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Rich Habits Podcast
Apple's New Smart Glasses, OpenAI Becoming The Most Valuable Startup ($500B), & The Government Shutdown
00:43:13
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- [00:04]
WhatsApp Narrator
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- [00:27]
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- [00:59]
Austin Hankwitz
Public.com presents the rich Habits Radar a new Friday episode of the Rich Habits Podcast where every Friday morning we're coming at you with the biggest headlines impacting you and your money. My name is Austin Hankwitz and I'm joined by my co host Robert Kroke. The three things sitting at the top of our Rich Habits Radar this week include OpenAI becoming the world's most valuable privately held company, the economic impact of the government shutdown that we're currently experiencing, and Apple pausing their Vision Pro development to now instead focus on smart glasses to rival Meta's new Ray Ban AI spectacles. And be sure to stick around for a little bit to hear more about the Buffett Indicator, how it's predicting a stock market crash. Or is it? We don't think it is, but we'll get into that later. So Robert, let's dig into our first story.
- [01:50]
Robert Kroke
That's right, OpenAI's valuation reaches fantastic $500 billion, topping Elon Musk's SpaceX. OpenAI just hit a massive milestone, becoming the world's most valuable privately held company. The company's valuation now stands at $500 billion just three years after it launched its flagship product, ChatGPT, surpassing SpaceX, which clocks in currently at around $400 billion. So that's crazy. In three years they could get to that massive of a valuation.
- [02:22]
Austin Hankwitz
Well, what's weird is the AI company is only expecting to generate $13 billion of revenue this year and a net loss in the billions of dollars, according to the Wall street journal. So while OpenAI has had the explosive growth when it comes to consumers, right? 700 million weekly active users with ChatGPT and Sora and things like that they've also taken on some insane financial commitments. We all saw what happened with their Oracle sort of agreement there, agreeing to purchase 300 billion dol of computing power over five years. And then also they signed a $10 billion chip building plan with Broadcom. So to help pay for all this infrastructure, you know, they're looking around saying, hey, how do we get more money? Which is where Nvidia comes in. I think it was last week's episode we talked about Nvidia investing up to $100 billion into OpenAI, an arrangement that some people on the Internet, including myself, sometimes essentially say it just like recycles money. Hey, we'll give you this and then you sell it back to us and then we'll give it back to you. It's a, it's a little something here, but Ro, why don't you break down what this means for our listeners and their money.
- [03:27]
Robert Kroke
For investors, this is a clear signal. AI is no longer just an in the future fad like everyone was talking about two, three years ago. It's truly becoming a trillion dollar industry that's reshaping markets, enterprise strategy and even government policy. Watching OpenAI's partnerships, product launches like ChatGPT5 and its ongoing negotiations with Microsoft and give you a front row seat to where the AI sector is really heading next.
- [03:54]
Austin Hankwitz
Now, here's what's funny, right? While the company has not yet turned a profit, it is fueling this global AI infrastructure boom. Locking in these major deals with Oracle, SK Hynix and others, and keeping top talent from jumping ship. Robert, we all remember, what was it there, a 300 something million dollars signing bonus that Mark Zuckerberg was trying to pay to have someone come over from OpenAI to, to their meta labs. This is really, really interesting for investors at the moment hitting a $500 billion valuation.
- [04:24]
Robert Kroke
Yeah. And like you mentioned, is it a shell game? Is it a Ponzi scheme? Hey, I'm going to sell you all these chips, but I'm going to give you the money to buy them and then you're going to buy them from me. It's a little crazy out there, but I am still super bullish on where AI is going, all of the sectors that it's disrupting and just overall, what we've been talking about for a couple years now is how it's going to make everything better, faster and more profitable because efficiencies will come with all of this in the AI sector.
- [04:55]
Austin Hankwitz
Well, we will be talking about efficiencies a little bit later. So y' all stay tuned, but our next headline that we just need to cover is this government shutdown happening right now. So the US government officially shut down at midnight on October 1st, marking the third shutdown under President Trump and the first in almost seven years. And this happened after Democrats and Republicans failed to reach a deal on a short term spending plan.
- [05:20]
Robert Kroke
Shutdowns can squeeze the economy in different ways, from missed paychecks for hundreds of thousands of federal employees to the delayed release of crucial economic indicators. So shutting down the government comes at a delicate time for the US labor market right now, which spent the summer stuck in a stall pattern because of slow hiring.
- [05:39]
Austin Hankwitz
Now, without government data personnel on hand, economists and investors are not expected to get the next big indicator which is taking place today. The September jobs report. Right. Today is Friday, October 3rd. September jobs report supposed to come out and we're filming this on Thursday, but I don't think it's actually coming out. So interesting to say the least. Speaking of job reports though, Robert, the ADP private payroll report came out earlier this week. I think it was Wednesday, right when that one came out. In the US labor market, it's not doing too hot. September, private payrolls shrank by 32,000 net jobs. Right? So net, net 32,000 jobs went away in September and they revised August from a net gain of 54,000 jobs down to a net loss of 3,000 jobs. I don't know the specific stat, Robert. I could be wrong on this one, but I'm pretty sure this is the first back to back months of job loss in these private payrolls in like three or four years.
- [06:40]
Robert Kroke
Well, there are definitely cracks that we're seeing in all of these indicators like the jobs report, CPI and all these other indicators. But I don't think anyone needs to stress out, freak out just yet, you know, because these shutdowns reduce government spending and programs and it depresses activity as a result. And Goldman Sachs estimates that the shutdown would shave about 15 basis points off the gross GDP of the United States per week. And Deutsche bank puts this figure at more like 20 basis points. But if you read the Rich Habits newsletter yesterday, you'll know that the government shutdowns really tend to be nothing burgers for the stock market during the government shutdown. It's a coin flip as to what the S&P 500 will do. Green or red, we don't know. It's green right now, which is great. However, over the subsequent year, The S&P 500 is in the green. 86% of the time with an average return of 12.7%.
- [07:36]
Austin Hankwitz
So here's why it matters for you and your money. About 750,000 federal employees are expected to be furloughed at a cost of about 400 million per day in lost pay services like passport processing, drug approvals, consensus, this data collection and certain economic reporting. Like we mentioned, the jobs report. Right. That's all going to be paused. But that means investors and businesses are also going to face delays in economic data, regulatory approvals, government contracts. Right. Things that are driving stocks up and down. Which is why Robert said it's a coin flip. Right. Depending on how long things are shut down for we, the markets could be up, could be down, whatever. So like Robert said, in the short term it's a coin flip. Right. Depending on how long we're shut down for the headline news around it, the markets could go up, down, left, right, and in circles. It's hard to have a sort of like, prediction as to where things are going to go.
- [08:26]
Robert Kroke
Yeah. And if you look back at the last long shutdown, I think it was 36 days. And that was under Trump in 2018, I believe. But most of these shutdowns, we don't know how long they're going to be. They could be 5 days, 6 days, 8 days, 12 days, who knows? But the bottom line is this. Government shutdowns are more than political theater. They can have real measurable effects on the economy, markets, and anyone who interacts with federal services. For investors staying aw, these disruptions is a key to navigating short term volatility. But they ultimately are usually nothing burgers for investors. So please don't have knee jerk reactions. Sit tight. This is all part of the market cycle that's happening right now. And we will keep you aware of what we think and what's really going on.
- [09:13]
Austin Hankwitz
Now, Robert, let's round off with our third headline that is here on our Rich Habits Radar episode. Apple is pausing their Vision Pro to pursue smart glasses. Y' all remember those crazy gadgets people were wearing on their heads in the big battery pack with the Vision Pro? And it's going to be this thing now they're putting the pause button on it. So Apple has hit pause on the planned overhaul to their Vision Pro headset to redirect resources toward a more urgent effort developing smart glasses that can rival metas. So the company has been preparing a cheaper iter variant of this massive headset that they came out with. I think it was in 23 or 24. The codename was N100 and that was going to be released in 2027. But Apple announced internally just last week that they're moving staff away from this N100 product. And now they're going to say, no, no, no, y' all need to focus on working on glasses instead.
- [10:11]
Robert Kroke
Apple, Apple, Apple. I don't get it. The company is working on at least two types of smart glasses. The first one is dubbed the N50, which will pair with an iPhone and lack its own display. Apple aims to unveil this model as soon as ahead of a release in 2027. Apple is also working on a version with a display, something that could challenge the just released Meta Ray Ban display. The Apple version has been planned for 2028, but the company is now looking to accelerate development. Apple's glasses will rely heavily on voice interaction and artificial intelligence, two areas where it hasn't excelled yet.
- [10:50]
Austin Hankwitz
Amazon and Google are also racing to launch a range of AI powered hardware. We saw ChatGPT's OpenAI partnered designer from Apple, John I've. He designed the MacBook, the iPhone, the ipod. Right. He's a wonderful hardware designer. They had a cool partnership announced like I think was during the summertime. So a lot of big tech right now is racing to figure out what we can do between AI hardware and how can we combine the two of them.
- [11:19]
Robert Kroke
So what does this mean for your money? It seems like AI software was only the beginning. Now the race is embodied AI, the hardware. So think glasses, watches, pins and other devices that allow us all to interact with AI in a seamless way. In my opinion, Meta has knocked this one out of the park. Their glasses, with the new screen, they're insanely cool. And if you ask me, Meta is eating Apple's AI lunch right now. So in my opinion, Apple is still in this AI funk where they've fallen behind. They don't know where to go next. You know, they spent all this money on the EV sector, over a billion dollars a year, then they scrapped it. Now they're scrapping the Vision Pro glasses and starting over from the goggles, going to the glasses. I just think they're really struggling and I'm glad we're covering it because I just don't think it's a good place to put my money right now. And they really need to figure out the direction of the company.
- [12:17]
Austin Hankwitz
Yeah, they are in a tricky situation. I couldn't agree more. And I, I agree with what you said earlier. I really do think that Meta is eating Apple's AI lunch. Emphasis on AI lunch. Right. You know, they've got their new. I think it was the Edits app or something where you like, you know, do videos on. On your AI stuff with Meta. And then they got Llama and they've got the Meta. The Meta Smart glasses. Now. They also just. I just saw, too, Robert, Meta is doing some stuff with advertising. And so they. They figured out that if you want to create better ads for your company and you want to run ads better, you just like, prompt it and it will create the ad for you. Kind of like what Icon did. So now I guess Icon's out of business. But I guess what I'm saying is I totally agree. Meta is eating the AI lunch of Apple right now. And Apple's sort of in this situation where they got to just figure it out. They're trying to do the hardware stuff. They thought the Vision Pro, they thought the Apple Intelligence. I haven't used Apple Intelligence once on my phone. I got this little widget where I just swipe over on my phone and chat. GPT pops up. I talk to it instead of Siri. It's night and day.
- [13:19]
Robert Kroke
And they're even getting a lot of pushback on the new phone release. If you think about that, I have seen nothing positive about it. All of these problems and people complaining about the quality of the phone case, the issues with everything. So I don't know, my opinion is like yours, Austin. I think Apple is. Is not a good one for me right now, and that's why I'm staying away.
- [13:40]
Austin Hankwitz
And if you look at Meta stock from the start here of 2023, the stock price is up 503%. You look at Apple stock from the start of 2023, which is really, again, when, like, this AI stuff came out, they're up only 98. So that's a 6x on your money and only a 2x on your money with Apple. So, you know, that's what's so cool about the stock market. Robert, you can have these opinions. Oh, I don't think Apple's doing well. Oh, I think, you know, Meta's doing great or whatever. And you can put your money where your mouth is, right? That's what's so cool about, you know, being able to invest and find these nuggets and really try and build our portfolios around theses that we care about. So, Robert, let's now jump into our rapid fire. I've got three headlines that I brought to the table here. And as a quick reminder for y' all hanging out at home every week, Robert and I found three headlines that we think are interesting to us. We just come at like a little show and tell action and we let you guys know what's going on. So the headlines that I'm bringing, the first one is the Buffett indicator and how it thinks that we're going to be, you know, in this market bubble or whatever. The second one are rate cuts. Talk about that. And the third one is the new Sora app that is going to come for TikTok and Instagram Reels and YouTube shorts. It's this new thing that what Open AI is doing. So. So let's walk through some of these, Robert. So Warren Buffett's indicator says that the markets are ready to pop. Here's why I think it's wrong. And I'm not over here trying to say I'm smarter than Buffett, but I do say that the Buffett indicator has not really been adjusted for globalization and what's happened over the last, let's call it like two or three decades with the S P500. So the Buffett indicator for y' all that don't know what I'm talking about is simply dividing the total U S Stock market capitalization by U. S GDP. So if it sits around 101 to 1 division there, the stock market in the eyes of Warren Buffett is fairly valued. Right now we sit at 200%, which is sounding alarm bells for a lot of these value investors. Now, the reason why I think this is not that big of a deal is because 40% of the S P500 revenue every year comes from abroad, right? That is trillions of dollars in revenue that's not being accounted for in the US GDP measurements and are instead going to China, Europe and other emerging markets. So the Buffett indicator is cool. Keep an eye on it. Right? But I'm not going to be running for the hills because it's sitting at 200% right now. The next thing on my radar is rate cuts, Robert. You know, we just got a rate cut in September and now markets are pricing in up to two, maybe three more rate cuts this year. So according to the CME Fed watch tool, investors are now pricing in between three and four rate cuts to take place in 2025. Federal Reserve is now laser focused on keeping unemployment as low as possible and not focused on this rising inflation narrative anymore, which means by cutting interest rate to encourage borrowing and spending, hopefully catalyzing businesses to invest and hire, ultimately cushioning the job market. We saw that the ADP private payrolls was in the negative in September and Got revised down in August. So yeah, I think rate cuts are a good idea now. The last thing on my Radar is the Sora 2 coming out from OpenAI. It's their next generation video audio generation model. It's been rolled out with a companion social app, new social media app called Sora S O R A Go download it. I don't have an invite code if you have one DM me on Instagram so I can get invited. But it's explicitly designed to compete with short form video platforms like TikTok reels and YouTube shorts. So you don't need a camera, you don't need editing skills or even have to show your face. The barrier now is you just, you just prompt it, right? So before you had to shoot a video and upload it, right, maybe you had to figure it out. But now with Sora, you generate and remix using AI as that primary tool. You type in. Let me see Robert croak chug a Red Bull while standing on the side of a cliff in Malibu. And Sora is going to pull it up together and then Robert can post that in this new social media app. It's going to be fun, man. It's going to be really fun.
- [17:41]
Robert Kroke
It is going to be incredibly fun to watch the next two years of advancement with AI. So I love your coverage of Sora just because things are changing so quickly and companies that we use right now today will likely be gone in two years if they don't adapt quickly because all of this AI and software and everything is moving so quickly. So I want to get into my rapid fire. I've got a couple that I think are really interesting and good for everyone to keep an eye on. And my number one is FICO stock surged 20% in yesterday's trading session after it announced Wednesday that they were integrating a direct licensing program that gives resellers the option to calculate and redistribute FICO scores directly to the customers. So what does this mean? This shift will drive transparency and lower cost tremendously for mortgage lenders and brokers and anyone in need of these customer FICO scores in the real estate industry. And it's not great news for the other reporting agencies like Equifax, Experian and TransUnion. So keep an eye because their stocks are way down. FICO stock is way up, up. And this is going to be really great to make things easier on people in the real estate industry because they won't have to pay as much to get these FICO scores. My second radar point is the US government is taking a 5% stake in Lithium Americas Corp. This will help the US have less dependency on China for lithium resources for EV batteries, renewable energy, iPhones, cell phones, all of the above. And I think this is a really smart play, another really smart play for the US Manufacturing in the coming years to get that dominance back because we just have too much dependency on some of these precious metals and things like lithium to China. And we're trying to beat them in this big, big race in AI and future technology. I think this is really smart for the US Government because Lithium Americas Corp. Has some really big minds across the country and I think it's a really good move. And my last point today, we've been talking about Robinhood a lot and Robinhood CEO says that tokenization is a freight train and will eat the financial system. We've been talking about this for quite some time, how tokenization is happening right before our eyes. And Robinhood currently has over 200 digital offerings for US company shares and is also dabbling in the tokenization world with private companies like SpaceX and OpenAI. So keep your eye on Robinhood stock and the tokenization sector as a whole. It is definitely changing the future of investing fields like real estate, fine art and even collectibles. You hear the term RWAs. That just means tokenization in real world assets, which I think is important for everyone that's investing in crypto in some of these sectors to keep an eye on.
- [20:40]
Austin Hankwitz
Yeah. So I want to go back to the FICO one real quick because essentially what, what that to how I understand it is FICO was selling these scores to the transunions, the Equifax, the Experience, and then, and then the mortgage lenders would have to go through those three major bureaus to get the FICO scores. But now FICO is selling their scores directly to those resellers. The mortgage, the credit, like all that, like the people that are trying to sell debt, essentially, they need to know a FICO score. Now they're going to get it straight from FICO and no longer from the three credit bureaus.
- [21:13]
Robert Kroke
Yeah. And adding transparency, I think is even more important. Important than cost, which the cost will go down. But I love this from a mortgage space because you'll have more transparency on what your FICO score really is and what affects it. So I think this is huge news that I've not seen anyone mention up to date.
- [21:33]
Austin Hankwitz
All right, well, speaking of businesses, we've got a cool Q A section here in these episodes where we get questions from you all as it relates to small business ownership side Hustles Earning More Money if you are someone out there who has a question about entrepreneurship or any sort of variant of earning more money, ask us a question. These these episodes are dedicated to answering questions like that someone like Robert who's had hundreds of millions of entrepreneurial revenue generated with his business. I'm an entrepreneur as well, so we're over here just trying to give you guys as much value as we can with these entrepreneur Q and A episodes. So first question comes from Cheyenne L. She says, hi Robert and Austin, thank you so much for the valuable content you provide every week. Thanks to you, I'm a 29 year old, debt free and just recently finished building my base. Let's go Cheyenne. Cheyenne says I'd like to ask about raising funds for a small business slash side Hustle. I want to start a small business that requires $25,000 in equipment to get going. Right now I have a four month emergency fund in my hundred thousand dollar base but no other liquid funds. My question is how should I get the 25,000 that I need to launch the business? Should I take the next year to save up or should I take out a loan? If I go the savings route, is it wise to pause retirement investments in order to save up for 12 months? I can't get the equip need on a payment plan, but the credit score is hovering around 800. So if I took out a loan it would be at the best interest rates out there. Once I get the equipment, I'm planning to operate the business primarily on weekends, keeping my nine to five and project being able to make a thousand per month in the slow season and 7,000 in the summer and fall. What the heck is this business?
- [23:12]
Robert Kroke
I love that if you can make 7,000 off of a 25,000 investment, I love that it's probably a food truck.
- [23:18]
Austin Hankwitz
Yeah, that's probably true. Okay, so. So my take is you've got a hundred thousand dollars invested. Are saving and investing already here. If you wanted to go borrow, you know the $25,000 from a local credit union at our call it 5 or 6% interest rate, maybe 7, but hopefully not anything more than that. Go for it. Go get that equipment. Go start the side hustle. Get your thousand dollar per month slow season, up to 7,000 per month in the fall. Tactically speaking, there's a couple ways you could do this. One is to go to a local credit union and get a business loan, a personal loan, line of credit, something of that nature at the 5 6, 7% range. You probably also could, and I wouldn't suggest this, but depending on how much you have invested, you could also take a loan out against your portfolio. Those are at very low interest rates right now, close to about 4%. But again, if the portfolio goes down, you get a margin call and they sell. It's. It's a lot of headaches. So I probably would not go down that road. I'd go to a credit union that you know and trust and are a customer of and get the best interest rate possible. Robert, what's your take?
- [24:20]
Robert Kroke
Yeah, I like those. Those are really good options. And there are so many different grant programs you should look up in your, in your zip code. What type of community grants are out there? What kind of localized grants are out there? There are so many programs, you'd be shocked for small business owners on top of just SBA loans, you might even be able to go to like Chase and open a new business account. And as long as you have the right coding, you have your proper operating agreement, you have everything in order, you have your EIN number. There's a lot of times you can go get a no doc loan from Chase for 25 to $50,000 dollars. So those are some other options you can get as well because you have a good credit score that helps everything in being able to get funding, especially because you only need $25,000.
- [25:10]
Austin Hankwitz
Yeah, I like how this is only $25,000 and if you stretch that out over like four, five, six years, the monthly payment's super manageable. And the only reason why I'm like actually encouraging that, because I normally don't tell people to start businesses with debt. I just think it's a bad idea, is because you have your basis built and you are investing and you're doing everything right. Like this business blows up and you are, you know, bad news bears. Well, one, you could sell the equipment, hopefully for close to what you bought it for. But even if you can't, you can just liquidate some stocks. You could pay off this debt and then you can, you know, sell the equipment back and then redeploy that capital back into the markets. It's not like you're going to, you know, if this business goes bad, I got to sell my house and I got to cause, you know, bankruptcy. Like, you are in a really cool situation, Cheyenne. I respect that you're ready to go do this and we're rooting for you. We think you're going to do great.
- [25:55]
Robert Kroke
And for anyone out there getting ready or thinking about launching a brand or buying a small business or launching a small business. Really listen to Austin's take because I think it's very critical to understand you don't want to go open this new business and take everything you've saved for years and everything you've built and risk it on one project. It's okay to risk a portion of it, but just understand that, that that base is meant for your future and you can find other ways to open this brand or this business without putting yourself in harm's way. Because the last thing you want to do is go all in on one project. I know a lot of the fake gurus tell you to do that. They're wrong. Because if you're wrong one time with this business and it wipes you out, you start over, you have years of building and saving again. So I really like your take there, Austin, and this is a great situation for her to be in.
- [26:45]
Austin Hankwitz
That's the last thing I'll say before we go to the next question. People make the mistake of saying, oh, I want to earn more money. Let me go start a business. No, sometimes starting a business is a good idea to earn more money. If you have a unique skill set like, you know, graphic design or it was, you know, something, right, you, you can, you can make more money, have a high value skill that you can depend on to earn more. Nine times out of 10, oh, I need to go make more money. Let me just go get a second job. Like, let me just go work more hours with Uber or doordash or like deliver pizzas. Like, do not take on the risk of debt and all the time and energy and focus to and start something or starting a business like whatever, because you want to earn more money. Like, earning more money doesn't always mean I need to go be an entrepreneur. Earning more money can just mean I'm going to go take on a second job. I'm going to moonlight, I'm going to bartend, I'm going to serve tables. Like, earning more money is a lot more than just like getting tricked into thinking you have to go be a billionaire entrepreneur. So our next question comes from. Our anonymous listener says, hello, Austin and Robert. I wish to stay anonymous, so please do not share my name. No problem. We got you. So our podcast listener here says, my current situation is as follows. I'm 28 years old, I'm a cop chiropractor in the Midwest and I've been presented with a life changing, in all caps, opportunity that can change the course of my life and My family tree for generations to come. Whoa. Okay, let's dig in. They said that I'm 28 years old, I'm single, and I make a salary of 85,000 a year at the moment. And I'm completely debt free. I have rent around 1600amonth. I've been maxing out my Roth IRA up to the company match with my Roth 401k as well, well as having a fully funded emergency fund as you guys speak of. So my personal bases are all covered. Here's my predicament. I have been presented with the offer the takeover. The clinic that I work in, we are a medical facility bring in between 1.8 and 2 million a year. And the way in which I'd be able to do this is through owner financing. The price of the clinic is $3 million, which has been estimated using an EBITDA multiple, as well as 6 to 8% yearly interest with a loan of 15 years. After branding, fee fees, debt, loan repayment, and all overhead is paid, I will be bringing home $400,000 a year and will increase substantially once the loan has been fulfilled. Do you guys think that this is wise to take this endeavor if you were in my shoes? Being so young and being presented with this opportunity is amazing. And I want the two brightest minds in business and finance to give me their perspectives. You guys have changed my life. I'm beyond thankful for all you do. Thank you, thank you, thank you, thank you. Well, I'd love to address you by name and say shout out you and thank you for listening. So just know that we appreciate you, our anonymous listener, and we're pumped for you. So Robert, you are the owner, finance guy, walk our anonymous listener through how they should be thinking about this loan here of $3 million. And I'll give you some numbers here actually while we do this together. Cause it's gonna be fun. So $3 million over 15 years is a $200,000 repayment payment just for the principal every year. But now you're charging an extra, let's call it 7% blended interest, so that makes it 214 per year. So now you have $214,000 that you're paying back on an on an annualized basis, which is about $18,000 a month. And remember, this is after tax profits and things of that nature. So knowing that Now, Robert, this $18,000 a month repayment is what it's going to cost him, what's your perspective and how is our anonymous listener going to change his family tre doing the right things Here?
- [30:16]
Robert Kroke
Well, we don't have the facts. I don't believe if that comes with the building or if you're just buying the clinic. So I'm going to assume it doesn't come with the building, it's just the clinic. So with that said, I don't know if the numbers work and here's why. The general rule of thumb, if you're going to lease a space for your business, you want your all in lease your rent overhead to be at around 8% of sales. So if we were to take even 10% of sales at $2 million, that would mean we would have to be at $200,000 a year in rent, all in. So if you take $200,000 divided by 12 months and then add that to the $18,000, it's going to cost a month to be able to buy this business. I don't think you're going to get to that $400,000 profit because you're not looking at the total ownership cost. You're looking at the fact which it makes sense. Sense. If you're going to do 1.8 to 2 million a year in sales and let's say you have a net net owner discretionary income of 20%, it would be okay. But you have to realize you have to put all in rent on top of that to be able to get to where you're at total numbers and see if it's still going to be profitable. And in this instance, I don't think it would be. And I think you'd have to really increase sales skills to make it super profitable. That would be my take.
- [31:41]
Austin Hankwitz
So let's walk through that with some numbers here for our friend. So 1.9 million is between 1.8 and 2. And then you subtract out the 416 ish thousand dollars, which is the rent at 10%, as well as these loan payments back, which is about $1,485,000. And so that's like the money that they're making after the loan's paid every month and after their rent is paid, they still have to pay pay, obviously employees and supplies and things like that. So you're saying that on average you think the, the, the cost of doing business is going to be more than this 1.4 million because he's saying that it's only going to cost about 1 million, 1.1 million, right somewhere that 1 to 1.1, leaving him 350, $400,000.
- [32:32]
Robert Kroke
Well, let's walk through it and help me on your end if let's say we are at that 10% amount on $1.8 million, that's $180,000 a year for, let's call it rent. And if it's triple net, triple net, that doesn't include utilities and everything. So even at 10%, which is high, you want to be at 8, that would be $15,000 a month. So you have $15,000 a month there, plus you have $18,000 a month in the total payment. Correct. So that, that's. That is 28, $33,000 a month in the main overhead there, not including marketing equipment, payroll, and everything else. So I would just make sure I don't know the numbers because I don't know what their total net net is on everything. I don't know what their labor cost is. I assume labor costs in a business like this is 35%. So if you took 1.8 million times 35%, you're at 630,000 for the year in labor. So it's really tough to tell. And I just want to make sure that they understand the total numbers here because it could be a great buy or it might be a very tight margin. And it's tough to tell without really breaking down the P. Ls and seeing the last couple years of expenses.
- [33:50]
Austin Hankwitz
So is that the advice you get of him? Obviously, we don't have full information. So if you were in his shoes, what would you look for? What would you do?
- [33:55]
Robert Kroke
I would get the last two or three years of financials and make sure you get the real ones, not the ones that come out of the actual POS if they have a POS system, you want the real numbers that are produced by the accountant for the business so you can see exactly where they're at. Because remember, their profits are going to look different than yours because they own the business. So they don't have this big monthly payment to pay for the purchase of the business. So you need to be able to make sure that that works within the. And it could work perfectly. I'm not saying it might not, because you might have a situation here where what you're paying a month of $18,000 would just be going against other money you'd be making from a profit perspective as the owner. So there's just a lot to consider. But I would start with three years of books, make sure you break it all down and understand what are the net margins to me if I do this deal based on the current numbers. And it might be fantastic, but it's just hard for Me to tell hotel without knowing. So I hope some of these numbers and insights will help you figure it out.
- [34:59]
Austin Hankwitz
Yeah. So here's the deal. How I understand it is on that 1.8 million of revenue with all the numbers we had run here, right? So you know, you're looking at about 33,000 when you include the rent plus the loan repayment there on a, on a monthly basis on. And then if you've got the, let's call it 600, 650,000 on top of that per year in labor costs, now you're coming in around a million, a million 101. So I guess what I'm trying to say here is when you take the labor cost, you take the monthly payment back to the owner financing and the monthly rent, you're looking at about a million dollars out the door. And if you're making a million eight, it's like, okay, cool, I've got 800,000 to play with. You just have to understand where has that 800,000 margin of gross profit essentially gone to every single year? Actually not gross profit, it'd be operating income. But like where has that gone every single year, right? So it's like if that goes to do silly stuff and you can maybe pocket more of that or increase those margins, like great, like you probably could end up with 400,000. But if 700 of that 800,000 every year goes to, you know, maybe more labor costs than we understand, or different types of marketing or different promotion or products or things like that, it's like that's how this 400 turns into 200 turns into 100 turns into you're not making the same thing you're making before, but now you're working 80 hours a week to do it.
- [36:15]
Robert Kroke
Yeah. And you have to take into consideration to our anonymous listener here, here, from what I understand, has never owned a business. If this is your first business, you need to be as right as you can about what you're buying. Because what seems like a life changing opportunity might not be the case. And that's why you really need to understand the numbers, the total ownership cost and then really understand like even all of the equipment, are there equipment payments? Does the equipment come with this? Are they paying off any loans against the equipment in the sale or are they leaving you with this debt as well? There's a lot to consider here.
- [36:49]
Austin Hankwitz
Personally, I do it, I just make sure I'm doing it right. Our last question comes from Juan Diego E. Juan Diego E. Says, good morning gentlemen. Been listening to your podcast for just Under a year. And I get very excited when you talk about investing in the future and how anyone can start all caps. Anyone. It's so true. Anyone can start investing, Robert. I wish people knew that the sooner the better. Best time to plant a tree is 20 years ago. The second best time to plant a tree is right now. You cannot be more creative. Correct? Okay, Juan Diego says. I did have a few questions when it comes to affiliate marketing with Amazon or any selling platforms. Mainly if I were to get started into something like this, where could I go to get a more in depth, step by step on how to get started? Do you know anyone on YouTube that has easy to follow content on this type of business, what websites to use, what kind of hurdles I might run into, or any friction points that I would need to be aware of? As always, I think you two are doing great work for the average American who is interested in trying to learn more about finance. Well, Juan Diego, go. Thank you so much. I'm going to do you a really cool little favor here. I'm going to copy and paste your question into Chat GPT and I think that's what you're going to use.
- [37:56]
Robert Kroke
And then we've got to determine if he wants to do affiliate marketing as if he is the talent or if he wants to sell affiliate marketing to other people that want to use affiliate marketing. Because he didn't determine that in the question.
- [38:10]
Austin Hankwitz
From what I understood, I think he wants to do affiliate marketing for Amazon. So like, like affiliate products, like shop.
- [38:17]
Robert Kroke
Wants to sell Amazon products through affiliate marketing. How does he do it? Go for it.
- [38:22]
Austin Hankwitz
So Juan Diego, I literally took your question, I copy and pasted it into Chat GPT and I am looking at a crazy result here of just week one, week two, week three, week four, your content plan, the analytics, the applications like so I love your question and I love that you're trying to find, you know, an in depth, step by step guide on how to get started. Turns out AI can do it for us, right? Go to Chat GPT, copy and paste the exact email you just put and put it in here. If you want I'll reply to your email with a link to this answer with ChatGPT so you can see it for yourself. But I think this is just a lesson around being resourceful, right? There's so many ways to gather information online right now. If it's between YouTube content creators, if it's with AI, if it's with searching TikTok content, if it's with searching on meta or searching on, you know, Perplexity or Grok or Twitter. Whatever you want to do to find the information. Information is free in abundant. Right now we are in the information era of our lives. It's never been easier to learn something new. The hard part, and this goes back to our conversation with Sahil Bloom. The most successful people in the world have a razor thin gap between learning information and executing upon what they just learned. And so what Juan Diego needs to do is go learn all this information and then actually go do it. Go make that TikTok shop affiliate account, go do that Amazon account. Go start your, you know, get the camera ready, use your iPhone, go, go buy a $20 microphone on Amazon and use that like do the steps that are being laid out here. I'm looking at, it's got step one, we got weeks going up to the first four weeks. Creators with easy step by step teaching authority, hacker income school, niche pursuits, Mac Diggity, Miles Beckler, Jillian Perkins, think media sites and tools to use WordPress generate press blocks. I mean it's out there. The information is there. You just have to now go read it and act upon it.
- [40:17]
Robert Kroke
So I'm going to start my answer with a story and I hope this gives all of you listening that are considering doing affiliate marketing. Whether you buy really cool stuff on Amazon for your house decorations or maybe it's car related or maybe it's who knows what. There's a million categories, beauty and skin care products. But I'm going to start with this story. Last year we had an influencer that did affiliate marketing for silly bands on TikTok tock. She had two videos go viral and she averaged making $20,000 a month just with Silly bands by doing affiliate marketing. So it is real. You can make a lot of money from it. But make sure you understand, don't give up quickly because you're not going to produce two, three videos and print money. You have to be willing to build your audience, do the work, do the videos and understand it's a slow build at times unless you go very viral. So that's my story and we have a lot of experience at this. We do this with all of our consumer brands and there are people that make a great living. I know a woman right now, all she does is put her affiliate links for Amazon products that she features in her Instagram and TikTok and she makes a wonderful living off of the commissions from those links. So I love where your head's at. Do the research. Like Austin and said, all of the information is out there and do this. Test, test, test, iterate continually. Try things. Get a good microphone to go along with your iPhone. Get a small tripod stand. I use this one. Super simple. It's really easy. You don't need fancy tools. I built millions of followers on TikTok with $150 worth of equipment on top of my iPhone. So you can do it too. In the affiliate feed field, just make sure you have patience and you put out good quality content.
- [42:09]
Austin Hankwitz
Everyone, thank you so much for tuning into this week's episode of the Rich Habits Radar, a new Friday episode of the Rich Habits podcast where we come at you every Friday morning to give you the biggest updates impacting you and your money. We talked about a ton of interesting things, give you a quick little recap on some of our favorites. Apple hitting pause on their Apple Vision Pro to go make some sunglasses that maybe have a screen in them. Government shutdowns are here, but just know that everything's going to be fine. And of course, open AI now becoming the world's most valuable privately held company. If you like stuff like this, if you're a money nerd like us and you want to stay up to date on headlines, consider joining the Rich Habits Network. Every Tuesday night, Robert and I sit right where we're sitting right now for two hours on a zoom call, sharing information, sharing our portfolios, offering cool investments to invest alongside us. We have two deals happening right now inside the Rich Habits Network that are really exciting if you ask us. And these are deals that are presented to Robert, myself, and we get to say, hey, can we we invite some of our friends and those friends are you guys. So if you want to join the Rich Habits Network, we're running a seven day free trial right now. We open up the playbook. We've got eight hours of video coursework covering how to buy a business, how to analyze a stock, how to do your retirement accounts, how to make a budget, how to build your credit, how to do all the fun things that you need to know to succeed with money over time.
- [43:29]
Robert Kroke
Yeah, it's a blast that we get to do this every week and just understand something. Could you guys find these headlines? Could you guys read up on everything we talk about? Absolutely. Absolutely. All the information is out there. The key here is getting our insights. Two people that have vast knowledge in the world of mindset, business, finance, stocks, crypto, all of that. So that's what you're here for, and we appreciate all of you each and every week, is that you find value in the resources we provide, whether it's in the podcast, the free newsletter or the Rich Habits Network. So we appreciate each and every one of you stopping by by week after week and sharing the podcast with a friend that might need a little help in their financial journey as well.
- [44:13]
Indeed/Liberty Mutual Advertiser
And Doug Limu and I always tell you to customize your car insurance and save hundreds with Liberty Mutual, but now we want you to feel it. Cue the emu music.
- [44:21]
Austin Hankwitz
Limu Save yourself money today. Increase your wealth, customize and save resources.
- [44:32]
Indeed/Liberty Mutual Advertiser
That may have been too much feeling.
- [44:33]
Austin Hankwitz
Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings Very unwritten by Liberty Mutual Insurance Company and affiliates excludes.
- [44:40]
Ziply Fiber Advertiser
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- [44:56]
Robert Kroke
Let's go.
- [44:57]
Ziply Fiber Advertiser
And young Mason Moore got more done quickly uploading HD product demos and video conferencing without FreeSync.
- [45:03]
Robert Kroke
The numbers look good. Brad. You're on mute.
- [45:05]
Ziply Fiber Advertiser
Switch from cable Internet to ziply Fiber and get more of what you love for $65 less per month than cable at ziplyfiber. Com.
- [45:11]
Robert Kroke
So thank you so much.