Revealing How the Ultra Rich Get Wealthy and Avoid Taxes

Summary

• I made my fortune by first taking $42 million in distributions from my company Gym Launch and reinvesting it into a portfolio of companies now valued over $200 million.
• The ultra-rich employ four main strategies to accumulate wealth: income generation, investment in public equities, leveraging private equity, and combining income with understanding debt.
• To reach a personal net worth goal, such as $10 million, the ultra-rich reverse-engineer their approach using these strategies, often aiming to live off the returns at a 4-5% yearly investment strategy.
• One can achieve a $10 million goal through pure income generation by making $15 million and paying taxes to get the $10 million post-tax.
• Another method is earning $1 million per year, investing that money post-tax at 9%, and reaching $10 million after about a decade when accounting for compounding interest.
• Active investing involves making $1.2 million per year from a business asset and later selling it at a multiple to achieve net worth goals.
• A less discussed but potent strategy is obtaining equity in a company that goes public; then, using that stock value as collateral for loans grants liquidity without selling shares or paying taxes on loan proceeds.
• To grow wealth, it's vital to learn how to provide value to the marketplace, either as an employee or a business owner, since the ability to generate income is fundamental.
• It's important to recognize the fallacies of simply following famed investors like Warren Buffett, understanding that socio-economic background, historic timing, and luck play significant roles in such singular success stories.
• Rich parents often gift their children a mindset focused on high-leverage opportunities, shaping their decisions around vehicles with potential to yield significant returns.
• It's key to focus on developing income-generating skills, being selective in opportunities for a higher return, associating with those who pursue higher-leverage opportunities, and having the conviction to make contrarian decisions when they offer a real opportunity.
• Contrary to the usual "rich get richer by avoiding taxes," these strategies highlight that wealth creation is more about smart asset management through leveraging growth, loans against assets, and understanding market dynamics.

Video

How To Take Action

I would suggest focusing on the ability to provide value, which is essential for generating income. Start by learning new skills or enhancing existing ones that solve problems in the marketplace. This can lift your earnings significantly. For entrepreneurs, this means developing products or services that address specific needs.

Then, consider applying the investing and wealth-building strategies of the ultra-rich. Here's how to start small:

1. Save and invest your income: Aim to set aside as much as possible, even if it’s not a million dollars a year. Invest carefully, looking for a reasonable return, around 9% if you can, to help your money grow over time. This could be through low-cost index funds or other available investment vehicles.

2. Leverage private equity: If you own a small business, think about how you can scale it to increase its value. This might mean improving the business to the point where you can sell it for a significant profit later.

3. Understand debt: Use it wisely to grow your business, not for personal consumption. If your business is stable and generating regular income, a loan could help expand your operations and increase its value.

4. Be selective: Follow the lead of the ultra-rich and choose opportunities with the highest potential return. This might mean passing on smaller chances to focus on bigger ones.

5. Surround yourself with high achievers: Ideally, associate with people whose financial ambitions are greater than yours. This exposure can offer high-leverage opportunities.

Remember, this isn't about making billions, but starting the journey toward your first $10 million by following a blueprint proven by those who have already achieved it. Focus on increasing your value, generating more income, and investing wisely while leveraging opportunities that come with understanding and using debt effectively.

Quotes by Alex Hormozi

"I got my first $100 million by age 32"

– Alex Hormozi

"I now want to make a billion dollars or at least be worth a billion dollars"

– Alex Hormozi

"The way you generate income is by solving problems for other people and learning skills"

– Alex Hormozi

"The single greatest and most valuable skill that a human being can have is the ability to come to their own conclusion and have the confidence to act on it"

– Alex Hormozi

"The funny thing about opportunity is it looks like risk while they're opportunities"

– Alex Hormozi

Full Transcript

how the ultr rich get rich and avoid taxes legally and if you don't know who I am my name is Alex rosi I got my first $100 million by age 32 and I did that by taking $42 million in distributions from my first big company gym launch and I ended up selling that company for 46.2 million I reinvested that 42 million in distributions into portfolio of companies that's today at acquisition. comom just over $200 million a year and so that's my evidence to why I have something worth saying about this now that being said I'm going to split this video into two parts one is the four strategies that the ultr rich use in order to get wealthy and then the second half I'm going to explain how you can use those same four strategies to reverse engineer a $10 million goal and the reason I use $1 million as the net worth goal is because $10 million at four or 5% per year which would be basically a RIS risk-free investment strategy you'd be able to live like the top 1% in today's market so you could move these dollars up as dollars get uh inflated and all that kind of stuff but for now these are the big four strategies and so these developed over time as my understanding of money improved and so for me I now want to make a billion dollars or at least be worth a billion dollars haha lots of zeros okay so the first version of this that I thought in order for me to be worth a billion dollars was to make 1.5 billion dollars I know a lot of zero in income all right because after taxes which would be 67% taxes in the US which is the highest federal tax rate that you can that you have to pay you'd be left with $1 billion overall post tax okay that's the zero leverage version of making money so this is just income Generation all right V2 of this is thinking okay well if I make a billion dollars or I make income every year I'm going to invest a certain percentage of that income into making money for me passively and so this feels harder than making $100 million per year and reinvesting that money at 9% so the Clear Point here is I'm just saying this is just the S&P this is just the market this isn't doing anything fancy you're just buying indexes of the S&P 500 now at $100 million a year in 10 years you would make $1 billion now that's because this post taxes uh you'd have 600 and sorry $67 million post tax income that you then invest at that same 9% which would get you your billion dollars after a decade you're like okay well making $100 billion a year in income versus making $ 1.5 billion in income over however long period of time this feels a little easier because now I'm giving two things I'm generating income plus I'm using public equities all right so I'm I'm using passive investment strategies for things that are ready available to the public for everyone the V3 version of this it gets spicier and spicier every time is that you do you make $100 million per year and you own the asset you own the business that makes this much money and you sell it at call it 12x when I say 12x means 12 times earnings which a company of this size it' probably be fair that it would get that kind of multiple because it's so big which means that you would make 1.2 billion which would leave you post tax with around $1 billion now what people don't talk about this as a total side note and as somebody who sold multiple companies is that everyone has this big dream to sell a company and get the check but what they don't tell you is that you then have a check and then you have to do something with the check so now you have to translate that check back into equities so you just sold equities and you get money and then you have to buy equities yet again and so then you have to think to yourself am I going to get a better return on this billion dollars than I do within the existing business or asset that I ended up selling and I'm going to translate these zeros down to the $10 million goal that we're talking about in a second but I just like to show what it looks like at scale so that this can just so you can see how the Big ultr Rich stuff actually happens in the real world now this is the the V3 version this is income so that's the skill plus private Equity all right so this was public Equity this is priv private Equity all right so a little bit different this business isn't available on the market there's institutional buyers who raise funds and then they will give you a check for the business that's V3 of this now V4 of this is very sexy and has three different sub strategies all right and so in this instance you have your business that makes $100 million per year and so you choose one of three paths path one so we'll go a we'll go B and we'll go C so at the top level you can do something called an ESOP an ESOP is an employee stock ownership plan where you sell between 33 and 49% mind you this is a minority stake in your business and a bank will finance your employees back stopping that debt with the equity that you sell them employees get the equity here bank is here and then there's you and so the bank gives you money and lends it to the employees to pay you using the stock that you gave them as collateral now what's interesting about this at least in the United States and I'm sure there's different functions like this internationally is that this payment at least in our tax laws is taxfree and so you get a smaller multiple because banks will always pay less because they have to think about risk not upside then potentially a private Equity buyer would but this is taxfree to the owner which is pretty sweet now one of the other nice things here is that you still maintain control of your business because you still own majority and so if you do it in this way you can help your employees get wealthy you get a taxfree check uh they get to participate in the growth of the business and often times esops can go well because then now you have a huge team of people who are also incentivizing growing the business and quote act like owners but they didn't need to come up with the money it's like here's your stock and then they go straight to the bank and then the bank gives them the loan to pay you for the stock you gave them it's kind of how it works okay that's version a of this now the way this works though is that you just traded the equity and you get cash for what you gave the employees but you still own the asset and so the asset is still worth what it is in the private realm so if you add those two things together you still have a billion dollar but you get the liquidity and you keep the control the version B of this is something called a dividend recap so dividend recap is using the same bank structure that you'd have with an ESOP except you just cut the employees out of it you just go directly to the bank and say hey how much will you loan me using my entire business as collateral now if you think huh that's weird think about it like buying a house if you buy a house you go to the bank you put x% down and they give you debt for the rest of it and then you pay that debt off and so the business actually works the same way so if you have no debt on the business or even if you do have debt on the business you go and say hey we can reliably produce this much income and so we could pay off this level of debt and so then a bank would say okay well we'll give you four times or five times your total eida or your earnings for the year roughly and will give you that as debt so if I make $100 million a year they might give me a $500 million loan that they know that my business will be able to pay the interest off on which for them makes sense because they're just getting paid to give money that they that they loaned out right and then you have terms associated with that debt right now if your business is growing then it makes a ton of sense to do that you drisk a little bit as an owner and the key Point here is that the business carries the debt not you personally and so you as a person the owner of the business gets to take the $500 million but the business pays the debt off and so let's say 5 years later maybe the business pays all of the debt off you got the $500 million and you still own the business just like owning a house at the end of paying it off works the same way kind of cool now the third version of this is one that people are a little bit more familiar with which we kind of used earlier which is public equities meaning you go public with the company that you have and so now when you go public you only have to sell a small percentage of shares in order to make them available to the public and by doing that the remainder of the stock that you have starts to have an actual Marketplace value and so the value of this and one this is one of the biggest benefits of going public is that you don't have to sell 33 to 49% of your shares you could sell 10% or 5% of your shares and then the other 95% has a market value in real time and so then you can still go to those same institutions Banks Etc and say Hey I want you to loan me and the thing is is here you can do it peace meal you don't have to go through a six-month process or 12month process to get one specific amount you can say hey lend me uh 5 million a day lend me 20 million tomorrow lend me you know 100 million on this other day and you can do that process in 24 hours because you have equities that are publicly available which they can collateralize meaning they can then take that if for whatever reason you don't sell and so most of the times banks will loan up to 50% of the value of the stock that you have and so if I have a billion dollars in stock I can get a loan up to $5500 million and so this is exactly what Elon did when he went to go to go buy to buy X he just took a loan out of his wallet and then just bought it in cash kind of cool right and so the idea here is that these are three different ways that you can use and you're like okay well then what's the meta strategy for V4 V4 is you have an income producing thing plus you understand debt because all three of these strategies use a bank or an institution to front the capital and the main thing with all three of these is that you actually retain ownership and control and so as my understanding of money and markets Improv approved I started to understand different ways that I could achieve my billion dollar goal now if you're like okay Alex that sounds great but you said there was something about the ultr rich and avoiding taxes well let's talk about the taxes and let's translate it to the $10 million goal okay so here this is taxfree pretty nice with the ESOP thing the dividend recap also the uh this isn't taxfree because you have to take it as a as a as a payment right so that one you still have to pay taxes on here it's taxfree because it's it's a loan against your public equities part of me feels like dividend recap might be taxfree not sure on this but the uh public equities absolutely the loans that you take against them are taxfree because they're loans and you pay interest on them and then you have to pay loans back and that's the big thing and there's a big you know I would say a little bit of a misconception on this it's like oh these rich people uh they should be paying tax on unrealized gains well until someone gets money for something I think that it's like having someone pay income tax on a paycheck they haven't gotten yet I feel like that's a little bit ridiculous on the other hand with the public equities peace you still have covenants that you have to be responsible for to whoever gives you the money and so it's not like you get the money and you can do whatever you want with it you have to pay it back that's how loans work now the only way that this works longterm is that your business continues to grow if the business goes down then you're in deep so you can lose it all and so there's risk that's not being appropriately valued when people say oh these rich people just take loans off their stuff but this is fundamentally how you can do it and get liquidity or cash from something that you own that's valuable okay now if you're like all right Alex that sounds fantastic but I'm not trying to make a billion dollars right now I'm trying to get to $10 million over the span of my life ideally as fast as possible in net worth and the reason I use $10 million is that because at 5% you can make about 500,000 a year at least in the US which would be about the top 1% in terms of earnings pretty sweet now as a side note this you also pay less taxes on so this is usually going to be something called qualified dividends meaning you only pay 20% on this rather than paying income tax so you actually get more for your money when it's off of passive distributions Okay cool so if we're using these four strategies here V1 of this is just the pure income method which means that over the span of your life you're going to need to make $15 million in income and then after your 67% tax rate you'll be left with 10 million bucks okay that's V1 not a lot leverage but you can do it that way the V2 version of this is that you make your $1 million per year per year oops there we go $1 million per year and you make and you still pay your taxes on that but you invest that post tax at 9% and then after 10 years you have $10 million so a total interesting side note on this is that with 10 years then at 9% and given the the tax rate that exists in the US is that on a 10-year time Horizon you can measure how good someone is at investing their money based on what their value of their portfolio is 10 years later relative to what their income would have been untaxed and so if I made a million a year in 10 years I should have $10 million if I paid zero taxes but since I pay 37% taxes or anybody who would make this would pay 37% taxes then every year they're actually making $670,000 and so if you invested that 670 at 9% then you'd make at the end of that period $10 million so you'd actually be back where you started because you had to invest to make up the difference in taxes and obviously the first year of that 10 is significantly more valuable because of compounding than the last year of that 10 I'm keeping this simple and not getting into living expenses and things like that which obviously would complicate this okay so that is income income plus passive investing income Plus active investing so V3 of this is that you make $1.2 million per year from an asset meaning you own a business that let's say it does $10 million in revenue and it does $1.2 million in distributions or owner earnings all right and let's say that you can sell this thing at uh 10x all right so less than the company over here but the only way you'd be able to sell a company at this value which you can at this size uh reasonably you know if it's a business that truly is an asset so right now there's HVAC companies that are selling at 10 12 14x there's dental offices there's accounting firms so these are real businesses that can be sold if you're in the right Market again I'm going to use Simple illustrations here so this would then give us $12 million that you would get pre-tax and then you pay your capital gains taxes that you'd have to pay within the US which would leave you with 10 million bucks now again same as before okay I have this thing that was passively making me $1.2 million a year $100,000 a month well what am I going to buy with my $10 million that's going to replace this thing sometimes thinking the Second Step Ahead can influence whether or not you want to sell this overall but I do like to make the point so this one is income plus our active or private Equity so we had public here we had private here and then V4 is going to look a little bit different because we have this $10 million goal and so I want to tell you a different strategy that I think is wildly underrated which is you can go and become an employee at a company or a partner depending on how you want to see this of a company that then goes public for a billion dollars that you own 1% of and that you earned over five years and what's cool about this particular path is that you get all the benefits of this path over here is that you can take loans against the stocks that you have that are worth 1% and you too can live like the ultra rich and take those those loans taxfree now you can't do an ESOP because you're you're not the owner of the business but you can do in my opinion the most attractive of the three of these things which is that you can have in real time access to liquidity or cash to buy the things that you need based on the value of the asset you have and so let's say that you uh you start working in a business they say we'll give you 0. 2% per year times 5 years and you do the five years and the over that time period the company goes public for a billion dollars da da one billion well you get the idea then your stock is worth $10 million but here's the nice part is that you paid probably a very very very gracious tax amount to get this or these options Associated um with the shares and then you have something that is worth $10 million that you can then take loans against all right so these are the four strategies from the ultrich translated into normal income goals now I want to zoom out for a second because I think this will be helpful for everyone no matter which of these paths you choose or the versions of the past that you want you'll notice some common themes the first one is that you have to be valuable like you have to learn how to provide value to the marketplace either as an employee or as a small business owner or as a larger business owner overall but either way you have to learn how to generate income and the way you generate income is by solving problems for other people and learning skills and so a lot of time I see dedicated to content from people who don't talk about the most important thing which is sure you can have all these passive investment strategies but if you're working off of $35,000 a year it's never going to happen like we like to talk about the one lady who worked at McDonald's for 50 years and saved every penny she ever had so she could end up with a million dollars but is that really the ideal strategy when maybe taking a weekend and getting a certification can bump you to 50 or $60,000 a year or you just learn outbound sales and you bump yourself to $150,000 a year five times the earning potential and so I think that the investing stuff gets really sexy because it feels passive but you live your whole life and so you might as well get five times 10 times more for the time you are guaranteed to have to give we all spend seconds every second we're alive and so you might as well get more for them the second one is what I want to talk about is the fallacy or the three fallacies of Warren Buffett so Warren Buffett a lot of people like I just want to do what Warren Buffett did he just slowly invested right well let me walk you through what the fallacies of Warren Buffett are so three fallacies of Warren Buffett number one I'm going to be just like him well did you buy your first at age seven and did you do that weeks after Pearl Harbor when there was literal blood in the streets well if you didn't buy your first stock at age seven literal weeks after Pearl Harbor then maybe you don't already have the makeup of somebody who's going to be the greatest investor of all time something to consider the second is are you going to live through the greatest growth in American history as you start your investing career which is exactly what Warren Buffett was able to do and the third one is one that I actually talk about that I don't hear talked about a lot which is just luck and so let me hear me out I think Warren is brilliant and I talk about him all the time and I think there's a lot of things we can learn from him but what I see when I look at the top 0.1% whatever the top of the top of the top of the top is that you have all the skills all the TR traits all the everything comma and luck because the only way like if you were to think of the hypothetical the the number one person on Earth in general would have all of the things plus luck because some everyone's going there is luck that goes around and so the number one person is going to have everything that's required plus luck there's plenty of investors that are brilliant investors that are worth $1 billion instead of $100 billion they just didn't get the luck part right or they've been only investing for 30 years instead of 70 right or 75 for 85 or whatever the amount of years he's alive now all right and so I think these three things are some are things that are not considered when people like oh I want to do the strategy and I want to highlight this because the main theme of all of these is that you have to generate income you have to make money it's the only way you can even have the income so like right now I have a handful of Investments that are doing exceptionally well but the only reason that I would be able to make those Investments is because I have excess capacity in terms of cash Capital that I could deploy if you don't and this is where like living below your means to make more so you have the Delta so you can can you can get aggressive is so important and I think it's really lost in the narrative today and so the last thing I want to talk about is what Rich parents give as the greatest gift to their kids and so the number one predictor of success longterm is the zip code you're born in all right and I find that really interesting and also disparaging in some ways because it means that it controls for IQ it controls for ethnicity controls for gender it's the ZIP code that you're born in and I see that as mostly due to the association conditions of other people in that zip code and so it's like okay that means that conditions can create our Behavior or shape our Behavior so then what Behavior changes happen in a rich environment versus a poor environment and I think that it can really come down to one main thing which is the leverage of the opportunity vehicles that you pursue and so I remember this clear as day because I I came from what I would consider upper middle class so my dad's a doctor um but when I went to Vanderbilt I was exposed to an entirely different level of wealth that I didn't even really knew existed I'm from Baltimore there just wasn't any like New York money like it wasn't really a thing like if like it just it was a concept I didn't understand but for them the opportunity vehicle that they wanted their kids to pursue had leverage meaning they got more for what they put in and so a middle class parent might say hey you're a Salesman awesome and you sell cars okay well you sell cars and cars cost whatever and the top top top cars SM salesman might make you know 300 to 400,000 a year okay now some people are like there's this one guy cool well good for him but for most like let's call it top 1% are making $3 to $400,000 a year now the upper class salesmen or the upper class or the ultra Rich whatever you want to call it Ultra salesman sells companies and guess what he makes 4% on the deal and so if he sells a $200 million company he makes 8 million bucks for one sale and so same fundamental skills obviously there a little bit more analysis here but fundamentally you are selling stuff and all somebody who is wealthier does is tries to get more for what they put in they try and add zeros to the price tag of the things they sell if you sell a $500 million building you get a commission for that just like you get for selling a $50,000 house same concept you just add scale to it and every one of these people has the same number of hours per day which just means they get more for their time and so thinking through this what poor people or middle class people miss that rich people or Rich Kids Rich parents pass to their kids is which opportunities to say no to they don't even consider the quote lower class or middle class opportunity and I think of this on something that I like to refer to is measuring sticks and so I'll give you a little story to illustrate the point so when I was a kid in high school I worked I started my first job when I was 15 and N months which was like the legal age that I could start working I started working as a blender tender at Smoothie King and as I as I leveled up and became a lead and then I think a manager at some point and then eventually I shifted to catering uh which I got 25 bucks an hour for which was awesome back in my day anyways I was hoodrich and the thing is is that I measured how much money I had and how many Chipotle burritos I could buy because I knew that Chipotle Burritos were about seven bucks and so so I was like man I just got you know 200 bucks for this shift that's like 28 burritos that I can buy now which is awesome right I was super excited about it and so what happens is the measuring stick that you use to measure stuff the wealthiest people in the world just have a larger stick in two ways one is they measure over longer time Horizons and they also use like they literally call by the way in Wall Street a stick is $1 million so that's the slang among rich people like if you're like oh I didn't know that there was slang for a million dollars there is slang for a million dollars when you have lots of millions of dollars you say give him two sticks it means two million bucks and so when you hang around people who talk in increments of $1 million imagine the opportunities that they're pursuing and more importantly for everybody who's listening to this the many things they say no to and so this is where you lose years and Decades of life is that you say yes to opportunities to you otherwise shouldn't and so they're able to be patient or more selective because they know that they're going to get they want to maximize how many dollars they get out for the effort and time they put in and unless something is going to ladder up to remember we're thinking longer time Horizons something where they can get sticks for their time then they're not going to do it they're willing to take a job for $50 or $60,000 a year or $80,000 a year as an analyst at you know PWC or eron young or McKenzie or an investment Bank League Goldman Sachs they're willing to eat dog for that period of time because they know that that's not the plan this is just the period that they're learning and gaining experience so that they can do the next thing they see it in stepping stones and the vast majority in my opinion of people who stay stuck don't have a plan they don't see where things lad are up to and they don't reverse their goal into the present and so no matter what whichever of these paths you use one you have to focus on income generation and learning skills two you want to make sure that you actually say no to the things that don't matter and be very selective about the things that will give you the highest return three surround yourself with people who have bigger measuring sticks in terms of time and money than you because whatever opportunities they're discussing will likely be higher leverage the opportunities that you're considering and then finally in with regards to the fallacy of of Warren Buffett if you want to make obscene amounts of money you will not make it the way that someone else has already made it it will be made in a new way which means the single greatest and most valuable skill that a human being can have is the ability to come to their own conclusion and have the confidence to act on it despite it being contrary to what other people are doing because if it's what everyone else is doing then it's not an opportunity because the funny thing about opportunity is is they look like Risk while they're opportunities and the moment they're no longer risky is when the opportunity has closed and that's how life works you have to make bets and you want to make the bets that you feel like you have an information advantage over other people so you can come to your own conclusion rather than listening to other people have an amazing day hope you enjoyed this stuff that's how the all Church do it and if you you like these kind of deeper business Concepts I have two two free gifts for you I wrote $100 million offers and $100 million leads these are both available for free on my podcast which is the game Alex Rosa you can just search my name you'll probably find it I also have these in course if you like watching rather than listening uh on my site at acquisition. comom you can just click training and you'll see the courses that we available they're all free um but if you do like something hard you can grab these wherever you buy books and uh hopefully make a lot more money