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"Understanding Private Equity and Real Estate: Key Takeaways from a Video Analysis"

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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

  1. Increasing Profit: Increasing profit is the most important factor in creating value in a business.
  2. Decreasing Risk: Decreasing risk is the second most important factor, as it makes a business more attractive to potential buyers.
  3. Organic Growth: Organic growth is the third most important factor, as it enables a business to increase its value over time.

Private Equity Fundamentals

  1. Debt and Equity: A business's ability to carry debt is a key factor in determining its value.
  2. Organic Growth: A business that can grow organically (e.g., through marketing and sales) is more valuable than one that cannot.
  3. Size Premiums: A business that is large and has a proven track record is more valuable than a small business.
  4. 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.
  5. 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.

Source: How The Top 1% Make Their Money, Alex Hormozi