Author Topic: Increase my investment returns using the monthly expenses that anyway I have?  (Read 1501 times)

nicetry

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From analyzing my past expenses, I've noticed that I am spending about $200 per month at a local grocery store.
What if I contact that business owner and invest/lend $XYZ to the business owner such that he/she agrees to pay me $200 groceries every month?
Any reasonable guesses on how low can $XYZ amount be? Obviously I want to invest as low as possible to get $200 worth of groceries every month.
Can I expect higher returns than stock market investments?
Does this approach feasible?  I understand that my investment will be at risk, if the business does not do well.

Also does this make sense from the perspective of small business owners as well?  Any thoughts / concerns?

pucksr

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This seems to be an odd way to think about investments.

Money, by definition, is fungible. I personally try to avoid 'bartering', unless you can specifically exploit the bartering exchange.

dandarc

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If the owner REALLY needs the money, he might be willing to make a deal like this - but then you're investing in a business that is pretty desparate - does not bode well for the future of your investment.

You would need to get a return from this that exceeds significantly than what you can get in a passive investment to make this a good deal for you.  This is to compensate you for your risk of investing in a small business vs say the S&P 500 which has returned nearly 10% annually over time.  We need at least 12% here to make this a good deal for you (probably much more in reality) - so in your 200/month example you should not be willing to pay more than $20,000 for this.

Now, the business owner will make this deal if it is a good deal for him - how is it a good deal for him?  If his cost of capital is currently greater than 12% - meaning to raise the funds that he needs, he has to pay more than that to someone else.  So this guy cannot borrow at less than 12%, nor sell a piece of his business to someone else for less than an expected 12% return.  Bottom line, if he takes this deal, he is desperate, and much larger companies than you as an individual are not willing to make a deal this good for him.  This means he this business is likely a larger credit risk than you think, or is more likely to fail than you think.

So yeah as pucksr says, try to avoid bartering unless you've got information the other party doesn't and so can take advantage - odds are you don't have as much info as the business owner in this set up, so any deal you make is unlikely to be to your benefit.

pucksr

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And once again...use the word "fungible" as much as possible.
Try to say it out loud without smiling.