- Published on
"Understanding Private Equity and Real Estate: Key Takeaways from a Video Analysis"
- Authors
- Name
- Luxe Wealth Strategies
- https://instagram.com/luxewealthstrategies
Reading Time: 2 min read
Private Equity vs. Real Estate
- Private Equity is a way to make money by buying businesses and making them more valuable, while Real Estate involves buying and selling physical properties.
- Millions of millionaires are made in Real Estate, while millions of billionaires are made in Private Equity.
The Moneymaking Process
- There are two main ways to make money in Real Estate: appreciation (increase in value over time) and forced appreciation (increasing value through renovations and improvements).
- In Private Equity, money is made by buying businesses, increasing their value through improvements, and then selling them for a profit.
The Three Pillars of Value Creation
- Increasing Profit: Increasing profit is the most important factor in creating value in a business.
- Decreasing Risk: Decreasing risk is the second most important factor, as it makes a business more attractive to potential buyers.
- Organic Growth: Organic growth is the third most important factor, as it enables a business to increase its value over time.
Private Equity Fundamentals
- Debt and Equity: A business's ability to carry debt is a key factor in determining its value.
- Organic Growth: A business that can grow organically (e.g., through marketing and sales) is more valuable than one that cannot.
- Size Premiums: A business that is large and has a proven track record is more valuable than a small business.
- Categorization: A business that can be categorized as a higher-risk/higher-reward industry (e.g., technology) is more valuable than one that is categorized as low-risk/low-reward.
- Age: A business that has been around for a long time is more valuable than a new business.
Focus and Patience
- Focus is key in creating a successful business. A business owner must focus on the right things and not get distracted by other opportunities.
- Patience is also essential, as creating value in a business takes time. It is better to focus on one business and make it successful over time rather than constantly switching between different businesses.