When The Music Stopped—Why You Need To Invest Conservatively

Hey, it's Mark Podolski, the Land Geek with your favorite niche real estate website, www.thelandgeek.com. and I'm really excited for today's guest. He is going to be what's Scott and I are all about. Cash flow, passive income. But before we talk to our guest, I'd be remiss if I didn't properly introduce my co host. You know him, you love him. Scott Todd. Scotttodd.net landmodo.com and most importantly, if you're not automating your Craigslist and your Facebook postings. Postingdomination.com TheLandGeek Scott Todd, how are you? Mark?

I'm great.

How are you?

Are you ready to talk to our guests?

I'm all about cash flow and passive income, baby. So let's roll.

Let's do it. Oh, by the way, today's podcast is sponsored by landmodo.com forward slash the land geek. Start listing your properties on landmodo.com and start getting seen.

Mark, you know, you know what's music to my ears is when I'm on, on a call, like a flight school call, and someone tells me, hey, Scott, I just want to give you a shout out because I got my very first sale off of Land Moto this weekend. I. It was like, it was just like heaven. Heaven opened up for me.

You know what? That's such a great feeling. I love that. And I even, I have a very similar feeling as well. I'm just like Land Moto.

Yeah, we did.

That exists like a year ago and now it's. And people are getting deals. So let's talk to Hunter Thompson from Cash Flow Connections dot com. If you don't know what Cash Flow Connections is, it's a real estate consulting firm based out of LA that helps clients invest outside of the stock market in turnkey real estate investments. They specialize in assisting clients who are sick and tired of the headaches and uncertainty of the stock market and have a desire for a more stable approach to achieving their financial goals. Cash Flow Connections helps investors turn their portfolio from a speculative gamble into a secure and reliable cash flow machine. Hunter Thompson. How are you?

How's it going, guys? Honored to be on. Thanks again.

So, Hunter, let's just rewind the tape and take us back to how you got started in real estate and investing. And then all the way up to, hey, I can do this for other people.

Sure. So I actually have an interesting story and when I saw the kind of the format of this conversation, I was looking forward to talking about this, because this is something I've actually never really talked about in public before. So I thought this is kind of an interesting time to kind of go into the details of this. I learned a lot from my grandfather, who was a successful businessman in the 70s and the 80s. He had a cotton business that experienced significant growth and tens of millions of dollars of revenue throughout the years. And then in about 1986, the, they did about $150 million in revenue. 1989, they did about $180 million worth of revenue in international cotton business. And so at this point, you know, he was a major market mover, someone that people would go to for advice. You know, if certain people sell real estate, for example, a lot of the people listening to this podcast will be certainly interested in selling real estate, things like that. And he identified a shortage in the cotton business in 1989. So right after those two big years that, that he anticipated would result in a massive price increase of cotton as a whole. So in order to take advantage of this, he took out significant leverage, about leverage about 10 to 1 and had really basically an unlimited amount of access to credit because he had just decades of being able to perform. So he took about a half billion dollars worth of debt to capitalize on this. And the shortage took place. And the price increase did not happen. It just basically stayed the same. And when the bank saw this, they realized they were completely over leveraged to this one particular asset class and called all the loans due immediately. And this is basically like what happened 2008 for a lot of real estate investors. The music stopped, everything was called due, everything basically was eliminated. The business shut down. This resulted in business bankruptcy, personal bankruptcy. He had personally guaranteed loans, complete financial catastrophe. And you know, just to clarify, I'm talking about going from hundreds of millions of dollars of revenue to zero, basically just having that completely eliminated. And that is really why I felt so motivated to start my business, because I realized what that did, what happened and what happened to a family that goes through something like that, just completely catastrophic. And I realized that it's not necessary to, to expose yourself to those type of risks in order to kind of achieve financial freedom. And I think that the key takeaways are that, number one, diversification is absolutely key. Even if you have a tremendous advantage over your market, that you still cannot weather the storm if you take on significant leverage. And look at guys like Ike Batista, who was completely over leveraged to oil. He had a net worth of about $30 billion, went from $30 billion to zero in about months because of the exact same stuff. And then at the same time, compounding interest is an absolute miracle. The reason I say that is you go from, you know, that amount of revenue to getting basically eliminated to less than a fraction of percent of that in the 1990s. Taking that and investing conservatively, you know, that was the capital that allowed me to eventually go to the college I wanted to go to and start a business. And so, you know, you can't help but think, you know, if those strategies had just been taken earlier, you know, what the result would be. And of course I'm not complaining. I think that that story taught me more than I could ever get from any amount of money ever. And I mean that. But, you know, it's an incredibly powerful story that your listeners can listen to and understand and get the benefits of without going through it themselves. So anyway, I appreciate you providing me the opportunity to kind of share that, but yeah, so that's, that's kind of my background before I really got started. Real estate. That's my perspective on why it's important to invest conservatively from day one.

Wow. Talk about a different lens walking around the world, right, Scott?

Yeah, absolutely.

I mean, it's really interesting, but go ahead, Scott.

I was gonna say, you know what it reminds me of you talking about like the over leverage and the other stuff. What it reminds me of too is like the people that are like all in on crypto, right? Cryptocurrencies and the bitcoin, they're like all chips on the table for something that they are simp. Simply they're gambling, in my opinion, because it doesn't cash flow. Bitcoin does not cash flow that I am aware of. And essentially the only way that it's going to make any money is price appreciation. And how does that get controlled? It's strictly supply and demand, right? Like it's really all it's about. And Hunter, when you were talking about just going back to cash flow and allowing the cash flow to kind of build that lifestyle, I thought that was, I mean, cash flow is king, I think, above all else.

Yeah, I completely agree. And I think that that's really what got me into the space. I saw it was kind of taking place. My story is I was really interested in the stock market and I saw what happened 2008 and then again in 2010 in Europe, and it was just completely. Everything is so correlated. My entire portfolio is tied to the Greece bond yields. And we're watching Greece have this failures and struggles and that's when I was like, this is all about being as predictable as possible. And cash flow is the vehicle to that predictability of outcome. And I think that that's really the main goal when it comes to financial freedom. Not only the ability to pay off your expenses, but the ability to actually have the mindset that goes along with knowing that you're going to be okay next month and next year and five years from now.

Yeah, it's so true. And it's such a different mindset, right. And you know, you can look at somebody who just has a regular job and the risk of their cash flow is, you know, a lot of people like, well, I just got a job, but they don't realize, like, yeah, but that cash flow can go away tomorrow at the whims of so many different things that you can't control. And when we look at, you know, just so many different areas of life, we want to have that locus of control, all the things that we can control. And that's the beautiful thing I think about real estate is that, you know, you can pick the market, you can pick the area, you can pick the asset, you can see the yield. You can, I mean, it's, you know, there's very few things that, you know, are unpredictable about it. So it's hunter, you must sleep really well at night.

Well, that's my main goal and that's why I ended up looking at what was taking place in the market in 2012 and 13. I mean, there's so much opportunity out there because the price collapses that had happened after 2008, but as prices continue to increase in those more traditional asset classes, and I was seeing a lot of negative economic data in terms of income, in terms of demographic shifts, in terms of where the real job growth was taking place, that really made me reevaluate my strategy and build a thesis around recession resistant assets. These are kind of the more niche cell storage is. When I talk a lot about mobile home parks are one that I think a lot of people are starting to get hip to. Those have been the predominant pieces of my business for about five years now. And the reason for that is really the fact that when it comes to the real estate, all types of real estate are going to perform well when the capital markets are loose and the economy is booming. But there's only a couple times of real estate that are just slow and steady. The demand is there regardless of the cycle. And sometimes it can be even inversely correlated to the market cycle. When you think of something like mobile home parks, for example, where the worse the economy does, the more demand there are for affordable housing. I think it's critical to have certain exposure to your portfolio to those type of real estate assets, because that's exact goal. Sleeping at night, knowing you're well protected in all stages.

Yes, absolutely, absolutely. So Hunter, when there's all these other turnkey real estate companies out there, what should an investor who's sort of shopping all these different companies be looking for?

Yeah, well, just to clarify, you know, that terminology is something that a lot of people use because I think it's what most people common. I consider ourselves a private equity group and we invest in syndications predominantly, so we defer to experts, expertise in their particular asset classes. And that differential between being active and being passive really changes what you need to focus on in terms of due diligence. I think that when you're a passive investor, the 90% of your due diligence needs to be focused on the actual person you're making a bet on rather than the asset itself. I think if there's 10 things to focus on, the asset itself is the last and the first nine have to do with the sponsor in some capacity. Our differentiating factor is the fact that we have built relationships up with some of the best asset teams in their particular asset class and we have a track record of performance with these asset teams. So there's a lot of places to go to invest your money online now because of the changes in regulations. But it's kind of like there are a lot of sites that are like Craigslist for syndications, Craigslist for securities. You don't know who to trust. It's hard to kind of conduct accurate due diligence through those websites. So we have a track record, a background and a due diligence processes which we've originally used for our own portfolio and now kind of leverage that with investor capital. But to answer your question directly, in terms of where people need to be focused, I think that looking for sponsors that have $100 million of transactions, have a million square feet under management, things like that, they're going to put you in a really good group of individuals that really know what they're doing. And I think that's critical, especially when it comes to commercial real estate where the benefit is the fact of execution and the complexities of the asset class make it such that there's a huge differential between a mom and pop owner and a best in class owner. And that's really what we want to work with and invest in.

Scott Todd what are your thoughts?

I mean, I think that, you know, when it comes to really anything, any company, it's all about execution. Right? You know that, Mark. I mean, you know, when I worked at that Fortune 300 company, I saw an executive team that executed and then I saw an executive team that failed to execute. And it's amazing that just because there's a company there, it's not even the company more it's about the, it's about the executives that it comes down to who, who can execute and who can't. So really I think, you know, what Hunter's talking about is really picking the management team that can get the job done versus, oh, let me just take my money to just some company they've been around forever and I'll just dump money into there. You don't know who's managing that company. And there's a big difference between just a general manager and an executor.

Totally. 100%.

Yeah, Hunter. So if we're building like the perfect stew, right, of management team and we're gonna put in all these ingredients, you know, communication, leadership, track record, what, what are the top ingredients for you making this perfect management stew?

Yeah, well, it's interesting. I mean, you know, I had a meeting with someone yesterday that was, we had a meeting, which I don't do a lot of in person meetings because it's really not that efficient. But they happen to be in la. So I said, okay, you know, we'll do coffee. And you know, they're a SP and they're basically interested in having us raise capital for them. And it's interesting because, you know, I'm looking for new sponsors in the same way that I'm looking for a new best friend. I'm open to it, but like, it's not something that you can scale, it's not something that you can replicate, it's not something that you go to coffee and say, hey, you know, here's my background, let's be best friends for the next 10 years. Because that's really what it feels like. So for me it's really about building relationships. You know, I do a lot of on site property visits and, and I really like to go to properties or go to states where the manager has several facilities or several properties within like a three to five mile, three to five hour drive. And that way I can spend time with them going from property to property throughout the day and just going through hundreds of questions, trying to get a feel for, you know, how they look at life, how they look at Business, how they think about money and how they think about growing wealth. That'll be a really good start. And so, you know, to put some numbers on it, you know, I'd say that incentive alignment is critical. Looking for reading between the lines to understand if they're in the business of getting quick transactions closed or building things for the long term. I think in real estate it's a great way to build wealth over the long term, but it's necessary for it to be the long term. You can't really do a lot if you get, if you're just raising money for one deal, for example, it's critical that you really be interested in pursuing those relationships until you retire, you know. And so when I look for that, I look for things like putting themselves in a position to under promise and over deliver key phrases like we underwrote the deal to be exited at a 6 and a half cap and the market is about a 5.5 cap. Not necessarily them putting that in the executive summary, but me digging into the details to find out that answer. Right. And so just layering on conservative elements and long term terminology and communications, those are the main things I look at. And I can go through a variety of lists, but generally speaking, it's a gut perspective based on a culmination of all those.

Fantastic. So what is some of the worst advice you see or hear given in your area of expertise?

Yeah, well, you know, it's interesting, I think that originally when I got in the business, it was really, really great time to invest in real estate. Right. And so we would hear a lot of people say this is the opportunity of a lifetime. And they would be right. That was the opportunity of their lifetime. The problem is, if you don't have the knowledge, if you don't have the network, that opportunity cannot really be taken advantage of. And to put a point on that, this is 100% true. The deals I see right now, the deals that come across my desk on a quarterly basis are better than the deals I saw in 2010. Why? Number one, my network has expanded tremendously, but also my understanding of those deals and how to execute those deals and my ability to believe in that thesis has changed significantly as well. So the worst advice ever is to jump into something based on the timing of the market. And you're seeing that now today because you're hearing people say you're about to miss the last opportunity to buy. Right. So originally it was this is the one opportunity you're going to get. And now it's saying you're Going to get priced out of the market. You're not going to have any exposure to real estate. Everything like that and everything in between is some of the worst advice. Education is always key and networking is going to help you significantly on both of those fronts.

Scott Todd, what are your thoughts?

Yeah, I think that you've got to constantly looking for deals, right? I think you got to be in there, you've got to build that, that network. It's amazing that once you start to build that network, network, some of the deals that will come to you because of it. Mark, it's funny because over the last weekend someone brought me a deal that had nothing to do with, with land, right? It's, it's has to do with real estate. And I'm looking at it. I'm like, at first I was gonna discount it, but I'm like, there might be something here that I need to dig into. Right? Because you know, I don't want to just like discount an opportunity just because it's not necessarily in my space. But all of a sudden you start to realize like, holy cow, man, the owner's willing to finance this, this with like a low down payment. What am I missing? Like, this seems like a no brainer, right? So it's funny, like as you grow that network, as you get better at kind of looking at deals, you'll find the deals that are, you know, those once in a lifetime deals that you're like, man, this seems like it's crazy to pass up. But then you got to do what Hunter's saying. You got to dig down deeper, ask the key questions, really formulate over time the questions to ask, right? That comes from your experience. And then all of a sudden the deal flow that you have or the opportunities that you have will change.

Yeah, I mean, Hunter, as technology evolves, we're seeing all these peer to peer lending sites and just differences in regulations like you talked about earlier. How do you see the business evolving or your business evolving, say the next 5, 10, 15 years?

Yeah, I think that's a great question. And you know, I think a lot of it, like you said, technology has provided a lot of opportunities, but that opportunities that they come with risks. Right? And so the crowdfunding space is a perfect example of this. You have all these people that are all of a sudden available to invest in complicated syndications, particularly, which they don't necessarily have a market advantage of, and sponsors that may not be as sophisticated as they appear have now have access to all this capital. I think that that is actually a Net benefit, because now people have access to these unique investments. But at the same time, the market has to understand that. The market has to come to understand what these investments are all about. And I think that programs like yours are making a significant help in that way and that the education is so available. I mean, you guys have been in the business for a long time. You know, 10 years ago, the only way to get educated in real estate was to either have a mentor that you happen to know personally or met through some random occurrence, or people were paying 50 or $100,000 for the type of information that you and I are discussing right now. Right. I mean, that was totally common to hear anything about syndications or securities. You had to pay an attorney or you had to pay some guru that may or may not have any background in the business. So, you know, first of all, I want to thank you guys for putting out the podcast. It's an incredible way for people to learn. Incredibly sophisticated. I mean, I'm sure that you guys don't hold back any of the information. If someone asks you a question, you give them the most direct, most sophisticated, most accurate answer you can. That just hasn't been the case until the last five years or so. And so I think that helps a lot. But I also think that the business is still in the flux in the flow, where it's still a little bit fragmented. There's not really a lot of really good sources of information out there that have really come to the forefront. So there's still some unsophisticated investors out there. But again, I think that that's being changed by programs like yours and others.

Right, right. And you're helping us. Scott and I have our done for you fund, and you've been invaluable in kind of helping us in sort of what. What an investor is going to look at and how to sort of, you know, I guess, position ourselves. And that's been really, really helpful because, you know, there's. There's. I mean, I think a lot of it is, you know, being we're an inch wide and a mile deep, there's no way that we could. We could do a fund with only, let's say, five years of experience. Right. You've got to go through at least one market cycle and have this track record before someone like you will look at us and say, oh, these guys have some credibility, have some chops with this market niche. And, you know, is that something that you see a lot where you'll see somebody who might have just gotten lucky and now they're like, oh, I, you know, now I'm going to start a fund.

Yeah, totally. I mean, there is, as you guys know, there's a little bit of a misconception out there that the people that are really good at their sphere, that have, you know, big following necessarily are super good at the technical, institutional grade investment strategies. So, for example, there's a lot of people that are really great at marketing. Doesn't mean that they're super knowledgeable at real estate. And so. And you compound that with the fact that market cycles and the combination of leverage and a market cycle can result in some really spectacular returns. You know, if you're looking at a class office in Texas, my niece could have experienced 20 plus percent returns if they just happened to be born in Texas and focused on a class. Alphas, for example, you didn't have to have any market advantage. You could have just thrown the darts at the dartboard and you would have succeeded. So it's definitely something you want to be cautious of. And I think another thing is differentiating the skill set that goes along with marketing and creating great and beautiful looking decks and actually being able to effectuate a change in a property. Not necessarily the same thing, but at the same time you want to find people that are really detail oriented, that have the capacity to do a little bit of both. So you can get that infrastructure as well as those good on site property management skills. Hopefully that answers your question. I think it's a really important key thing as this continues.

Yeah, absolutely, absolutely. So, Hunter, we're now at that point in the podcast. Your mentorship has been great, but we're going to ask you for one more piece of advice. Website, a resource, a book, something actionable where the art of passive income listeners can go right now, improve their businesses, improve their lives. What have you got?

Yeah, so this is something that has really, I mean, I can't say it just completely changed my life over the last year in particular, I have found that really cognitively challenging tasks are really important to do in the morning and the earlier the better. So I don't answer email until 11 usually. And I usually work from at least 7 to 10, sometimes 9, but usually 7 to 10 of the most cognitively demanding tasks with no email, no social media, nothing. And if I can get three hours in of doing things like going through underwriting models or, you know, I have a podcast, creating interesting podcasts, finding unique guests. If I can do three hours of cognitively challenging tasks, the business, the rate at which you're Actually adding value to your business is amazing because those are the actual tasks that need to be get done. Emails are not going to change the perspective of your growth rate. You need to respond between 24 hours, whatever. But this is not a major priority. And I think two books that make that really clear are Deep Work and Miracle Mornings for Entrepreneurs. The combination of those books will give you a really good understanding of my perspective on that topic. It's something that's allowed me to accomplish insane things that you would never think you'd have the time to do. You want to write a book, wake up earlier and do it for the first three hours, for the next three months, and you'll have it done. Crazy. So that's kind of my key takeaway there.

I love that. Deep Work is one of my favorite books. And sometimes I fall off the wagon. I'll be honest, Hunter, like, I wake up and like, oh, check email. And then like, yeah, it feels good. Yeah, I'm like in this deep shame spider. Like, why did I do that? Now I'm off to the races and I'm thinking about, oh, I've got to sign this contract. I've got to do this, gotta do that. And like, and the deep, deep stuff that I know intellectually that needs to get done takes a back burner to this. You know, what you said the more, you know, surface kind of work that just, you know, you got to get off your to do list at some point, but it's not going to move the needle. And so I got to read Deep Work again for sure.

It's no. Yeah, there's a reason for that. It feels good to check things off your to do list. It feels good to go through emails one by one. So your brain is basically addicted to that feeling. But if you can forego that, the results will be pretty amazing.

Yeah, I need to get like some kind of electrodes, you know, wake up to shock myself. I start looking at the phone. Scott, Todd, what's your tip of the week?

Mark? When I say to you the service intercom that, you know that service intercom that you go to the website and it's intercom. It's there, it's on the website. What do you think of when I say intercom?

GeekPay IO because we.

Okay, right. I will tell you what I think of is annoying because you get that sound, you know, I'm talking about like anytime you go to. And it's annoying. So my tip is to check out this website. Mute. Mute. Let's say it's Mute I N T E R mutenter dot com. You know, like mute intercom but mute interview. It's a Chrome plugin. It makes that annoying sound go away once and for all. That way you can really think about what you're doing and not break out into like this rage of. I hate that sound.

Wow, I didn't know you had such sensitive ears. This is great.

What's annoying is when you're trying to be like, quiet around the house, you know, like, and then, you know, like. And then like, next thing you know, your wife says, like, what's that sound?

Sorry.

That's so funny. I'm looking at the site like, annoying sales rep, annoying sales rep number two, annoying motivational guru, annoying maker, annoying growth hacker. Like, you know, because all, you know, all those things pop up when they're, they're doing it. That's great. Well, my tip of the week is learn more about Hunter Thompson. He's got a great podcast as well. Go to Cash Flow Connections dot com. He's got resources. That's a podcast. And just really deep dive. I know a lot of you have self directed IRA money, QRP money. This is a perfect place to start diversifying your portfolio and having an expert that spends three hours at least in the morning, you know, going through all the other mind numbing, you know, details of a deal that you certainly aren't going to do. So, Hunter, are we good?

Yeah. Again, I really appreciate you guys having me on. It's an honor. And I appreciate you getting me to talk about some things that I have never talked about before. So again, thanks again.

Thank you. Thank you, Scott. Todd, are we good? We're good, Mark. All right. I want to thank all the listeners and just remind you the only way, the only way we're gonna get the quality of guests like a Hunter Thompson@cashflowconnections.com is if you do us three little favors. You got to subscribe, you got a rate, and you've got a review of the podcast. Send us a screenshot of that review. To Support the land geek.com we're going to send you for free our $97 passive income launch kit. So please do that. All right, let's, let's head out.

Let freedom ring.

All right, thanks, everybody.