Recession-Proof Cash Flow : How To Multiply Your Wealth In Any Market w/ Sam Prentice #TheOnePercent

Cash flow has to be a priority. The reason people go bust, the reason people lose money, is they don't have sufficient cash flow to lash through a variety of different situations that might happen. So, for example, if you go buy, put all your money in AT&T that doesn't have cash flow, you know, you're just looking at just the equity growth down the road. So you go buy ETFs or index funds or things like that without a cash flow component. And then you need to have access to cash flow because cash flow is how the world goes around. You end up having to fire, sell assets. Because you sell at a loss, you go bust.

You.

If you have cash flow, you can weather those storms. So even if you buy it at 29 and it goes to 24, you don't have to exit at 24.

I would probably buy more because your.

Horizon is long enough.

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What's up, everybody? Ryan here today. I'm gonna be joined by one of my advisors, Sam. Sam Prentice. And I brought him onto the show because there's so much weird, wacky stuff going on in the economy right now. I made my very bold predictions of what's going to happen to the stock market, and I'm very public about what the heck I'm investing in. But with all the crazy stuff going on, the market's up, the market's down. There's a new tax law, there's government shutting down, Sears is going up. Like, there's just so much going on that I wanted to have a little bit more of a sophisticated conversation about how this might affect you and me and what the heck to do about it. So Sam is one of my advisors. He's somebody that I'm a client of. Sam. So we exchange money for advice, I guess. Well, not really for advice, but for the application of some of the stuff that we both study on this topic. And we go deep into the weeds on this, but we tie it all together at the end with some action plans that you can take. So if you can get through some of the deep nuances of the things that we go into about why the economy is doing the things that it does or how certain investments work, if you can trudge through that, we tie it all up with a bow here at the end. And I think you're also going to enjoy some of the predictions that we make about what things are Going to go up, what's going to go down, and how that affects you. So enjoy this chat with Sam prentice. What's up, 1 percenters? I'm Ryan Daniel Moran, and this is the second handsomest man on this video podcast right now.

Thank you, man.

How does it feel to be the second handsomest man in the room?

Man, I didn't know there was gonna be an award given out today. That's pretty good.

Well, the handsomest is cardboard cutout Ryan.

Understood.

Over there somewhere.

Great listener.

He is a great listener. Hey, so Sam is one of my economic advisors, you could say, and he is who I go to when it comes to buying cash flow, comes to actually setting up the proper structure for my financial house. Is that.

Absolutely.

If I say anything that would get me in trouble with the ftc, can you warn me before we do that.

Kind of kick you out of the table a little bit?

Yeah, that'd be perfect.

I'm gonna go a little bit off the radar.

All right, cool. We're not recording this at all.

That's perfect.

But today we're gonna talk about cash flow. We're gonna. Because Sam does some really, really cool things when it comes to buying cash flow and structuring it in a way that is advantageous. But first of all, first, before we do that, what the hell is going on with the market right now?

No, it's a super interesting time because we have so many unique factors that are going on in the market right now. And one of them that I think is overlooked is just what the tax act is doing to the market. It's pushing a lot of dollars back into the economy because people are wanting to make investments to reduce their tax burdens. So you kind of have some.

How do you measure that? Because I'm a. When I say market, I mean stock market. And so we just up and down, up and down, up and down. So a lot of people have said that the tax bill was negative for the stock market, and you're saying something different.

I think that, honestly, the tax bill overall was positive for the market because what it's done is it's put a lot of money where businesses are reinvesting back into their profits because they're wanting to reinvest those dollars to create the tax cuts or to utilize the tax cuts, rather. So they're putting more dollars back into the economy. Because as a whole, the way that the macro economy works is one person's spending is another person's income. And so when one business spends money on marketing or acquisition and those sort of things to acquire more customers to be profitable. But their spending that they spend is making another business profitable as well. So the more people spend, the more the economy overall grows.

Of course. So again, what the hell is going on with the stock market right now?

Here's what's unique right now is one of the ways that we're able to spend money is you can spend money using a few different fashions, but one is cash, one is cred. So credit is the money you can borrow. So as we have right now, we have, the Fed is raising interest rates. So the thought is that as interest rates rise, people should be or will likely borrow less over time. Obviously, if we raise rates tomorrow to 20% to borrow, no one would be borrowing money at as aggressive a rate as we are borrowing today because it's more cost prohibitive. Make sense? And so if those rates continue to rise, like here's what we're trying to do is we had rates land all the way down to zero, very close to zero.

All right, I don't want to go into. I don't want to go there. I want to go like, where should I be buying right now? Or I have my opinion and I'll share it. But you who geeks out on this stuff, should we be buying or should we not be buying right now?

Buying into the stock market? Yes, I think right now I'd still be very, very cautious of the stock market. I think I'd be very cautious of the economy as a whole. I think that we have because of.

Interest rates and because of, because of the.

Exactly. What I was getting into is if the interest rates continue to rise, here's one of two things happens. Either we deleverage where people slowly slow the roll on borrowing a little bit, but we still maintain slight economic growth, or if that rate raises and people really do start pulling back, people quit borrowing, people quit spending. That's what drives economies into recession, and that's the fear that is there. And that's what would create a more significant pullback than a little bit we've seen here. Now, just the thought of those rates rising and people slowing down was enough to give the market quite a bit of a waiver.

Here's where I'm confused, because as we're recording, this market's up today. Market was up yesterday, market was up the day before that.

But right before then, we just saw.

I mean, just people were dying in on Wall Street. I mean, it was a horrible bloodbath. And I'm still fairly confident that the Market's going to come back to about the Dow will come back to about 20,000 just looking at the overall trend. But when we have thousand moves, thousand point moves to the positive, it makes me go, well, was I wrong? So could you help me understand what's the reason for all the crazy volatility and what do you think is going to happen? How is this going to end up settling?

Yeah. So I think the reason for the crazy volatility is what you have with the American public in general. And just think for a second, the market is not always right. So the market is not the only indicator we should focus on.

I'm glad you said that to the.

Health of the economy. And so I'm going to give you a personal anecdote here. I live in Oklahoma, and so we invest a lot in oil in Oklahoma. And I have family in oil, so I track oil pretty closely. And so in 2016, we had the big pullback in oil. That was a great pullback. Created a lot of value, a lot of opportunity. And one of the stocks that I've tracked for a while is oke It's a dividend pipeline stock. Okey. This is not a stock pick time, but yeah, kind of keeping it out here at this evening. So for example, that is a midstream pipeline. And so what you do is your profitability, the dividends you make on that, like how profitable that stock is, is going to be based on how much oil flows to the pipeline.

Sure.

And so when oil pulls back down to 29 bucks a barrel or whatever it was at that point in time, that really doesn't have a huge effect on the amount of oil that flows to the pipeline. Because somewhere, somehow, unless we are in a recession as a whole in the US we're consuming that oil. So someone's going to produce it. They may not like to produce it as much, but it's going to produce. It's going to flow through the pipeline and you're going to receive your dividends.

The dollars don't affect how much oil is.

How much oil has no effect or no significant effect on the value of what's being produced there. So, for example, that stock took a massive hit during that time frame because everyone said, okay, oil's going down, therefore we need to jettison everything related to.

Oil, but the production is still the same. So Uncle Sam comes in, you, Uncle Sam comes in and says, this is a good time to buy this because the production is still correct.

The metric they should have been looking at is, are we in a Recession or not in a recession. And that's why I think, like the macroeconomics are so important to know is when you're making these decisions of what companies do you buy, where do you put dollars? Is we want to look and say, okay, what factors should we be focusing on? Should we be focusing on the price of the commodity, or are there other factors we should be focused on?

So instead of factoring in the price of stocks, what are you factoring in? Interest rates you mentioned and what else?

Interest rates are a big piece in the puzzle because that's one piece of it. There's some other data points of just overall economic health of growth, like jobs reports are one thing that are factored in there as well. And that's going to be interesting. That's something with this government shutdown, which we're all.

Well, the most recent jobs report was fantastic.

It was really fantastic. This next one will be interesting to see because technically I read somewhere now this was cnn, so you have to take with a grain of salt. But I believe that when they do the next jobs report, it will. Those that are on furlough may be factored out of that. And so, like, it could, it could create some skewed numbers there, which to the average person may look at that and not think twice because it really shouldn't make a huge effect on the economy long term. But for the, for the short term, it could show a skewed job.

Well, let's just hope it's for the long term and the government just stay shut down forever. Let's just hope that that is the case.

Maybe a little smoother transition than that.

I'm on team shutdown for as long as possible.

Someone gets the red button and that's enough.

Yeah, shut it all down. If I'm elected president, I would come in and be like, all right, so bring me the list of things that stayed open during the last shutdown. Cut everything else that seems like an appropriate size of government for me. Anywho. Okay, so.

The way that I'm kind of internalizing all this is all right. If we stop being so obsessed with the numbers of what the market is doing, then we just look at overall production. And it seems to me like production's pretty darn good.

Absolutely.

So why stay away from stocks?

So the reason behind this is, so here's what we said is, so the Fed has had the same kind of deduction that you've had when it comes to what they can do. So when they are raising interest rates, that means the Fed is indicating that they believe that the economic health, or the economic health of the US Right now is strong enough to raise interest rates, which may reduce the amount people borrow. But they do believe that the economic health is there. And so with that, part of the reason that I think that stocks are a little bit of an issue right now is they're overvalued. You look at what you have to pay to get. It's just like. Just like buying real estate. The reason stocks, I think are difficult is people have trouble disseminating back down to the individual what you're actually buying. Because you buy a stock, what are you actually getting? Why do you get a dividend? How does that actually work? It's much simpler. You break it down to something very, very simple. Break it down to a home. You say, if I want to go buy $100,000 home and I can get $1,000 a month in rent, my home will appreciate and I'll get my cash flow. Kind of the same thing of buying a stock with a dividend. Your stock will appreciate and you'll get your cash flow.

And if the value of the house goes way down, you're still getting $1,000.

A month in rent.

Absolutely. So where I'm concluding kind of affirms what I have decided up to this point, which is I think that in 2019, you're going to have a significant correction of prices, but that does not mean that there's a recession to realign prices with value.

Absolutely right. I think that that's exactly what needs to happen. What will happen is we had a lot of economic growth that happened due to hope and excitement and all the things that get people going. That's great.

I mean, when Apple was valued at a trillion dollars, it went up past a trillion dollars because it was like, well, new threshold. In 2019, no company is actually worth a trillion dollars worth of production. So it has now cratered. And at the time that we're having this discussion, it's at about half, a little bit more than half of what it was. Now we're in almost reasonable valuations of a company with $100 billion sitting in cash reserves.

Think about the challenges there of how do you actually get to those valuations and how do you get to that point to evaluate that? You need to have a certain amount of data to look back at. And what data do we have to look back at on Apple? I mean, think about how quickly technology has advanced. Technology is an exponential curve right now with how quickly everything's growing. You think about 10 years ago, where technology was and where it's at now and think where it'll be in the next 10 years. So evaluating what is going to happen with a company going into the future, it's just very difficult because it's not like we have 100 years of retail history to look at. We have a lot of things that are rapidly changing the economy. And so that's why these valuations, I think we have some pretty crazy, unreasonable. You have perception can change that valuation very significantly based on the changes.

And that would cause a lot of these crazy swings that we're seeing such a difference. So me, as somebody who is, you know, I have a minor in economics, I geek out on this stuff. As somebody who is probably more sophisticated than most, I still only feel like I get a sniff test of what is going on overall. And so the average person knows so little. And so what I've concluded and what I have encouraged my other amateur, not financially savvy peers to consider is buying by using cash flow as the indicator of if you're going to enter into an investment or not. Just like you made the decision on the oil investment.

If cash flow is your production, you're buying the production rather than the value of it. So when, for example, AT&T fell to $29 and it's paying a 7% dividend, I am like, give me all that AT and T stock, please. I will take a 7% dividend. Do you agree with that type of an approach?

Well, first off, I hear if you buy enough ATT stock, your coverage will actually work.

But no, very much, because what you want to do is. My rules for investing are pretty simple. I really do believe, number one is you should invest in things you understand. And so if you don't understand, at least take the time. We live in the information age. Go to YouTube, go to Khan Academy, learn how stocks work. Once you understand something, then you invest for cash flow. Like, cash flow has to be a priority. The reason people go bust, the reason people lose money, is they don't have sufficient cash flow to lash through a variety of different situations that might happen. So, for example, if you go buy all your money in AT and T stock, or not AT and T stock, but a stock like AT and T that doesn't have cash flow, you're just looking at just the equity growth down the road. So you go buy ETFs or index funds or things like that without a cash flow component. And then you need to have access to cash flow, because cash flow is how the World goes round, you end up having to fire sell assets because you sell at a loss, you go bust. If you have cash flow, you can weather those storms. So even if you buy it at 29 and it goes to 24, you don't have to exit at 24. Probably buy more because your horizon is long enough like horizon for how long you can hold the asset. And cash flow helps extend that horizon. Perhaps if the cash flow is consistent to infinity. Yeah, that lowers your risk significantly from like a safety aspect. Not having to liquidate something is so, so key.

So here in my analysis is why.

This time is so scary to a lot of people. And for me, when the economy is going up and down and up and down, I'm getting excited while everybody else is scared. It's because most people, when they're buying index funds or they're using an advisor, they're just banking on the dollar value of the investment going up and they're afraid that it's going to go down. Sam and I are both under the opinion that it's probably going to go down over the next couple of quarters. But on a smaller basis, when you're looking at something like the cash that is coming in from the investment now, you can be more strategic about, oh, there was this big drop, I'm going to buy Apple, which Now has a 2% dividend, or AT&T which has a 7% dividend, or IBM which is a 6% dividend. And to me that's smart and long term thinking rather than getting emotionally involved in all of this roller coaster.

Without a doubt, without a doubt. And the fear is like there's always that fear of loss when you think about investing. One of the reasons you don't people sit on money or sit on opportunity and miss opportunity is because the fear is that if I put money in AT&T today, I can get it in a week, I can get it cheaper. Where I put money in capital today, I can get it in a week and get it cheaper. And so it's that fear of what if I buy it now and then miss out on something or I put money in AT&T and now I can't put money somewhere else. And so of course that's part of managing the overall, like your portfolio. You just want to keep certain amounts of liquidity. And so as a general rule of thumb, I would be deploying capital right now to a certain degree, but I would try to maintain a good healthy percentage of liquidity on my balance sheet. And there's a lot of Ways to maintain liquidity. But liquidity meaning cash or access to cash. For example, if you have gone, You've bought your AT&T stocks or whatever and you have other liquidities that are out there, you could use margin calls to be able to or margin accounts to be able to get access to capital and not tie up and have to sell and liquidate at a point in time, at an inopportune point in time, you could use, you know, there's home equity that you can use like as lines of credit and sort of things. So you can use credit to manage that liquidity or you can just use straight up cash and cash holding tanks. So capital warehousing, savings accounts, other liquid vehicles that are not exposed to volatility. So that way when the volatility happens, the assets you bought may lose value, but they still cash flow. But now you can go in here and you can go buy at a value and you have liquidity.

So the way that I'm doing that is I did just borrow against one of my homes right before interest rates continue to go up. Because I can see that happening.

Check this out. I ran the numbers and I was like, can somebody tell me why I shouldn't do this? Because I borrowed against my house and I so and I'm taking advantage of the volatility by selling naked puts, which is a way that I generate cash flow. And also if there's an another like I can still buy the stock at a lower price if it goes continues to go down story for another day. It's my favorite way to buy stocks. But so I borrow against the house. I'm now selling naked puts, which is generating enough income to pay the mortgage. And then when I bought actually buy the asset, I now have the dividends as on like free cash flow, we might say. So that's kind of my way that I'm doing it. And I have the capital warehouse with you of course, as like my umbrella to make sure that if I'm not doing anything, I'm still participating in the upside of the market without any downside.

Absolutely.

So besides stocks, what other interesting cash flow plays are you making right now? You always have like a cash flow trick up your sleeve and you're like, I can dig holes and fill them and it produces cash. Like you always have an interesting way that you are generating cash flow passively. So what are you hustling right now, apprentice?

I can entertain you for a bit here. One thing I've been really fortunate is just with my network of the clientele I work with a lot of high net worth individuals. I get to see deals all the time. And so I offer that as kind of one of my value adds to my clients is I say anytime you have a good deal that you're interested in investing in, bring it to me and I'll look over it and give you my opinion on it. That's all it's worth. It's just an opinion. Not going to advise on what you should or shouldn't invest in. I mean, I do give that out on occasion. If I say this is dog meat, don't go there. But for the most part, I get to see a lot of unique things. So one of the ones that I've invested in here recently.

Well, I'll go boring into interesting.

Just go great. Trifle in for interesting.

Straight for interesting. Okay, all right. Straight for interesting. So we bought a saltwater disposal well. And so what saltwater disposal is, is when you go produce oil, you bring up, in addition to the oil, you also bring up a lot of wastewater. And so the wastewater has to go somewhere. And so when they produce the oil, the oil goes in one tank, the wastewater goes in another tank. Someone drives up with a truck or they use a pipeline and they take this wasteful lot of this nasty gunky crap, which has still got a little bit of oil mixed with it as well. They take it over to a facility, it goes into some separators, it sends the sand and junk to one spot, it sends the water to another spot, and the oil that's mixed with the water to another spot as well. And then that water then gets pumped. Now that it's been treated, it gets pumped back down hole and gets dispersed back into the formations. So basically you're buying a facility that is a peripheral to the oil industry. So basically they pay X number of cents, 50 to 60 cents or whatever per barrel of water that gets disposed. When you produce oil, you normally produce three to five barrels of water with each barrel of oil at the same time. So there's a need for it. It's a real need. It's actually just basically a commodity to the oil production industry. So we bought one of those disposal wells and it was a really unique deal. But long story short, went in there, bought a distressed well that had been hit by lightning, the facility literally hit by lightning, Literally hit by lightning. And so they had to. The whole facility had to be wiped out. It had been out of operation for two or three years, but the wellbore was in good shape. And so we were able to still use the wellbore, which is where the water goes. It's the hole in the ground. And so we literally bought a hole in the ground to dump water into. And now we built a state of the art facility that's out there. So you built the facility and we were able to take water in at that point in time.

So when you're buying these, I mean, I mean, I know your overall strategy is you park cash in a warehouse that goes up in value, that never goes down in value, and then you buy cash producing assets with that. And because of your network, you have these cool cash flow plays.

Correct.

So here's what I want to understand here. When this opportunity comes to your desk. Are you buying a business? Are you buying a piece of land? What are you actually buying? That is purchasing, producing profit. It's fun to say, I bought a hole in the wall that we put wastewater down. Great, okay. But what are you actually buying that's producing the cash flow?

It's actually, you're buying a, it's technically a business because you, well, there's a lot of moving parts to this. That's a great question. Like, you know, you lease the wellbore typically. And so that's at least it's held in perpetuity based on sending stuff down it. And then you buy the, you build the assets, you're actually buying the facilities. There's pumps, there's things to operate, pretty significant amount of equipment that is used to operate this. You purchase the equipment and then after that you're building the business off of that.

And is someone coming to you with like, I want to build or buy this business?

And then obviously, yeah, so right now, and actually this is really unique because you can look it up and look up saltwater disposal, wastewater disposal, and look up Mark Cuban because they had a pretty good buy of wastewater disposal. Also recently, some of their hedge funds. And so it's really, it's an interesting market space because it's an aging demographic. So a lot of these, these wellbores where they're disposing were owned by older farmers, older builder operators. There's a lot of deferred maintenance. Deferred maintenance is like glorified layers, so you don't take care of your crap.

They said it's cash flowing, so they may operate at 30 or 40% of full capacity. And so either people have to drill a new wellbore, which is like a million dollar expense, or they just drive further away to get to it. So they may not go to the most Efficient routes. There's a lot of inefficiency in that market. So space, because as people have aged up, they're not taking care of their leases the same way and therefore they're not able to operate at capacity. And so that's where some of this value is coming into play, is you're able to go in and buy, renovate and take in some of that cash flow by how efficiently you operate. Because that's what they're looking for when they dispose of water, is they want an efficient facility they know they can predict and count on to go disposing.

So if I'm understanding somebody's basically in the business of buying up distressed holes in the ground that produce money and that's their business.

Absolutely.

And now you get to participate in that type of a business. So your financial strategy and what you talk about publicly is you park your money in a warehouse and then when the right opportunity shows itself, you're then going holes in the wall that produce cash flow, or holes in the floor or in the ground, whatever the term is.

Fast forward about a year of research. Because at first, when that deal first came to me, to be honest.

I heard it and I thought, ah, that's probably not going to work. And so it was interesting enough and then I saw, actually it was maybe a month or two after that I saw the article come out with Mark Cuban purchase and I thought, well, maybe I should pay a little more attention to this. So I dug into it for about a year and after going through looking at all the different risks and the pros and cons to it, I found an attractive business model. So at that point, so I probably did a little more digging on that than I needed to.

More digging holes in the ground. So here's a question. How does the average person who is waiting for the right opportunity is looking at the market going, I'm probably going to sit on cash for a bit. Unless they're buying like we buy, which is looking for cash flow, they're waiting for the right business or deal or something to go into. How do they put themselves in position to where these types of opportunities are flowing towards them?

Great question. That's one of the things that I feel like is very a very underserved sector of the market today. Sort of the financial services industry.

I hate to like, you mean like the opportunity market.

The opportunity market. So people who are looking for places to invest capital typically get very limited exposure to what all is actually out there. And so that's one thing that I think is really important that I'm looking to improve in 2019 is I want to offer some resources to investors where they'll be able to go look up and just see, even if it's not in deals you invest in, just see what else is out there. When it comes to alternative assets to just what is mainstream, there's a lot of things you can do with mainstream, with real estate and stocks that will get you to a decent spot. There's a lot of other alternative assets that are very unique, that have impact on your balance sheet, that are attractive. For example, you buy cash flow on websites. Who would think of that? That's not something you see, that's not something you hear from Morgan Stanley or something you hear from Edward Jones. But it's an asset that you've.

Why do you think that's the case?

It's all about what is scalable, what's profitable, in my opinion.

Meaning Morgan Stanley can't go out and buy institutional wealth, a whack ton of websites because they need to be managed and there's like tiny small businesses and their individual deals. But average guy on the street could go buy a website and write the thing off and enjoy the cash flow.

From that and potentially active involvement in that as well. And in which case you may be able to have some tax benefits from that. And so and same thing with, you know, like the oil investing or buying real estate. Think about buying real estate. You know, there's a reason why REITs return less than individual real estate typically. Or I guess that's, that's debatable. You either usually have one stretch if you're good at real estate, normally individual purchases are better than a REIT because you're able to provide your own unique value into the decisions that we made. Your active involvement helps boost your returns because that's kind of one of my other rules on the.

I see what you're saying. Yeah, there's either time or there's passive returns.

If you have the ability to be active in the decision making process of your investments or to be active in the operation of the investment. So for example, like if you're deciding where you put your money and you have not maxed out what you can do, invest in your business, I think you're potentially making a big mistake. And actually I had that conversation with the person in the back room here maybe six months ago because they were routinely doing all the things that you would do as a good upper middle class person and say, okay, I'm going to save money into my 401k. I'm going to save money into my IRA. I'm going to put money into the stock market. I put 20% of my income into general regular big old school long term investments and target date funds, those kind of things which not here to argue whether or not those are good or bad. I'm just saying in their case right now they were going over here and borrowing money from other institutions at an annual rate of probably 17, 18% is what that boiled down to. And it's to finance things in their business they feel like has a very high predictability. So the question is, it's very simple is would you rather save the 17% you're borrowing and paying interest and just use that money for yourself or would you rather go pay the 17% to be able to invest? So if someone said I'll give you money at 17% and you can go.

I have no idea what you're saying right now. There's way too many numbers.

Let's go back here real quick here. So for example, they have a business, they can put money in their business and they can create cash flow. Instead of using their own cash, they're putting their cash into the stock market and these target date funds.

Yeah, that's.

And borrowing to fund the business. So it's almost like they could use their cash to fund the business. And instead they say if someone gave you money at 18% would you go put it in the stock market? The answer is probably not. You're probably going to do better investing your money and saving the interest you are paying as opposed to putting it in the market. That's just my personal opinion.

Yeah, I would actually I might disagree with you. And the reason for that is if you can predict that that 17% debt is going to roll into buying more inventory that you can now sell through.

Oh absolutely. No, no, I get that completely. But my point is, is why would you not do both if you could, why would you not try to utilize, why would you utilize your capital to go over here and tie it up in the market when you are limiting how much? Because they were, they were running into credit issues with how much they could borrow. So they were hitting limitations of how much they could invest in their business because they had their liquidity tied up over here in the market.

So let's talk about, we were talking about some of the interesting things that you buy up. I love that you can buy up holes in the ground and they cash flow. I'd be curious if there's any other stuff that you're considering in lieu of the tax changes. Yes, because you are among the three people I go to that is very in tune with some of the strategic advantages in the new tax code. So how, and you mentioned earlier that a lot of investors are changing their investment habits based on what's going on with the tax code. How has it impacted yours?

This is really unique. So I feel like this is. There are some quantum leaps made in how effective real estate is when it comes to mitigating your tax burdens over with the tax cuts and job act. So let's go through just like one of the biggest things that happened here that I think took place that is underutilized by investors right now. But any properties that were acquired post like 9-21-22 of 2017, you are eligible for the new bonus depreciation rules. So depreciation is where you buy an asset for X number of dollars and then you get to write off and you depreciate its value over time as you hold it. Well, what bonus depreciation is? It says that anything under a lifespan of 20 years, you're able to write that off in all in year one. So you can accelerate the depreciation, write it off all in year one. So when you buy real estate, typically you depreciate real estate. If you do flat line depreciation, you normally do it over 27 and a half years or goes to 40 years.

For commercial and it's like 2.9% or 3.7 per year.

So you're depreciating usually at a very slow decline. With the new bonus depreciation rules, what you can do is you can go in and do what's called cost segregation study. So cost segregation is where you divide out the different parts of the property. So there's flooring, there's piping, there's concrete, there's roof, there's windows, there's etc. Electrical. And so you go in and you do this cost segregation study. So each cost has its own box and now you're able to depreciate those at different rates. So you may be able to depreciate the flooring at 10 years, you may be able to depreciate the copper wiring at 15, you may depreciate the roof at 13, 30. So you go through, you do this whole cost segregation study. Well now maybe 30, 40% of this property on single family, it can go up more with other types of real estate. You're able to write that off in year one or able to Depreciate that in year one.

And is that improvements made or is that just pieces of the house?

That's pieces of the house.

So if you bought a house after, let's just say October 1, 2017, after the new tax law came into effect, you could segment certain parts of the house and take all the depreciation for the year one.

Absolutely, absolutely. So what, you really take the property and so say it's a million dollar property, you now take 300, $400,000 of that property and you're able to depreciate that all in year one. Now that is depreciation you have to recapture when you sell. But if you're buying something for long term cash flow, you can take that, you can build it up and it can carry forward if you don't use all of it that year. Yeah. So what I think is going to happen is over the next five years, you're going to see a lot of money going into real estate because they want to build up these tax, you know, these tax offsets. And so, I mean, the numbers on it are really pretty impressive. So you buy a million dollars of real estate, how much money do you have to put down to buy a million dollars of real estate?

Typically 150 to 250,000.

Absolutely. So $200,000, 20% we put $200,000 down and now we've gone and acquired this investment property that's a million dollars in value. So we put $200,000 out of pocket to create a $400,000, 300,000 to $400,000 tax bracket. And if you're at a 40% net tax bracket with some state tax, everything else mixed in there, now all of a sudden we're getting, we're actually literally saving real taxes, you know, 150, $160,000 of real taxes we're not paying.

And if it cash flows, if it.

Cash flows, our risk is very limited. So here's the thing. Mechanics.

Yeah, I mean, that justifies the down payment. You're actually saving money by buying the house. And so what you are saying is you think there's gonna be some, some money flowing into real estate for that reason.

No brainer. So just think like you take this to institutional levels. You have a lot. And the thing is, first off who this is for is if you're not paying a significant amount on taxes right now, it means you're probably, if you're watching Ryan's show, it means you're probably building a business. That's excellent. That's One of the best places you can put your time and your capital right now. So you're not paying taxes because you're reinvesting everything back in your business. That's exceptional, that's wonderful, keep doing that, don't stop that. But once you get to the point where you have those dollars, you're trying to reinvest in other things outside of your business and you are paying taxes. Taxes, paying taxes. When you're paying taxes, then that's when these become really attractive, these strategies become attractive. So you want to know like, do you have a high tax burden? That's something that would make this attractive to work with. And then also are you able to use real estate losses to offset because you have passive loss limitations, are you able to use those to offset your ordinary income or just other real estate gains? And so that's something you want to look into based on what you qualify for from a tax status. So if you're married and you have the ability to have one of you qualified as a real estate professional, you already invest in real estate. There's some really unique things we can do to actually use this to offset your ordinary income. So there's some limitations on who all can protect, participate in it. But there are, I mean it's just, it's, it's when you, when you fit the criteria, which is very basic criteria to fit. When you fit that criteria, it does make it a lot of no brainer. Which is why I think there'll be a lot of people who will be dumping money into real estate.

What should the average business owner be doing in 2019 in lieu of or in note of the fact that market's very volatile. We both think it's going to go down. We don't know, we might be wrong. But we both, I think Dow is going to 20,000 in the next quarter.

I like another bold prediction. Ryan, that's good. I've complimented you before.

I won't shy away from them. And Amazon's gonna make another acquisition. That's my other bold prediction for the year. We've got a new tax law, we've got uncertainty in D.C. we've got all kinds of uncertainty. What should the average business owner be doing right now in order to maximize this year and this time? I love and acquire passive income.

I love general questions like the average business owner because we all know that average business owners fit in this perfect little box.

So no, I think, and when you think of average business owner, it's really.

What should they do? Sam, I'm gonna Get there.

What should they do, Sam?

No, what do they do?

I'm not gonna lie to get there. I'm just kidding. No. So we will. We will. I will get there. But what I'd say is the average business, when you think of business owners, there's different stages they go through. So if we're going to define average as a business owner who has passed the point of putting every dollar they possibly can, they own and every dollar they can borrow and every dollar they can think about borrowing into their business, they're past that growth stage. They're into the point where they actually hold and run reserves. That's the average business owner. So just kind of use that as your metric is if you are not at the point where you are consistently holding reserves in your business, this is probably the advice I would give, would be different for you. You should be still in growth mode. You keep working on that. That's your job. Come talk after this. But for where we're at right now, if you're the average business owner, you have those reserves. What I use personally and what I think makes a ton of sense is the capital warehouse strategy. So we use a capital warehouse strategy when we're in a coin flip environment where things might go up, things might go down. Now we can play both sides of the economy. And what's so beautiful about this is like this last year, for example, and.

That'S where you park cash, part cash. And it's tied to index funds. So it'll go up, but it doesn't go down correct.

So it's tied to stock indexes. And when market goes up, we gather the upside. When the market goes down, you just get a 0% credit. And so there's some mechanisms for how they get that done. But basically what we're doing is we now have a place to store capital. So when you don't. When you don't have the headspace to go figure out exactly what you want to invest in or you're not positive, you can tie that capital up, you really need a high level of liquidity. Could you say, I don't think I'll need this capital, but what if. And then if that's your thought, or.

What if the right opportunity comes and I can buy. I can buy up wells that produce cash flow.

I don't care what your what if is followed by if you think I would like to invest money, but what if, if that is the way your mind works right now, then you need to talk and look at a capital warehouse. And that's common because your what if could be what if my business needs it. What if the better investment opportunity comes along? What if. You know, I list any list of the what ifs that are out there. This is a great stepping stone because what it lets you do is it lets you invest, lets you have the upside but maintain all the liquidity. So it's kind of the, it's the friends with benefits of investing because we're able to go have all the upside, limit the downside, but stay liquid the entire time. So that's where I would start with on that side of it.

So should you say full disclosure, like honesty, transparency. That's part of your business, of what you do for people. And I'm a client of Sam's using that strategy. With Sam specifically, I've told my nightmare story of hearing about it on the interwebs, thinking it was cool and then having a salesman kind of take me to the ringer and take all kinds of fees and commissions and I thought I was doing something financially healthy and it wasn't.

The story of what is your goal? Well, here's my goal. The best way to get that is to buy whole life insurance.

I do not ascribe to that theory in the least.

That was a joke, ladies and gentlemen.

In case we didn't catch that is very much a joke. And the thing is insurance is very useful when it's structured properly. What it does, it helps you manage cash flow, it helps you take advantage of upside, limit downside. There are a lot of really positive things to it when it's structured properly. But it's equally as good as it can be when it's structured properly. It can be equally abrasive to a balance sheet when it's structured improperly. So you really just, you cannot be too diligent in that.

So you've got this pool of cash now which grows but doesn't shrink. And what should people be looking for? And we're looking for cash flow plays obviously. Yep. I, I buy dividend paying stock at opportune times. You have deal flow that comes in all the time from. But what should, what should people be looking for? Like great, I'm going to park it here and wait. What should they be looking at? While we're waiting to see how the market is going to go, I was.

Thinking about how many, I was trying to decide how many fingers to hold up for criteria I wanted to give because I wanted to be like 10, but I'm going to limit it to four. So number one, something you understand so something that you can understand and you feel like you understand the business model and what you're investing in. Number two is it needs to prioritize cash flow. So those things and the reason I'm not giving you a specific investment is because if you understand the criteria, the investment will be much easier to find. And with business owner situations, there's such a variance there. I want to be a little bit more vague with that. So number one is, is something you understand. Number two is something that prioritizes cash flow. Number three is something that you see value and that this that you believe has long term value or value for the horizon. You may like to or need to hold the asset. So for example, investing in Sears right now may not be the best investment for you because you might not see the horizon long enough to outlast your investment. I mean I drove by one all the way here with some boards on the doors. So that's probably not ideal. Not a good sign investor, not a good sign. Want to invest in things that we think are likely to get there. And then lastly would be is understanding your individual situation and looking for there's macro value, that's value to the overall economy and then micro value to you individually. So for example, if you're paying, if you're already way ahead on taxes and you need more liquidity, you may need a certain kind of investment that focuses more in your specific needs of that timeframe as opposed to someone who's got a high tax burden. So someone who has a high tax burden when they go and a high tax burden and they understand that they can offset regular income with real estate losses because they qualify for that. Well, that person that becomes a no brainer for what they invest in because now they have a 40% discount on their purchase price. So they have a micro value that is unique to their situation. Does that make sense?

Not at all.

Okay, so let's go back here real quick.

I don't want you to explain it more. I want you to tell me what people should be investing in. So here's like real estate meets all those criteria. Businesses could meet those criteria. Dividend paying stock could absolutely. But it's like it's all dependent on that first piece is like what do you understand? Like you took a year to understand the investment that came to your desk.

What I would look for doing when it comes to that is the reason you diversify is you don't diversify to make more money. You diversify to mitigate risk. So that's kind of piece number One is when everyone thinks I want to go diversify. You diversify to mitigate risk. So if your goal is you want to grow your capital, you want to grow it as efficiently as possible, you're probably going to feel more comfortable if you're able to diversify to some degree make sense. And so being able to diversify, part of that is it's just like building a business. You don't go do everything yourself, you go find quality people.

I completely agree.

And so when it comes to invest in those things, I would say try to diversify your balance sheet into various cash flow plays that hit the guidelines I was giving you, but use quality people to get there. So instead of you having to go spend a year learning each thing, you go find people who you believe have the right, you know, they have the right competency, the right character, you know, all those things you would want out of someone who's going to be taking over control of your money and use them to use them to manage those assets. So if you want to go invest in real estate, go find someone who the type of real estate you like, the geographic location, figure out macro, what you want to do and then find someone who's an expert in that particular field. Yeah.

So for example, one of our backroom members had a huge exit, tens of millions of dollars they received and they decided they wanted their next business to go into to be commercial real estate. Right. I trust this person, I trust the strategy and this is going to be their now full time focus. And I've invested in their business which now buys up real estate, which is fantastic. I know that he is all over that. I'm not gonna go go try and buy a commercial property. That's not my business.

I understand completely. I actually think I know you're talking about. And he's bought some properties in Oklahoma. Mm, Yep, yep, there we go. So you know, it's an absolutely. You now go have a quality person who knew who had at least enough wherewithal to know how to go build a multi million dollar business. So I mean that's not that money is the only butter you need. It does help a little bit to say that you were at least six successful in this area. And so then you take that over. Now you say you have someone who's a quality person, who's got character, who's competent, is intelligent, who's going to go, who's going to dig into this and they're going to put their full time, energy, effort and skill sets into going and building your wealth that's outstanding.

So this feels like a really good place for us to wrap this up with a pitch for our stuff.

So, obviously, we covered a lot. We covered what the heck capital warehousing is. We covered, you know, what we absolutely know is going to happen in the economy this year because it's going to be so predictable and we're going to get every prediction right. We talked about, like, little ways of producing cash flow that a lot of people don't know about. What the heck do you do with this now? I have spent my life answering that question. I've spent my life trying to figure out the question of I know a few things now what? And trying to find the next thing. And this is what we compile inside of the 1%. So we break down the capital warehousing strategy with Sam. We look at other plays to put that I'm specifically, myself personally interested in for cash flow plays. We talk about when to buy stocks and when to utilize things like naked puts. This is where we apply this stuff. And that's. You can get that over@capitalism.com and it's called the 1%. That's our monthly program where we're going into each one of these individual strategies and actually applying them so that you can use the ones that are right for where you are in the stage of your journey as an entrepreneur. Sam, where do people find you?

If you want to look me up, go to wealthwarehouse.com so wealthwarehouse.com or email me samealthwarehouse. And I don't know, I don't have a whole lot of social media. That's one of my goals for 2019 is I'm going to actually get a little bit more of a social media presence. I'm going to get one of those Instagrams and some Twitters and I don't know, whatever.

In the meantime, you can just keep dropping gold on the capitalism podcast.

That's the plan.

All right, Sam.

Appreciate it, buddy.

Thanks for your predictions.

I like it.

Thanks for hanging out with us. Hey, you made it all to the end. I'm kind of proud of you for doing that, for trudging through all of our geeking out of what's going to happen in 2019 and what we are doing about it. If you are listening to this going, okay, that was a lot of great ideas, but what the heck do I do now? We apply this inside of the 1% monthly. This is where we bring on my advisors and people who are doing cool things to generate cash flow, starting new businesses creating new opportunities. And we also give you my analysis of how to apply all of this. We do that inside of the 1%. And you can get that over@capitalism.com the number one one. Capitalism.com the number one. It's the program I'm really most excited about in 2019, because it is really the access pass for new opportunities, for new business strategies and for investment opportunities for those of us who are high achievers, who are after building out something great with our lives. And we're shoring up the financial house of that. That's what we are all about inside of the 1% monthly. So that's@capitalism.com the number one. And I hope to see you inside. Thanks for listening to the show. If you enjoyed this, please let me know on Instagram. I'm RyanDaniel Moran, would love to hear your thoughts. Thanks. I'll see you guys soon.