How To Invest for Recession-Proof Cash Flow Before the Economy Changes

What's up, fastlaners? Ryan, Daniel Moran here. You might have heard me say in the past that I believe the fast lane to financial freedom is to build a business and invest the profits. And also, it's not cash that makes you free, it's cash flow that makes you free. And we're going to be hitting that today with the Savage of cash flow. Mauricio Rauld, the cash flow Savage. So we're here in Costa Rica at one of our backroom events. The backroom is our mastermind. We are growing to 10 million and beyond. A lot of our members get together and sell their businesses. Sometimes we do roll ups because when you partner businesses together, you increase their valuation, which allows them to get more money for the exact same business. And then we have a different set of problems. The different set of problems is when you get all this cash from either running a successful business or selling your company, what do you do in order to create cash flow? Because when I sold one of my companies, one of my family members was like, well, what are you going to do for cash flow now? And it never occurred to me because I was like, well, I'm going to have all this cash in the bank. So what does replace that check? It seems like a silly question because there's all this money in the bank, but.

Science has taught us that predictable cash flow is what actually makes us feel free to pursue the things that we want. I just sexied up that science. But I know that entrepreneurs, once they get a pile of cash and it just sits there, it does not make them feel liberated to pursue the things that they want. You've worked with some of the most successful entrepreneurs in the world. The rich dad advisors have you as their advisor when it comes to structures of their businesses. So what have you seen or what have you observed in entrepreneurs in regards to cash flow versus just cash or net worth and how they manage both?

Yeah, it's a great question. I mean, we talked a little bit about it today in the back room that when I think of a pile of cash, I don't think of a pile of cash. I think of what that cash generates in cash flow. So the example we gave today is if I have a million dollars in the bank, I don't think of it as a million dollars. I think of it as $80,000 a year or $100,000 a year, depending on what type of return you can make it. And that's an important mind shift because to me, the path to financial freedom is that cash flow is getting enough Cash flow coming in every month to cover your expenses, to make you free so that you don't have to work doesn't mean you don't work. You actually get to do what you love. But that's the key to financial freedom, is to accumulate enough cash. As you always say, get that cash from your business, right? Reinvest some of those profits into your business, but then have a portion of that cash go to and some type of investments. I always say pay yourself first. That's kind of the big thing for me. Pay yourself first, invest that money for cash flow so that you get to a stage where you don't no longer have to work anymore because you're getting that cash flow every month.

What I have found is that as soon as that predictable cash flow is indeed predictable, now I feel like I'm comfortable enough to take some strategic risks in my business to be that actually build the long term business that I want to have. Otherwise, we tend to opportunity seek. So entrepreneurs who don't yet feel fully secure because they don't have an investment strategy because they don't have predictable cash flow, they tend to grasp at quarters instead of pursuing dollars or $10 bills, which is ultimately what our business should be, our businesses should be compounding. And then we put that cash into places that is gonna bring friends back predictably so that we're comfortable enough to build the type of business that we want. So.

That'S always been my approach. I know you have, you have famously said on the Freedom Fast Lane podcast that you are agnostic in terms of the form or the source of the cash flow.

That's right.

Would you reiterate how you said that.

We are asset agnostic, meaning other than we don't like Wall street, so we're really into alternative assets, right? So we don't invest in Wall street, we don't invest in stocks, bonds, mutual funds, kind of what most people do. But whether it's multifamily homes or single family, or what we're doing right now, which is mobile home parks, or whether it's assisted living facilities or whatever, we don't have a, you know, we can go either direction right now. We feel that some of those asset classes are overvalued, overpriced. We feel, oddly enough, that mobile home parks is where the best value is today. But if in five years or however long this sweetness is going to last, we will pivot and we'll go to wherever the where the opportunity is, as long as it's not Wall Street.

And what do you do to prepare yourself to be able to take advantage of opportunities as they're available. Meaning most people say, I'm in the business of this asset class versus I'm just going to pursue cash flow, wherever that cash flow is, and then pay out my investors. So investors have a predictable return. So what do you do inside of the business to be able to take advantage of the opportunities and the opportunities present themselves?

Well, first you just, obviously you need to be aware, you need to be paying attention to what's going on in the market. You've got to just consume the information. So there's a reason why we think that multifamily is overvalued. It's not that, it's just not just a guess. We, we hang around with some pretty smart people and a lot of multifamily investors and they're telling us it's overpriced and there's reasons for it. Right now there's a lot of private equity firms that are going in there, pension funds that are going in there that don't necessarily care too much about the returns. They care about the return of their capital. And so if they end up getting a 2% or 3% return, they're happy. So that's kind of the last phase of a bubble or when it's going to go down. And so it's just about educating. And then obviously once we find an opportunity, we build teams. I mean we have a, an entire acquisitions team on our, on our, on our, in our team. And that's all they do is they, they source deals and once we've identified the, the asset classes, that's what they do.

So my, my opinion, my.

I don't.

Know if you would consider me a professional investor as much as it's just part of my strategies to invest for cash flow. But my opinion based on my experience has been that when the market is high like it is at the time of this recording, it's stupid, not just unwise, but stupid for me to go out and try to be a real estate investor right now because there are other people whose full time business is to be going out and getting deals before I find them. And when the market is down and all the money is scared, that's the time that I want to be an investor. So the strategy for me is when times are really good, to go trust people who are always on the lookout for those sources of cash flow and give my money to them rather than try to spend my own money on a business that I'm not an Expert in when you buy at the bottom, any idiot can make money. So even I can make money during an economic recession if I buy at the bottom. When things are at the top, it's stupid for me to do anything else than to partner with the people who are good at this, who have people always pounding the pavement looking for deals and then take advantage of some of the profit share that's gonna come from that. What's your.

Well, we talked a little bit about it today as well. I mean a lot of folks here have physical products businesses and they're always looking for.

That's their edge.

Right? They know that business, they can make money. If they went outside of that into real estate, they feel like they've lost that edge. That's all we do is real estate. And our whole team is built around finding and sourcing deals. We spent the last 12 to 18 months building out our team and we finally gotten to the point where we feel comfortable that we're now in full acquisition mode. But having that team in place is so key and it just takes time to build that team. And it's just a lot easier for investors that are looking for passive investments to go ahead and trust that team as opposed to learning something new and spending those couple years building that team and that knowledge.

What asset, since you look at anything that isn't Wall street, what asset classes do you keep an ear to the floor on? What has your attention? I mean, right now you're all in on mobile homes, but what other asset classes do you do you pay attention to?

Yeah, I mean we're always looking at multifamily. I mean, long term it's an amazing investment. It just happens to be at that peak in our opinion. So once that thing starts coming down, that's definitely on our radar. I'm a big fan of assisted living facilities, which is basically providing elderly folks with, with care as they get older. And with the whole demographic shift and the population getting old, I think that's just a tremendous opportunity. The issue for me is that that involves buying single family homes that you then turn into these facilities for doing that. And the single family homes are in my opinion, overpriced. So again, once that turn happens and we don't know when it's going to happen, but it's going to happen and I think it's going to be pretty severe, then that's where I think we'll pivot and go into some of those asset classes like going back to the single family homes and then also the.

Multifamily so, as a company that specializes in cash flow investments.

Two questions. One, why do you think that there might be a correction later? And two, what do you do to set yourself up to be ready to take advantage of those opportunities? Because once again, as a casual investor or part time investor, I'm probably going to be on the late end of those types of investments. But as a full time investor and a group of investors that is always looking at the market, you're probably going to have a leg up on those types of opportunities. So what gives you the insight or the perspective that you think it's going to be a severe correction when it happens? And two, what do you do as a company to take advantage of those?

Well, first of all, there will be a correction. I mean, there's no doubt about it. The question is just when and how severe. If you study markets, they're always going cycles, there's always an ebb and flow. And it's been, I think now we're in our eighth year of this quote unquote, bull market, not only in the stock market, but also in the real estate market as a whole. And so it's not a question of if it's going to, it's not a question of if it's going to turn, it's just a question of when. And so that's why we certainly wouldn't be in the stock market now. But even like I said, some of these other multifamily, it's just not the time to be in there. And so we've gravitated towards an asset class that not only is continuing to provide for us in terms of cap rates and returns, but also in our opinion is, we talked about it on the podcast, it's recession proof because it is. Mobile home parks and mobile homes, it's unfortunate, but they are at the lower end of the spectrum. And so once you get below mobile home parks and mobile home communities, you're either living in your car or you're homeless. There's nowhere else to go. And so what happens in a correction or in a severe recession is you'll see that all of the people who are playing up at the top, they get pushed down to the B level, that get pushed down to the C level, into the D level, but once you're already at the bottom again, there's not much place to go. And so that's why traditionally, if you look at how mobile home parks have done during the Great Recession and other turns, they're not as impacted as the more overpriced A type assets.

And when that market, if there is a correction, or when there is a correction. But how many cycles have you seen in your lifetime? Because.

We'Re in kind of unchartered territory in the sense of this bull market. This boom has been going on for way too long it seems, and interest rates are still super low.

I've only lived through two economic cycles in my memory and so part of my brain is like, maybe we just blasted through the cycle, maybe we just blasted through the downturn and we're just in another bull market. I don't know. So.

Can you really confidently say that?

I can confidently say. I mean, just, I mean, you know, I do feel a little bit like a dinosaur in the group today because everybody's so young, including yourself. But you don't have to live through the saga. You can study, right? You can study history, you can see the cycles and they're on average about seven years now. I agree with you that we're living in some unique terms. We've never been in an where interest rates have been zero and this monetary policy which has been out of control. But that to me that even fuels more fire. That just means to me like when we do get that correction, we're just basically kicking this thing down the can. So the more these policies that are in place, it just means we're kind of keeping this thing afloat artificially a little bit higher so that when it actually does go down, it's going to go down a little bit harder than most people would like to believe.

And how in your experience, how. My reference point for a down cycle is a dot com boom in the Great Recession.

That's right.

So.

How bad in your experience? And I know we're speculating, we're totally speculating.

I mean, I think our next turn is going to be potentially as bad as the Great Recession. I don't want to put percentages on it, but I think you're looking at something that's just as bad as it was before. But even if not, even if you don't even get close to that and it's half of that or three quarter, you get close to that, that it's a pretty significant downturn. I don't think it's going to be a soft, I don't think it's going to be a soft landing soft recession where things go down 10% or 15%, I think it's going to be a severe downturn.

Okay. I have retired from the prediction game of the economy because I've been wrong for a long time. So instead I just try to make good decisions moving forward because I really don't know what's going to happen. So based on that, what is compelling to me and the brain gasm I'm having right now is the temptation for most people right now, especially private equity groups. And a lot of the dumb money, the cheap money that is coming in, is to go settle for poorer returns. So whereas most people are used to getting 1% per month in real estate, now since asset prices are so high, they're getting more like 4, 5, 6% if they're lucky. In Austin, if you get a 5% return, it's like, whoa, we're doing great. So most people are chasing fewer and fewer dollars. What you've done is said, what model is gonna continue to give us returns in this market and will give us even better returns in a down market? So we're, it's kind of recession, at least recession insulated. If there's recession, it might actually be really good for you. And if things go up, it's gonna be good for you either way. So you win in that case. So that's what's interesting to me and I'm just curious.

If that is a result of pursuing cash flow as your guiding light or if you keep the overall macroeconomic view in your decision making process.

What gave you the perspective to pursue the mobile home, at least right now, the greatest opportunity that you have right now, rather than following the rest of the dumb money?

Well.

To us it's all about value creation. And that's one of the reasons we can provide the type of returns we do to our investors is because we create an immense amount of value with our asset. We can do that with mobile home parks. We can't do that right now with the other asset classes. And so at some point that's going to happen and we'll be able to create more value there. But with mobile home parks, the cap rates are still there. So the cash flow just continues to come in and the demand is so high and the supply is not there. And so it's almost like this perfect storm.

What do you mean the demand is there, but the supply is not there? The demand of what?

The demand for mobile home parks and affordable housing in general has been skyrocketing over the past few years. I mean, that many people know, but half of Americans live on less than 600 bucks a week. Okay, that's not something we typically think about, but that's the reality. And so there's a lot of folks that just can't afford a $800 one bedroom apartment. You know, they're forced to be at the mobile home park and that number is just increasing. I mean things are, things are going worse for the lower.

I'm sorry to interrupt, but what just happened, what I'm just realizing is as, as rent prices are, we're having a bolt like a big boom right now. And I think that's mostly artificially stimulated, it's my opinion. But, but because of that, rent prices and mortgage prices are going up and up and up, which is squeezing the middle class out of that. So they would have to move down, they would have to move down in where they live. And we see that in places like Austin and San Francisco where people can't even afford the tax payments to live in nice areas. So they're moving, their standard of, their standard of living is actually going down. And then you have, if there is a downturn then you just increase the number of people who are pulled into lower standards of living. Which is why being in the low, the low housing cost market is kind of recession. I just got that, I guess for the first time realizing of why that is the case.

And we don't have to wait for a downturn because even today, even though things are going well for, for a lot of people, for, you know, if you look at the statistics on wages, I mean the wages aren't going, aren't keeping up with the inflation rate. And so people are, are still not, they're kind of getting left behind. And so even today the, the demand for affordable houses is going up because they're, you know, everybody else, all these prices are going up, all the rents are going up. They can't afford those rents. They're forced to go either down or stay down. And so that's an unfortunate situation. But that's why we feel it's recession. I call it recession proof, maybe it's recession resistant, whatever you want to call it. But certainly on a downturn.

These individuals, hardworking Americans can't afford a certain level of payment. And so as a result the rent payments on a mobile home community, they haven't been going up like apartments have or the single family homes because they can't afford it. So you can only charge as much as your tenants can afford. And they're in a tough situation. So they can't afford more than whatever they're paying. So they haven't gone crazily up. So they're not going to come crazy down and there's obviously going to be more added. But in addition to that, they're not building more mobile home parks. There's a stigma to it. The communities don't want to have mobile home parks in their communities. And so you would expect with this demand, and I want to call it explosive demand, but it's certainly an increased demand for mobile home and affordable housing. You don't see that corresponding supply of homes that you would expect in a typical economy.

So let's make this super practical and actionable for those of you who are desiring cash flow. Because what I want entrepreneurs and high achievers to know is that these types of funds exist and can be a part of of your portfolio. And full disclosure, these types of funds, including Mauricio's fund, are a major focus of my portfolio. In fact, I think I have more allocated for cash flow funds than anything else in my portfolio. So this is something I believe in. This is something that if you look at my balance sheet, I have a significant amount of interest in. So full disclosure, I invest very heavily in these types of funds. So I don't think most people think about.

Putting their money with businesses that are funds that pay out their investors as their primary way of investing. Because when you think about investing in real estate, you think about doing it yourself. That's what most people think about. Or if you think about investing in really any asset class, the temptation, especially for entrepreneurs is to say I'm going to go out and learn how to do this. And so we go down these rabbit holes of oh that's a good idea, your business looks pretty good, so I'm going to pursue this. So how does it actually look to invest in in one of these funds? Because obviously you don't take investor cash and pay out investors unless you're making a profit.

Right.

And you like asset class is only as good as the businesses that are in it because behind every investment is a business. So how does it actually look from the investor and business perspective of when someone gets involved in investing?

When someone gets involved in some one of our funds or a fund in general, the first thing to keep in mind it is 100% passive. So you're not in a situation where you are having to do any of the work. A lot of businesses want to roll up their sleeves and get involved in the decision making us up, that is what we're there to do. So it's a passive investment. You essentially do your due diligence on the front end, which is key, just making sure that we're legit and whatever investment you're Going to make you want to make sure you do your due diligence first. But once you're done with the due diligence, you essentially invest in the deal, which you're investing alongside other people and ourselves. We think of our investors as partners. And you're getting a monthly, we call it mailbox money, but it's literally a monthly check these days. It's an ACH wire, but it's just a monthly check that comes in every single month that you don't have to worry about so that you can then focus on building your empire, whatever business you're involved in.

And why are you able to do that? Meaning why is the fund, whether it's you or somebody else, able to pay out a predictable rate of return? Yep. Great.

Two reasons. One, again, mobile home parks right now are cash cows. So there's plenty of cash to go around, even on the, on the monthly. On the monthly stake. But where we really, I think differentia differentiate ourselves a little bit from other mobile home park funds or investments is that we focus on acquiring sort of the distressed properties. We have a full, you know, we have a construction company, we have a property management company that's nationwide. And so we're able to go in and acquire mobile home parks that are 30, 40, 50% occupied that the current investors don't, I'm sorry, the current owners don't want to deal with, don't have the capital to improve them. Just they're a lot of times legacy investors, legacy owners. And so we're able to take these parks and turn them around pretty quickly. And so we create an immense amount of value on those parks. And so upon exit, that's really where we really get paid on the back end because we hopefully created so much value to the park, increased the value of the park that we can then extract through a refinance or even a sale, a tremendous amount of value on the back end. So it's all about value creation for us. And so we're happy to pay out 10, 12% because obviously we're making more than that on the back end.

Yeah, makes sense. So the just like to be clear, this is not a startup. Like, you're not raising money to scale.

You and your partners have been in this for quite some time.

We're actually top 100 owner operator in the U.S. i mean, we've scaled it pretty quickly. We've been doing this for three years now, but we went basically from zero to top 100 in the last three years. So we're not one of the Smaller players, but we also. We're basically in. The mobile home park industry is very fragmented. And so we're basically, the way I view it, we're in the process of consolidating that fragmentation. So we're just acquiring. And we want to move up pretty quickly and get to top five here in the next three to five years.

When you were on the Freedom Fast Lane podcast, I asked you this question, and I want to. I want to bring something back, which was ultimately what sold me on being an investor with this team is that you had a. You. You have quite a resume of people who call you an advisor and people that you know, and you had a pretty nice, cushy life living in Belize with your family, and then you decided to give that up to pursue a big vision that you believed in. What was it about this structure or this direction that made you say, all right, I'll leave the beach and come to Scottsdale and build out this vision? Yep.

I was, you know, I am an attorney by trade, so I had a relatively successful law practice, and I did syndication. So I. Which is essentially what we're doing now on the other end, which is I helped clinically clients pool resources, pool money to go invest in real estate.

And that's how we met, because somebody said I should contact you about putting together a syndication to buy the Cleveland. That's right.

That's right. And so that's what I did for, you know, 15 years. I raised. Helped raised over $120 million for my clients. And again, I was part of that team. I was a small part, the legal part of the team, and I was doing fairly well. I was obviously getting compensated nicely for my work, but I certainly wasn't doing as well as my clients were doing because they were the ones doing the work, adding the value, creating that value for not only themselves, but for their investors. And at some point, I just said, I want to be on the other side of the table. Like, it's time for me to do that. And joining Andrew, who's our founder and CEO over at Four Piece Capital Partners, he already had the team, and he was doing what I wanted to do. And so I decided to basically give up that life and move back to the States and join a real team, because I was basically a solopreneur. And again, I was having a nice life and a great living, but there's only so much I could scale that to. And like I said on the podcast, I don't have the goals of owning the Cleveland Indians or the New York Jets. But I've got some pretty lofty goals myself and I just couldn't see how I was going to get there doing what I was doing. Now that we can help other people, other investors do what we're doing, that's going to allow us to get where we want to do, where we want to go as well.

I want to ask you about taxes. I don't like talking about taxes, but I do like talking about avoiding taxes.

Okay.

And I, I don't like paying them. Mauricio. I have always, I've always heard and known that real estate is one of the better vehicles as far as reducing your tax burden. What I didn't know until recently is that if you're part of a syndication or fund that some of those tax benefits pass on to the investors. I did not know that was a thing until like within the last six months.

Sure.

So would, would you share that insight? Sure.

And just full disclosure, I'm not a, I'm not a tax attorney or a CPA or anything, but I do, I do spend quite a bit of time with, with tax folks, obviously, when I was practicing as an attorney. And one of my good friends is actually Tom Wheelwright, who runs Provision, one of Rich Dad's advisors and happens to be my CPA and also the company.

CPA and a speaker at the Capitalism Club.

That's right. He's going to be a Capcom, so that's going to be great. So we just ran it by him because I think you mentioned at some point you had your doubts and I said I was pretty sure that was the way it is. Look, real estate has all these great depreciation benefits and those depreciation benefits from flow through all of whatever companies and funds you put together. It flows through to the ultimate owners and the ultimate owners are the investors and ourselves as the sponsor. And so any depreciation that because the funds are set up as an equity, you know this is not a debt fund. Right. It's not a promissory note, it's not a loan. You're actually a co owner with us and the other investors. So all that depreciation that happens at the mobile home park level, or if it's a multifamily even, will just flow up through the entities up to your personal tax return and you get that same benefit than you would as if you invested directly in the asset itself.

And so that return of 11 or 12% in normal taxable dollars might actually be like 14.

Yeah, I mean, I think the easiest way, and I know I Didn't do a great job on the podcast of explaining, but essentially what it really looks like is if you're getting a 10% return, let's just these easy numbers and let's say you're getting $10,000 a year as your return. Well, on paper, you might only be making $6,000 or $7,000, so you're pocketing the 10 grand. But when it's time to file your taxes, you're only showing $6,000 or $7,000 as your income. And so therefore you're paying much lower taxes. And it's just because you've got dirt and you've got land and you've got improvements that you get to essentially claim they're losing value every year, even though we all know in reality it's increasing in value. But from a tax perspective, it's treated as it's losing value over time. And with mobile home parks, a lot of those tax benefits are actually accelerated because we have things like roads and fences and lightings. You can actually depreciate those at a faster rate than a traditional building. That would take you 27. You would depreciate it over a longer time frame. When you're depreciating a road, for example, the time frame is much lower.

And that ultimately sold. Being on this type of structure, knowing that I could be a passive receiver of cash flow, but on my tax return show that I am actively depreciating costs.

That is heaven for someone like me.

That's one of the nice things about using structures like limited liability companies. Not to get too technical, but with LLCs, they're basically pass through entities. And so everything, all the profit losses, depreciation, pass through that entity. It's almost disappears and then ends up in the personal tax returns of whoever the owner is through what's called a K1. But that's ultimately how it gets reflected.

So I believe the fast lane of financial freedom is to build a business, invest the profits into other forms of cash flow. And in my experience, by making that money and putting it in a place that I'm going to get a predictable return frees me up to grow the business even more, then take the cash flow and put it back into more areas, and then it compounds over time. And if you run those numbers over 10 years, it's almost frightening. What it can look like. Your business is the real estate piece, Right? Right. Is being involved in this business. Where are you investing your profits?

We actually invest our profits back into mobile homes. I mean, right now we're so we, you know, we believe in what we're doing, that we take our own money and we put it into that. We buy mobile home parks. I mean, I wouldn't be in that business if I didn't believe in it. So that's where you're not going to find me, putting money in Wall street, let's put it that way. So it goes back into multi. Multi back into the mobile home parks.

Well, you know, I wanted to have you here because I really believe, I really, I know so many entrepreneurs who are good at making money and so bad at keeping it or investing it. And ultimately, I think most of us getting into this game because we want freedom, right? Ultimately want to get into this game because we want to have more security, more peace of mind, and we want to be able to pursue the things that we want. And I think we often overlook the value that businesses bring to the world. And the value that this business brings to the world is you're actually freeing up entrepreneurs to be able to pursue the things that they believe in because this is one of the sources that they can consider for creating that predictable cash flow. So I think you are changing lives all over the place, and I believe in what you're doing. Mauricio. Thank you, sir. Appreciate it.

Thank you for having us.

If you are a. If you're a freedom seeker like myself, please share this video with somebody you know who is an entrepreneur who is really good at making the money and not so good at investing it, because there are solutions that exist. And one of the things that I discovered on my route to financial freedom was all of the roads for cash flow were about how to do it yourself, learn a whole new skill, learn a whole new business, rather than all the other opportunities that actually exist so that you can just grow your business, take your cash, put it into places where you'll be freed up so that you can continue to focus on growing your business. And I didn't think that there was a good voice or a good representation of those opportunities. And it now is the greatest allocation of my portfolio so that I can continue to grow my businesses while my cash flow comes in from these other sources. So this is something I believe in, something that I personally invest in, and I feel like entrepreneurs should know more about it. So please share this with an entrepreneur that you know that needs this information. Thanks so much for watching. We'll see you on the next episode.

Thanks, Mauricio. Thanks.

Sam.