Kevin AmolschThe Power of Portfolio Diversification
At the Minnesota Investor Success Summit, I gave a presentation on passive real estate investing to a full house of eager learners. One of the points I wanted to make sure landed was that a portfolio should be diversified. That helps with risk management, but it also helps with cash flow management.
As you probably know, I am a big believer in owning real estate for wealth creation. I honestly don’t think there is a better, more sure-fire way to do it. With that said, it is hard to own enough rentals, especially in the short term, to create financial freedom through cash flow. Over time, real estate will create that for you, but a combination of assets that produce a significant amount of cash flow now, along with a rental portfolio for the tax benefits and long-term wealth creation, is a more balanced approach.
During the presentation, I decided to get a little more vulnerable than I normally do, and I shared a pie chart with my portfolio allocation. It detailed how much of my assets are in real estate equity, what is in private notes and note funds, the stock market, etc. The reason I decided to detail my portfolio to a room of mostly strangers is because of my recent experience with some mastermind groups I participate in.
A mastermind group is a group of individuals who are dedicated to the success of everyone. They are open with each other, they challenge each other, and they hold each other accountable. They also share ideas and work through problems as a group rather than as individuals feeling like they are left on an island, which is so often the case with real estate investing.
In a recent mastermind, we shared our portfolio with the room and dug into each one to find blind spots and areas of improvement. This is a common practice in Tiger 21, as I understand. Tiger 21 is a mastermind group of high-net-worth individuals. You need a very strong net worth and liquidity to qualify, so these are some of the smartest investors around, and they also dismantle each other’s balance sheets. Multiple Tiger 21 members attend my mastermind group that I am lucky enough to be a part of. I was not looking for my portfolio to be picked apart in Minnesota (I just went through that). I was simply trying to show the room what I am forced to disclose to some of my closest friends, hoping to bring awareness and provide value.
After the presentation, I was overwhelmed with feedback. It was not the feedback I was expecting, however. I thought I would hear thanks for disclosing such a personal thing, but instead, people were mostly interested in the mastermind groups I participate in. It seems that people saw value in me sharing my experience with those groups. The question was asked multiple times throughout the day and into the night at the networking mixer: “How do I find a mastermind group?”
There are three ways to find your group or your tribe, but before I get into that, it probably makes sense to define what you’re looking for in a mastermind group. For example, I participate in one that is very large, with several hundred people attending each quarter. While we still dig into portfolios, the real value for me comes from the significant amount of business we do together. This type of large network operates differently from a smaller, more intimate mastermind of eight to ten like-minded individuals focused on improving their personal and financial lives.
Another mastermind I’m a part of consists of eight business owners, all with different non-competing businesses. This group provides a ton of value, but I cannot go deep on a real estate problem because there is not a ton of real estate experience in the room. They do, however, offer great input on being a great father and addressing general business challenges.
In my experience, different masterminds serve different purposes. The key is identifying what specific value you want to gain, whether it’s:
- Industry-specific expertise and deal flow.
- General business growth strategies.
- Personal development and accountability.
- Networking and partnership opportunities.
For me, multiple mastermind groups are necessary to accomplish everything I’m looking for.
Once you determine what you want from a group, it’s time to find it. There are three ways to do this.
- Get invited in. If there is a group that is already masterminding and meeting regularly, you can ask to join. There is a decent chance you will hear a no because these groups tend to be pretty tight and hard to get into. Of course, it is always worth asking.
- Buy your way in. The large group I mentioned is commercial real estate investors. Everyone in the room is in commercial real estate so they all technically compete but honestly there is more cooperation than competition. Lots of partnerships and sharing of deals. That is a room I pay an annual fee to be in. Some of my closest friends have come from that room.
- Build it. If you can’t find one to get invited into and cannot afford, or don’t want to afford, to buy your way in, you are left with starting your own group.
I started raising private money from individual investors to loan to active real estate investors in 2006. I was working with someone else at the time, so this was before I started Pine. I was trying to get business going and had so much to learn. Like many of us, I read Think and Grow Rich by Napoleon Hill. Chapter 10 talks about the power of a mastermind which I immediately saw the value in. I had been investing for about three years at this point, but I was still young with not a ton to offer. There was no way I was getting invited to a mastermind group, so I reached out to several of the top real estate names in Denver that I knew, or at least knew of. My goal was to create a mastermind group that had six to eight noncompeting real estate businesses that would meet once a month and help each other reach our business and real estate goals. I had a hell of a lot of rejection but got enough people excited to start a group. The room consisted of a real estate wholesaler, a conventional lender, a title company, an attorney, and me. We later added a real estate agent.
This group met once per month at Perkins restaurant for breakfast. Each meeting would only last about two hours, my current mastermind meetings last anywhere from five hours to three full days, but they were the most impactful hours I spent in the month. Each month we reported on how we did from the last month, set goals for the current month, and helped each other with problems we were facing. If you did not hit your goals for the month you purchased breakfast for the group, so we held each other accountable. We all saw measurable growth from our time together. The Denver, and later the Minnesota, Investor Success Summit was started in this room.
Personally, I learned a powerful lesson about taking control of my own life and my own business. I read about this amazing concept in a book that was published in the 1930s and I created my own mastermind group. It was scary to ask people I looked up to to participate and the rejection was hard. But in the end, it was exactly what I needed to become who I am today.
I believe strongly that mastermind groups are one of the most important aspects to personal and business success. That is especially true in real estate. It is so important that if you cannot find one to join, I would strongly encourage you to build one!