EP263: College Degree: Gateway to Success or Financial Trap?

APPLE PODCASTS | SPOTIFY

More than one in four Americans (28%) have savings below $1,000.  You and us? We’re not gonna be one of them! In this video, we’re breaking down why the traditional path—go to school, get a degree, and get a job—is a financial trap. 

We know this because we went from a $2000 bank account to acquiring over $300 million multifamily apartment portfolio in just a few short years. If you want to stay poor… do the opposite of what we’re about to tell you!

NO. 1  Going to College will make you poor

For decades, society has pushed the narrative that a college degree is essential for a stable, high-paying job. However, this is no longer the case. 

Research from the Burning Glass Institute and Strata Education Foundation reveals that 52% of graduates are underemployed within a year of graduation, meaning they’re working jobs that don’t require a degree. Furthermore, data from the Federal Reserve Bank of New York indicates that nearly half of college graduates are underemployed ten years after graduation. 

The reality? Degrees have become so common that they no longer guarantee a competitive edge in the job market.

But you may say, Palm/ Nan we need college degrees in order to become critical thinkers, and enlighten souls capable of earning high income.  To this, Warren Buffet, the Oracle of Omaha himself would be saying, not so fast!

Buffet – AKA our Buffy, believes that the rising cost of education is unjustifiable. He argues that the success of college graduates is often due to their pre-existing capabilities rather than the education itself. Essentially, colleges have become gatekeepers of talent rather than creators of it, inflating their prices while offering diminishing returns.

To this point, college isn’t just expensive; it’s a financial gamble. Many students graduate with tens of thousands of dollars in debt. According to the Education Data Initiative, the average cost of a bachelor’s degree at a private institution is nearly $37,000 per year. 

This brings the total cost of a four-year degree to approximately $148,000. On top of this, the average student loan debt at graduation is around $30,000. With the median starting salary for recent college graduates at approximately $55,000 per year, it can take years, if not decades, to pay off these loans.

When comparing salary to loan debt burden, consider this: if a graduate allocates 10% of their gross income to loan repayment, it would take about 10 years to pay off $30,000 in student loans, not accounting for interest. 

This extended repayment period can delay other financial goals, such as buying a home or a business or saving or investing for retirement. 

So, what’s the alternative, if school isn’t the answer you’re looking for, what would be the way of riches?

NO. 2 Buying existing businesses, not starting from scratch

So if your college degree isn’t a golden ticket to a yacht in the Bahamas, what is?  Want to enjoy a golden vault like Scrooge McDuck?

Well, consider swapping the graduation cap for a business plan.  In 2024, becoming an entrepreneur is easier than ever – the barriers to entry are practically non-existent. Think about it: instead of draining your bank account for a college education, why not invest that money into launching your own business? We did just that, and trust us, our fancy degrees have been more decoration than a key to success.

We cut our teeth in the fashion industry and spun it into a multi-million dollar venture. And when we jumped into multifamily apartment investing, guess what? No degree is required. Nobody cared about our diplomas; our passive investors cared about our results. Our last 3 multifamily apartments sold for $45.2 million, with an average ownership period of just 25 months.

So, why is this the smarter move for you? Well, think about it – buying an existing, profitable business stacks the odds of success in your favor. Here’s why this approach works wonders, especially in the world of multifamily apartment investing, but feel free to apply this logic to any business type that fits the bill.

Because not all businesses are created equal, for us, we’d look to buy businesses that meet these Four Key Criteria:

The first one is utilizing OPM (Other People’s Money)

This is our golden rule. OPM means bringing in investors as silent partners, not more cooks in the kitchen. This strategy not only boosts your capital base but also spreads out the risk.

For example, when we buy large-scale multifamily apartments, each limited partner might chip in $100,000. Sure, that’s a hefty chunk of change, but it’s a drop in the bucket when you consider that we raised $38,000,000 for our last multifamily deal. By pooling resources, everyone’s risk is minimized while the potential for profit soars.

The second criterion is buying profits

One of the biggest challenges for any new business is building a customer base from the ground up. However, by buying a profitable business, you inherit an existing clientele who already value what the business offers. 

This means you start with an audience that generates immediate revenue, saving you the time, effort, gamble, and expense of customer acquisition. 

For example, when we buy multifamily apartments with at least 90% occupancy, we avoid the risk of having to fill over 300 units with families from day one. This ensures a smooth takeover and stable operation right from the start. 

The third criterion is existing infrastructure

Buying a business with an established infrastructure is like getting a head start in a marathon. There’s already a team, tools, services, and processes in place. For us, this means acquiring multifamily properties with a solid property management team already on board. They know the property and the tenants far better than we could as new owners. Whenever possible, we keep the existing team because they’re integral to the property’s success. 

For instance, we once acquired a property that had an excellent maintenance team in place, which meant no downtime in service quality during the transition. This kind of continuity is crucial in maintaining tenant satisfaction and operational efficiency.

The fourth criterion is getting consistent cash flow:

Cash flow is the lifeblood of any business. Unlike tech startups that have venture capital firms pouring in millions or even hundreds of millions before the business sees a penny of profit, that’s not the reality for most of us. 

If the business is in the green from day one, you’ll have the runway to grow it. However, if it’s running in the red from day one, your runway will be significantly reduced to the size of your capital reserves—not ideal.

A business that is cash-flowing from day one allows you to focus your energy on growth and expansion instead of constantly chasing the next customer just to stay afloat. For instance, our acquisition of a well-established multifamily property with a history of strong rental income allowed us to immediately reinvest profits into property upgrades and tenant amenities, thereby enhancing the property’s value and appeal.

Now, you might be wondering, “Why would anyone sell a profitable business?” Great question! There are myriad reasons: life changes like moving to care for family, retirement, or simply wanting to cash out and start anew. For example, we purchased a thriving multifamily complex from an owner who held it for 19 years and wanted to move on to buy a bigger property, so he offloaded this property to our delight.

And this brings us to our next gem of wisdom.  Naval Ravikant once said, “Trade money for time, not time for money. You’re going to run out of time first.”

NO. 3 Make Money So It Can Make Babies!

Once your business is stabilized, it’s time to turn your profits into a lasting legacy. This means flipping the cash flow switch to “full blast,” ideally with streams that don’t rely on your constant hustle.

As Andrew Carnegie famously noted, “90% of all millionaires become so through owning real estate.” Whether it’s single-family rentals, Airbnb ventures, or storage units – find what clicks. But our favorite? Multifamily apartments. 

When we’re in wealth-growing mode, we aim for investments that don’t need our time, energy, or endless board meetings. We seek out opportunities with forced appreciation, hefty tax benefits, and scalability.

Getting clear on our investment thesis was a game-changer. That’s why we’ve put together the Top 5 Little Known Markets to Invest In Now, so you can ditch the guesswork and start investing smartly. Everything is about location, location, location…

So there you go, hope at this point you now see that a college degree is more of a financial trap than a gateway to success. If you want to master one of the criteria we just spoke about go watch this video to get so rich using other people’s money.