I met Tom Burns through one of the best investment deals of my 30-year career as an entrepreneur. He wrote the best-selling book, “Why Doctors Don’t Get Rich: How You Can Create Freedom With Passive Income Investing,” and owns a private equity real estate firm with $500 million dollars under management.
I had the opportunity to meet with him to discuss his secret to building wealth with limited risk.
Tom Burns is a master deal crafter. There simply isn’t a better way to use leverage and maximize returns than with his system.
Tom started his career as a sports doctor for the U.S. Ski team, but he quickly realized he wanted something different. His colleagues were tired and burned out. They weren’t living adventurously, or living lives they loved. Tom wanted to live a life with more freedom and opportunity to enjoy the people and the world around him. So, he made a choice and started to work as a doctor and a real estate investor. That’s when he figured it out.
The secret to growing wealth with limited risk is to maximize leverage and do your own deals.
Tom’s Rich.Life Leverage Matrix is a simple and actionable tool to understand deal structures. His 5 Step Rich.Life Investment System will help you build profitable deals, sometimes with limited or no investment, and make unlimited returns.
1. The Rich.Life Leverage Matrix:
There are four categories for managing investments with relative returns.
- No deals | No investment | No leverage: yields no return.
- Other People’s Deals, Some Leverage: You invest 100% of your money at full risk, but have no control. Investment examples: real estate fund, oil and gas, or tech start up. ROI is 10 to 800+%.
- Your Deals | Your Money | More Leverage: Your investment is 20% to 30% of the deal, and the bank carries the rest. You risk 100% of your money and the loan. Investment example: real estate. ROI is 20% to infinite.
- Your Deals | Other People’s Money | Maximum Leverage: You invest little or nothing, but have 100% of the control. The deal is typically funded through investors and occasionally government grants, partners, or other resources. There is limited risk exposure. You architected the deal and have meaningful ownership with minimal to no capital investment, so your ROI can be unlimited.
2. Build The Deal
Create deals with the right partners and attract the right money. Then, leverage the best structure for the highest return with the least amount of risk.
3. Secure The Best Deal
Tom’s company partnered with a developer to build an apartment complex right outside of Austin, Texas. They pieced together enough land for 200 units, but only built 140 so as not to overbuild. They built the complex in 10 months, had it fully leased within seven months, and had competitive offers within 36 months. They planned to hold the investment and financed it with a low-interest rate 40-year FHA loan.
Here’s the twist, “Little did we know, Elon Musk was building a factory 20 minutes north. We got crazy offers to buy the property and the buyers found a creative way to put in 200 units. In the end,” Tom shares, “everyone wins. Our investors easily doubled their money in three years. It was a home run deal.”
Let’s deconstruct this deal to illustrate Burns’ 5 Step Rich.Life Investment System:
1. The People:
- Wild card (Elon Musk)
2. The Deal:
- Sold out leases
3. The Money:
- Money down
- 40 year fixed-rate commercial mortgage
- Interest only
4. The Structure:
- HUD x Investors X Burns and company
- Burns & development partner with investors raised $6 million
- 83% came from debt (high leverage)
- Get educated or find someone who can educate you in your investment field
- Ensure tangible value added
- Take care of your investors first
In the end, his company sold the complex and had to pay a penalty for paying the loan early, but even with the penalty, investors doubled their money in less than three years and came out ahead. This is a perfect example of “Your Deal, Other Peoples’ Money” with the right people, smart money, smart structure, and clear rules.
If you want to learn more about Tom Burn’s system plus hear about some of the worst deals (and what not to do), Listen to and Watch my entire conversation with Tom.
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