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BY RUSS ALLRED Contributing columnist
The way to an entrepreneur's heart is through his stomach.
A caring cardiologist reprimanded her patient for not sticking to his diet. The patient said defensively, "Doc, when it comes to health food, I have the heart for it but not the stomach." When it comes to taking control of your income and wealth, many have the heart for it but can't stomach the effort it takes.
While consulting with a client about where to invest some excess capital, I suggested an apartment building. In this era of declining stocks, minimal interest earnings, and difficult access to investment loans, residential housing is probably the most accessible investment that will still offer 6 percent to 8 percent returns. I quickly added that I am not an investment expert.
I am an entrepreneur who works with entrepreneurs. We like to maintain control of the engine that drives our income. Owning a business and owning investment real estate are comparable components on a continuum of earnings to effort. On this scale, the less physical work you do the more money you make.
If you invest some capital in a rental home, you must show it to rent, prepare the lease, collect the rent, account for your cash-flow and oversee the maintenance. The more rental units you have, the more money you earn and you can pay others to do the physical labor. You could invest the same capital in a real estate investment trust, an investment vehicle that works on the income from investment property. You would not have to work at all, but you will typically earn less on the capital that you've invested.
My clients are leaning toward the REIT, because they don't have the stomach for the necessary effort. When entrepreneurs start, they have to work very hard. If they are wise and grow the business, they let others work for them. Otherwise they should invest their capital in stocks that rely on the movement of markets.
Many people dream of quitting work to pursue their fortune. When considering whether you should go into business, first review all your investment options: stocks, REITS, commodities and real estate.
Properly implemented, any of these can offer your heart's desire. However, each of them has limitations and varying levels of required labor. In most instances, you will have to work harder for yourself than you do for your current boss.
Your mother, who fed and cared for you, may have told you to follow your heart. First ask yourself, "Do I have the stomach to do what it takes to follow my heart?"
-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.