it was down 4%, which I always liked that too, when I started out with this. Sure.
[00:22:30.110] – Sean
Pretty consistent to your audience. What is your minimum investment amount that you require?
[00:22:35.810] – Dana
Yeah, so on this, they vary. It’s either usually 50,000 or $100,000. Most have to be accredited investors. The project we have open right now, that’s a self storage. In Texas, that’s a 50,000 minimum. Typically 100,000, though.
[00:22:52.330] – Sean
Okay, let’s take a quick commercial break. Have you ever lost money in the stock market? Maybe you heard or saw comments on YouTube, TikTok Reddit, or another social platform, or maybe you just received bad advice from a friend. Yeah, I think we’ve all been there. Most people lose money in the stock market because they make decisions based on emotions. What if you could remove emotions from investing? What if you could make consistent returns in the stock market based solely on logic? And what if there’s a software that handled that logic for you, introducing Tykr, a platform that helps you manage your own investments with confidence. Get started today with a free trial visit Tykr.com. It’s Tykr.com again, Tykr.com. I like the nice round numbers there. As we provided the example of a million, what that would look like. I’m going to talk about the tax advantages here. Let’s say you’re a business owner and you sell a business. I was talking to my banker the other day and he gave an example of somebody who was in the healthcare space and it was like some supplements sold it for like a couple of million dollars.
[00:24:07.040] – Sean
And of course, here in the States, you can face a big tax event, capital gains, which is over 40%, something like that, right. How do you find a vehicle to avoid the tax payments? And I know real estate is one of those. So let’s say that same business owner sold the business for 2 million. Could they put that 2 million into your investment to avoid a tax event?
[00:24:30.050] – Dana
They could. So, interesting question you bring up. So first, if a part of that sale was attributed to a real estate, if they own their building, something like that, they can essentially roll that over to another investment like one of our projects and shelter that tax. The other thing we work a lot with is there’s a very specific trust structure that if you retitle your business or your property before the sale, it shelters those gains as well and opens up the doors for you to invest in essentially anything. So we work with clients quite a bit on that because one, you’re saving the 40% from the sale, and then two, you’re going into a very tax efficient vehicle going forward. Right. So it’s almost tax savings on top of tax savings. And that’s why you see Mr. Trump doesn’t pay much in taxes and people like that that have been very public about their tax returns or lack thereof. That’s why. Yeah, there’s some pretty creative, unique things you can do. That trust structure, even embedded capital gains, is a very interesting way to kind of free up some extra dollars that would go to upcoming.
[00:25:38.710] – Sean
Absolutely. I know especially individuals, if they sell a property and make a big gain or they sell a business, that’s the big concern. The immediate concern is what do I pay in taxes? Now? How much of this is Uncle Sam taking from me? And your business model I really like, because you can help shelter that.
[00:25:58.670] – Dana
Yes. It’s a big deal. That was one of the things I looked for, is all. Heard it’s not what you make, it’s what you keep.
[00:26:05.780] – Sean
Yeah.
[00:26:06.440] – Dana
A lot of people say it. Nobody really does anything in practice to do that.
[00:26:10.720] – Sean
Right, right. Absolutely.
[00:26:12.850] – Dana
Combining some of those things together really makes a big difference.
[00:26:15.480] – Sean
Yeah. I like to talk about the private business investment. Now, you don’t have to share the name if you want to, you can certainly do that. But what kind of businesses do you look at? Investing in?
[00:26:27.130] – Dana
This, to me, is pretty exciting. Plus, I think there’s so much opportunity here with the baby boomer generation transitioning or looking for an exit strategy. So to answer your question, again, my model is I find people or companies that are very good at what they do. I partner with them to bring capital to them so they can grow faster, have more opportunity. But also in turn, I get to offer what they’re doing to my investor database.
[00:26:53.770]
Right.
[00:26:54.580] – Dana
So I partnered with a firm and an outstanding track record of buying these. I wouldn’t even say mom and pop businesses. I would say a good business that’s maybe a little bit smaller than something that a private equity firm would be kind of knocking on their door already. The guy that’s built his Widget for 30 years and did that really well, usually doing revenue of one to maybe 10 million. But there’s room to improve. Maybe he can add operations, marketing and sales to substantially grow that business, but he doesn’t want to or doesn’t have to because he’s comfortable and he’s just ready to retire and make a transition, which creates opportunity.
[00:27:33.860]
Sure.
[00:27:34.430] – Dana
That’s really where we focus on that size business. Look at anything, they’re pretty much industry agnostic other than service or restaurants, bars. We don’t get into that. But I’ll give you an example. We just bought what looked like a brick and mortar. They call it a mailbox business. So if you don’t want to go to the post office, you could have your mailbox at one of these locations. What it really was, if you incorporated a business in the state of Nevada for its tax advantages, you need a physical address. So they had about 1500 clients that were using this location for that, for their business address. And they scan the mail in, send it to the business owner, business owner response, keep this, throw this forward, this, whatever. Pretty simple business, but it’s infinitely scalable. It was miscoded wrong from the business sale. It will negotiate an excellent price below what they’re asking for. So we bought that for about three times the free cash flow. We’ll have that cash flow doubled in about six months. And even if we just turned it back around for sale, just by coding it properly and professionalizing the business, we would sell at a five to seven times multiple of the cash.
[00:28:48.140] – Dana
So if you think through that so we’ve doubled that cash flow. So we can essentially sell for double. And then we’re going to two X on top of that if we just sold it to five. Right. So that’s a home run for a small piece of somebody’s portfolio. Of course there are risks involved with that, but these are companies that have been in business 2030 years. We’re not looking at a start up business or something like that.
[00:29:10.690] – Sean
Yeah. And for our audience here, real quick, is from my perspective you can speak over me if I’m wrong, but Pde private equity businesses I look at come in and buy the whole business with a goal to turn it around and whether two 3510 years, sell it for a big multiple thereafter. Whereas venture capital is more investing in a business, not buying the whole business, just investing in, latching on to the growth and not joining the team. But they’re pretty much helping fuel the business ongoing so everybody wins. So your private equity model, I like it like you could, let’s say it’s 100 grand investment and you can double the free cash flow in a year or six months. You said we’ll say a year less.
[00:29:53.430] – Dana
Yeah, say a year.
[00:29:54.440] – Sean
Sure. And then you want to sell it for a multiple between instead of three. It would be five to seven, something like that. So that 100 grand could essentially turn into two to 400 grand in just a few years.
[00:30:09.900] – Dana
Yeah, we give ourselves a three year time frame. We’re going to be well ahead of that. It’s just seeing opportunities in the marketplace. It’s too big for a lot of individuals that want to buy it, but it’s too small for traditional private equity. So we scale it up. So it’s on the radar of traditional private equity. And that’s our natural exit strategy. The numbers are substantial and the model is certainly proven. To me, the most important part is the business is already proven. Throwing some sales and marketing on now these days, what you can do with social media and all the other channels, you have to reach a bigger audience. It’s outstanding.
[00:30:48.430] – Sean
That’s awesome. And what is the minimum investment dollar for that vehicle?
[00:30:54.980] – Dana
Usually about the same. So there’d be 50,000 or 100,000, depending on the size of the raise typically.
[00:31:00.760] – Sean
Got it. Okay. And what do you do about the operator? Like typically with venture capital, the VCs, investing in the team and the leadership because they’re staying Pte, it’s different. You can come in, you can buy out the business, and then that operator, that leader could go somewhere else. How do you run the business then?
[00:31:22.590] – Dana
Yeah, it’s a great question. So it’s kind of interesting. I would say we’re kind of maybe like a weird hybrid model in between the two. So oftentimes we’re training somebody up as an operator that maybe was probably in their nine to five and wanted some ownership and a way to get out of that kind of race of working for somebody else. And that’s what we did in that case of that business.
[00:31:47.250]
Sure.
[00:31:47.620] – Dana
Great educated guy, MBA educated, was working in a nine to five job for somebody else. The guys that run this company bring him in, teach them all their processes, systems, how to run a business, their model. They still oversee it day to day, but he’s the boots on the ground. And then usually we’ll work out a deal with the former owner to stay on for a period of time or at a minimum be a consultant to the company. So we have one to two year window of some history there to make sure we have a smooth transition. But we’re usually putting somebody trained boots on the ground from our side of it and combining the former management and the key number two person or whatever that may be.
[00:32:31.850] – Sean
Yeah. And how rigorous is your talent search process? The reason I asked that, I’m going to tell a really quick, fun story here. I was having a beer with somebody about two weeks ago, and he’s talking about a guy in the private equity space, and he identified a guy who he thought was a great leader. He was same situation, working the corporate job, great experience. MBA, although not necessary, is nice to have. And he’s going to bring this guy on to help run this investment and take a small percentage. But the guy, it was a manufacturing company. The guy did not want to be on site. He wanted to continue working from home. And this private equity guy was like, no, this is a no go because this is manufacturing. You got to be on site monitoring the processes, monitoring the people. It’s not a tech business that you can run globally. Kind of like Tykr, which is a global tech company. But yeah, you said goodbye to him. So in your case, finding those right people, I’m sure that’s not an easy process.
[00:33:31.630] – Dana
It’s not, but the way they’re actively marketing today, I should say we, I guess actively market for those people, the 30 to 40 year old and 50 year old that really wants some freedom, the ability to kind of write their own ticket. Then if they reach out and want to apply and come into the education side of the program. They’re essentially doing a mentorship for, on average, about a year. Different businesses, learning the systems, the processes, the role plays, all of that. And they have to be boots on the ground. We get those people all the time. Sure, I’ll do it.
[00:34:09.310] – Sean
I’m going to stay at my home here in Phoenix.
[00:34:12.550] – Dana
I’ll do a zoom once a day for you guys. No, you have to be committed enough to pick up your life and go, we’re going to give you that opportunity because we give them ownership in the company and it’s a good win win all the way around. Yes. You got to go through a lot of people to find the right ones, but it works.
[00:34:31.510] – Sean
If they were to come and show interest in investing with you, is it like a risk tolerance or maybe a preference to say, hey, you’re better suited for the real estate avenue or you’re better suited for the small business? Or doesn’t it matter?
[00:34:46.770] – Dana
No, it does. It certainly does. And again, even with the real estate and what I call our private equity, certain amounts of that are appropriate for certain people as well. So the way the process works, if you go to our website, Cornellcapitalings, with an s.com, you can sign up to be in our investor network. Either myself or my team are going to directly reach out to you and you fill out kind of a KYC know your client form when you’re coming in, which is just a starting point. We just want to have a conversation and kind of build that relationship. Really understand. Why are you reaching out? Why are you interested? What your experience has been good and bad. You really kind of see where to your point, where do you fit in? What are the right opportunities? I think that’s a unique part is that we can customize all of this. We have different offerings that fit all shapes and sizes. So it really becomes a more personal touch type situation from the time that you reach out to the time that we connect with you on the phone and get to know you a little bit.
[00:35:47.340] – Sean
And with the business investments, I assume it’s the same situation as you make that investment. Let’s say it’s 100 kwh. You would expect some kind of return, whether it’s every quarter, every year right. To create some kind of cash flow for yourself.
[00:36:00.840] – Dana
Yes. I’m glad you brought that up because the unique thing, my old world private equity, you weren’t getting any return until the end. It was turned around to pay out. The difference of this, the reason I gravitated towards these guys and the way I thought of it was I had so many clients that had such a great business but didn’t have an excellent strategy or weren’t big enough. Right. But just cash flowing machines. All of these businesses that we enter into this type of arrangement are cash flowing at a minimum 20%, ideally 30%. So there’s plenty of free cash flow to pay. Again, I structured it the same way as our real estate. 10% annually, chopped up, paid out monthly. You’re getting a return from day one, essentially as we continue to grow and scale and the rest of the free cash flow goes back into the business to grow, it works pretty well.
[00:36:49.120] – Sean
And then like the sale of the business, that becomes really exciting. Like real estate sales. I find that interesting, but I know you got the right business and it’s moving at the right velocity. You can make a pretty nice multiple depending on the business.
[00:37:05.440] – Dana
Absolutely. That’s why it’s very key. It’s not to discredit all the multifamily or any of the real estate developers that I work with. Right. But it’s really an art. To grow and scale the business is one thing, but then to professionalize it and take it to sale the right way I’ve seen it done the wrong way, and lots of times to do it the right way, it makes a huge difference to the bottom line, that’s for sure. It’s not just the cap rate like a real estate. There’s not a lot of negotiation there. It’s pretty much market rate for wherever the markets at business is different. So great point.
[00:37:39.740] – Sean
Before we jump into the rapid fire round, was there a question that I should have asked but did not ask?
[00:37:45.840] – Dana
It’s one of my favorite questions to ask. No. I think if I kind of look back and summarize what we talked about, what really seems to gravitate with the 2700, 2800 people that have come into our network now, the whole notion of let me buy your time back now and replace your income first with some consistency, I think the question might be what’s the real value of that? The peace of mind that comes with understanding what you own and why you own it has been to me one of the biggest game changes I’ve seen in the mental accounting of the investments with my new clients here.
[00:38:21.820] – Sean
Sure.
[00:38:22.670] – Dana
But other than that, I think we had a lot of corners of that, didn’t we?
[00:38:25.880] – Sean
Yeah. I really appreciate this conversation because I know there’s a lot of investors in our network that, yes, they want to get into the stock market and they want to manage their own investments, whether like I use TD Ameritrade, a lot of customers in the States use TD or Robin or E Trade, but then we’ve got customers all over the globe too. But these people want to find other investments that produce that ongoing revenue stream, and stocks are not always the best for that. You want to be thinking the long term with those, and that compound interest is going to look great someday. But if you want that reoccurring so you can go enjoy the hobbies, you want to enjoy in life. Your model is a great fit. You can’t see the whole video here, listeners, but I’ve been grinning ear to earth. This is really enticing.
[00:39:14.750] – Dana
I appreciate it, man. I appreciate it. It’s fun. It’s nice to tell a different story. And you’re right. I mean, these fit in. There’s a lot of information on stocks and bonds out there and TD and the Robin Hoods of the world. They’ve done great giving you free advice. I think the whole advisor model is going to change, in my opinion, over the next five to ten years if you’re not digging in and doing the research and really working on behalf of your client. And what’s the value of that advisory fee that you pay?
[00:39:39.870] – Sean
No kidding.
[00:39:40.630] – Dana
So hopefully we add a little bit of value and do it in a unique way and bring some advantages there.
[00:39:46.080] – Sean
So let’s dive into the rapid fire round. This is the part of the episode where we could find out who Dana really is.
[00:39:51.570] – Dana
Let’s do it, man.
[00:39:53.110] – Sean
So if you can, try to answer each question in 15 seconds or less. Are you ready?
[00:39:57.560] – Dana
Let’s go. All right. What’s your favorite podcast right now at my lab.
[00:40:02.300] – Sean
Okay, next question. A recent book you read and would recommend.
[00:40:08.650] – Dana
Interesting one. I’m currently reading from Napoleon Hill, the book that he references, the devil. So he kind of makes a reference point of the devil being the rest of the world and how that fits in. It’s not one of his not think and grow rich, but it’s a very interesting book, some interesting points he makes in there. So I would challenge you to take a look at that one.
[00:40:32.980] – Sean
All right, I’ll add it to the list. What is your favorite movie?
[00:40:37.690] – Dana
Step brothers.
[00:40:38.730] – Sean
All right.
[00:40:39.160] – Dana
What I’ve watched probably a thousand times. Never gets old.
[00:40:42.300] – Sean
My all time favorite comedy, actually.
[00:40:48.110] – Dana
Could.
[00:40:48.560] – Sean
Probably quote seams for the next hour.
[00:40:50.440] – Dana
Oh, yeah.
[00:40:53.490] – Sean
All right, next question here. What is the best investment advice you ever received?
[00:40:58.710] – Dana
Best investment advice? I think this is something that it’s always kind of stood out just purely from investment advice. That kind of falls in line with my whole, I guess thesis, right. But I had a very senior adviser a long time ago explain to me, investing is like a cake. There’s different layers that go into the cake. So one, you can look at it from if you don’t understand all the layers, you probably shouldn’t eat the cake. And then two, finding value. If you want to go down through the layers, if that makes sense, you can find a supply chain to benefit further. More of an example, if you like Tesla, who does Tesla do business with? Right. How are they going to complement each other, right? So he kind of looked at it from two different ways. I always thought that was kind of a unique way to look at things.
[00:41:45.360] – Sean
That’s smart. Let’s flip that equation. What is the worst investment advice you ever received?
[00:41:51.990] – Dana
The worst advice I’ve ever heard given would be the very generic, these things happen. It’s a typical market cycle. Don’t worry about it. Hang in there. There’s some truth in that. But again, if you don’t know what you own and why you own it, you can’t expect to know how to react when things happen. Right. That’s why I say you need to dig a little bit deeper there.
[00:42:13.400] – Sean
Yes, that great point, because right now the key is not to worry and keep buying. But the important thing is by the businesses, you know what they do.
[00:42:26.130] – Dana
You’re reacting from a place of fear and uncertainty. That doesn’t help you.
[00:42:30.320] – Sean
Exactly. You’re kind of driving blind. You invested in random stocks or random companies. You have no idea what they’re doing. If they go down, you don’t know if they’re going back up. That’s a big trigger.
[00:42:41.030] – Dana
Yeah, absolutely.
[00:42:42.870] – Sean
All right, and the last question here is the time machine question. If you could go back in time to give your younger self advice, what age would you visit? What would you say?
[00:42:51.150] – Dana
Great question, man. I’d go back pretty young. I mean, I think my advice would be question everything, and I would probably say I’d be looking at myself as a high school kid. Right. Don’t just follow and do things because that’s the way they’re supposed to be done. Doesn’t mean you can’t do it that way. But very similar to my thoughts on investing. Make sure you know why and what that means before you do it.
[00:43:14.960] – Sean
Right on.
[00:43:16.690] – Dana
That’s what I got.
[00:43:17.540] – Sean
I’ll turn it over to you. Where can the audience reach you?
[00:43:20.120] – Dana
Yeah, I appreciate that. Quite simply, our website, Cornellcapitalholdings, with an s.com. My Instagram is at danakornel three. Number three right there. My email is [email protected] So, yes, reach out. Love to have a conversation. If I can help you or anybody in the audience, we’re an open book.
[00:43:39.980] – Sean
Sure.
[00:43:40.910] – Dana
I appreciate you having me on. This has been fun.
[00:43:43.120] – Sean
Yeah, well, thanks a lot for your time. Really enjoyed hearing your background as well as these alternative investment ideas. Great episode. Absolutely appreciate it.
[00:43:51.650] – Dana
All right, same here.
[00:43:52.610] – Sean
All right, see you, Diana.
[00:43:53.860] – Dana
Bye.
[00:44:00.010] – Sean
Hey, I just want to say thanks for checking out this podcast. I know your time is valuable and there’s a lot of other podcasts out there you could be listening to. So thanks for taking the time to listen to my guest story. If you did enjoy this podcast episode, could you head over to itunes and leave a five star review? That would be much appreciated. Thank you. And last but not least on this podcast, some episodes we do talk about stocks. And please keep in mind, this podcast is for entertainment purposes only. So if you did hear any buy or sell recommendations, please don’t make those decisions based solely on what you hear. All right, thanks a lot see ya. You.