Summary: The Lifestyle Investor: The 10 Commandments of Cash Flow Investing for Passive Income and Financial Freedom by Justin Donald
Summary: The Lifestyle Investor: The 10 Commandments of Cash Flow Investing for Passive Income and Financial Freedom by Justin Donald

Summary: The Lifestyle Investor: The 10 Commandments of Cash Flow Investing for Passive Income and Financial Freedom by Justin Donald

Hardcover | Paperback

Debunking the Most Common Myths about Investing

“Risk comes from not knowing what you’re doing.” —Warren Buffett

Myth #1: The best way to become wealthy is by building your 401( k), following traditional investment advice, or investing in the stock market.

Conventional financial education says to save money in tax- advantaged vehicles and invest in the stock market and hope it works out. It’s all about the rate of return, and it’s all product- based— this product or that product is what’s going to get you there. Your plan needs to be more holistic. There are many different ways to skin a cat. Run from anyone who tries to sell you a single product- driven strategy.

Myth #2: You can’t spend money freely today and grow your wealth at the same time.

Money and wealth typically don’t result from a nest egg accumulation approach in which you build a nest egg of millions of dollars, draw from it when you retire, and live a happy life. This strategy relies on endless hope. Hopefully you’ll be able to accumulate this huge amount of wealth; and hopefully by the time you do, the stock market will be in good shape; and hopefully you will be able to retire in a good season for the economy. If all of these hopes are fulfilled, hopefully you’ll be in good health and physically well enough to enjoy retirement.

Myth #3: The best investments are tried- and- true choices you’ve already heard about.

The cannabis, CBD, and hemp industry is taking off right now. It is one of the fastest- growing industries in the U.S. The music industry has royalty investment opportunities that are now more prevalent than ever before and with easier access for investors. There are more opportunities to invest in original production content (think shows, movies, music, and so on), which is a brand- new booming category that a decade ago was basically limited to HBO and a few other producers. The list goes on and on.

Myth #4: You can’t upgrade your lifestyle without sacrificing profit.

Lifestyle inflation is a threat to long- term financial freedom. Nothing is a given. Being a Lifestyle Investor means that while your income increases, your lifestyle doesn’t increase linearly.

Myth #5: Most investing experts give good advice.

Fiduciary responsibility means that whoever is investing your money has an obligation to do what’s best for you. Because many financial planners don’t have to do what’s best for their clients, only something that’s good or that they think is good, they typically do whatever is best for themselves.

Myth #6: You need a lot of money to start cash flow investing.

“I remember when I made my first investment of just over $ 50,000. It kept me up at night. I thought, Oh my goodness, what if this fails? This is a lot of money. I could lose it all. But what I wanted to do was stop the limiting beliefs in my mind. So, I thought, You know what? If there’s any way I’m going to learn, it’s going to be when I have my money in the deal. After doing that deal, I was much more confident in the next deal and didn’t lose sleep over it. I understood the process better and had an education of what happened— the experience really mattered.” – Justin Donald

Most people also feel the same way when they start investing. You have an opportunity to educate yourself. Your task is to do your due diligence on the front end to determine if you are investing in a good deal. If you’re unsure if it’s a good deal, run it by people with expertise in that area. Have some good advisors around you.


The 10 Commandments of the Lifestyle Investor
Commandment #1 Lifestyle First

“My definition of success is to live your life in a way that causes you to feel a ton of pleasure and very little pain— and because of your lifestyle, have the people around you feel a lot more pleasure than they do pain.” ―Tony Robbins

This commandment enables you to earn income that is independent of your time. To follow this commandment, look for investments such as hard money loans (and variations of hard money loans, including lending funds and highly collateralized business loans) or anything that gives you more freedom of time without sacrificing a high return.

Commandment #2 Reduce the Risk

“Never lose money. Rule No. 2: Never forget Rule No. 1.”―Warren Buffett

Warren Buffett’s first two rules of investing sum up this nicely. The hard part is implementing those rules and preventing yourself from violating them when you get emotionally involved in a deal and let fear or becoming overwhelmed get in the way of discipline, experience, and wisdom. If you lose money, you have to work twice as hard to replace it. Plus, you have the lost opportunity cost of what that money could have been earning.

Commandment #3 Find Invisible Deals

“The sky is filled with stars, invisible by day.”—Henry Wadsworth Longfellow

Here are two guiding principles you should look for in finding invisible deals.

  1. Pay attention to emerging markets or unseen opportunities outside the mainstream.
  2. Pay attention to what’s going on with trends in the economy: what’s strong and what’s not.
Commandment #4 Get the Principal Back Quickly

“It isn’t sufficient just to want. You’ve got to ask yourself what you are going to do to get the things you want.”—Franklin D. Roosevelt

Let’s imagine a perfect deal. You invest money into this deal, you get all your money out in less than two years, and you retain equity so that when the asset is sold, you make additional money, generate cash flow during the holding period, and have the ability to take tax deductions for an extra kicker (or free money). 

The big challenge a traditional investor has versus a Lifestyle Investor is the complexity of building and scaling a team. It’s easy to get into a circumstance where the cost of a team, all the overhead, and your time can exceed the profit you’ll make and the risk you have to take.

Commandment #5 Create Cash Flow Immediately

“I’m a cash flow guy. If it doesn’t make me money today, forget about it.”—Robert Kiyosaki

It is incredibly important to vet deals not only based on the financials and asset classes but also by the general partners and operators who run them. Successful investors realize that having an experienced general partner and strong operator is just as important as having strong financials. One without the other is not a good deal. You really need to have each. Additionally, it is important to recognize that sometimes the most non- obvious and even undesirable investments produce the best cash flow. Mobile home parks and industrial warehouses are perfect examples, and these assets are often purchased in private real estate funds.

Commandment #6 Find an Income Amplifier

“Stay committed to your decisions but stay flexible in your approach.”—Tony Robbins

A variety of investment income amplifiers are available but rarely used by the typical investor. Here is a list of the most common income amplifiers:

  • Negotiating preferred terms— terms that improve the economics of the investment
  • Sidecar agreements— an addendum or agreement with pre- negotiated preferred terms
  • Co- investment opportunity— an opportunity to invest in a specific deal outside of a fund but alongside the fund managers
  • Equity kickers— free equity that is given as an incentive to make an investment even better
  • Warrants— an option to buy equity in the future at a predetermined price
  • Revenue shares— a percentage of top- line revenue paid to an investor, typically with monthly distributions
  • Liquidation preference— a clause in a contract that dictates the payout order of proceeds upon the sale of a company or other corporate liquidation
  • Advisory shares— business advisors will often exchange their involvement within a company for compensation with common stock options, which can lead to equity in the company
Commandment #7 Plus the Deal

“You can’t put a limit on anything. The more you dream, the farther you get.”—Michael Phelps

Justin explained this commandment perfectly, saying “I’m going to give you a two- for- one deal with the added benefit of having no risk. Here’s how it works. I use a specially designed whole- life insurance policy (much different than off- the- shelf policies) to finance my investments and operate like a bank, but with much better terms. I use this same bank replacement strategy, taking loans against my whole- life policy, to earn multiple returns on the same money.” He added, “I used this strategy to invest in Dressbarn as well as in all the rest of the retail brands my Lions Network purchased (Pier 1 Imports, Linens & Things, The Franklin Mint, Modell’s, RadioShack, Stein Mart, and others). I have used it in all of my mobile home parks purchases to date, all of the operating companies I have invested in, and many other investments as well.”

Commandment #8 Cut Out the Fat

“Beware of little expenses; a small leak will sink a great ship.”—Benjamin Franklin

When you’re just starting out, you probably have more time than money, so the fastest way to cut out the fat is by doing a few more things yourself. In every situation, you want to understand how people get paid so that you can negotiate in a way that requires that the other party has “skin in the game” (risk) and is providing as much value as possible. Also, keep in mind that the biggest mistake new investors make is not asking enough questions to find out where the fat actually is and how everyone makes money. Often, the best thing you can do is ask a lot of questions, find out where the fat is, and negotiate a deal where vendors, brokers, and bankers only win when you win— and they get paid after they fulfill their promises.

Commandment #9 Use Leverage to Your Advantage

“Success is 80% mindset and 20% skill.”—Tony Robbins

The best and fastest way to get and use leverage is to borrow someone else’s money or do a seller- financed deal with a low down payment (or no down payment at all) with no recourse. What you’re effectively doing is transferring wealth to yourself with no risk or cost. If you can find a way to improve that asset without writing a check, you improve and increase equity and increase cash flow as well.

All anyone can say is no, but most of the time you can land the deal by asking great questions— and having someone to model who’s done a similar deal in the past paves the way. Finding a mentor or a mastermind can be so powerful. Just one idea can pay for itself by 10X in a single transaction.

Commandment #10 Every Dollar of Investment Gets a Return

“An investment in knowledge pays the best interest.”—Benjamin Franklin

Some people believe they can’t invest because they don’t know about investing. Another myth. You can learn. In fact, once you own investments, you’re quickly forced to learn about them.

Once you’ve accumulated enough knowledge, assembled a great team of advisors and professionals, and gotten involved in enough deals, you’ll be able to find tremendous opportunities to negotiate and even renegotiate deals in a way that benefits multiple parties and provides long- term cash flow and equity painlessly. Without the knowledge and experience of others and getting into the game, however, opportunities like this win- win investment will never appear. All of these learned skills require taking a first step, making a commitment, and pursuing your dream.

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