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Patel Motel Dhandho
The author starts the book by discussing the term "Dhandho", which is a Gujarati word meaning "endeavours that create wealth" or "business". Gujarat is a coastal territory in India that has served as a nest for trade with Asia and Africa. The Patels are a subsection of Gujaratis that are mainly entrepreneurial and their ventures led to them establishing a dominant part of the East African economy by the early 1970s. In 1972, when Asians were thrown out of Uganda based on their race, an outbreak of Patel immigrants landed in England, Canada and the United States.
The Patels now form about 0.2% of the American population. Yet they own more than half of the motels in the entire country, which constitutes $40 billion in assets and $725 million in annual taxes. The author associates this to specific conditions which led the Patels to comprehend and benefit from significant upside potential and minimal downside risk in the motel business when they came to the United States.
The first Patels arrived during a recession. Motel owners were being shut out due to low occupancy rates. With just $5000 in hand, Patels could kill two birds with one stone by finding room for their families and at the same time a job by buying a motel. Since the assets were hard, banks financed 80-90% of the purchase. They lived and worked there, so no employees were required either. They offered the lowest nightly rate in the vicinity. With about 50-60% of average occupancy, the annual revenue will be $50000, out of which $5000 will be paid toward interest and another $5000 towards the principal. Another $5000-$10000 for motel maintenance and supplies will be required. Furthermore, if the family living expense is $5000, the motel will still net over $15000 yearly.
This is how the Patels could pay back their initial down payment in the first four months and elect off the entire mortgage in just three years. This introduction to low risk and high reward sets the theme for the rest of the book.
This example elucidates that high risk is not the key to higher reward. It also explains how to invest in a simple existing business. It is an introduction to low risk and high reward and sets the theme for the rest of the book.
