Looking Into Cash Flow Through A Different Perspective – Episode 308

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[00:01] Welcome to the Prosperity Podcast. On this episode of the Prosperity Podcast, we’re going to be talking about cash flow. And we’re going to be approaching cash flow from a different perspective. So you’re going to want to break out your pen, take some notes, maybe even take some screenshots because we are going to dive in to some things that may make a huge difference on your financial blueprint. So Kim, are you ready to jump into this with me? Always, Spencer. I love talking about cash flow. You know, it’s my favorite. And here is the reason why we’re going to do it. I was recently talking with a couple, a family member. I’m not going to say who they are, but they’re coming very close on retiring. And all they could talk about was this big

[00:46] lump sum of money that they thought they had. And I said, you know, you could have solved all of that with a little bit of cash flow a few years ago. It is so amazing how in the financial services industry, net worth is the measurement of success. And net worth does not put food on the table or create experiences with your family or really provide for anything. And so just in case somebody’s not clear, net worth is what you own. And it’s typically minus what you owe. So you have people that think, for example, that they have a million dollar net worth because they have a million dollars in their 401k plan, but they forget about the fact that they owe taxes on that money. So that’s probably more like a $600,000 number because of the 40% approximate taxes that

[01:35] somebody would have to pay to get access to that money. So the idea that net worth can do anything for you is, I think, very false. What does things for you is cash flow. How do you turn that $600,000 or that $1.8 million or that $200,000 or whatever number it is that you have in your hands into cash flow? It is the single hardest thing in the personal finance world. Totally agree. So here’s how I’d like to break it down and help out listeners. I want to use the metaphor of the 5k cash flow, the half marathon cash flow, and the marathon. And so the way we can look at this is maybe some things that we would sprint or start with, something that’s going to be a little bit more difficult, and then a long-term plan.

[02:29] How does that work for you? That sounds great. I used to be a runner in college. I actually ran the 5k on a track, which is, I think, like 30 laps or something ridiculous. I don’t even remember. But it was not a fun place to run a 5k. And so when we think about cash flow, first of all, this discussion is only going to be from what I am gathering about cash flow in. And maybe on another podcast, we can talk about cash flow out because they’re equally as important. Yet, when you’re looking at cash flow in, which is what most people think of when they think of the word cash flow, it is, as I said, the single hardest thing to get money to do, to create monthly cash flow. And so to me, a 5k of cash flow is just the next two or three

[03:20] years. What could you do in the next two or three years to earn a monthly income? Now, earn with investments, although earn could be with work or intellectual property or other things as well. But if we’re just looking at investments creating cash flow, it’s a necessary thing to practice. And so a two to three year time frame is a great space with which to practice. And you want to do this when you’re 25, when you’re 35, 45, 55, because you don’t want to get to 65 or 75 and not have practiced how to create monthly income coming to you from your investment dollars. Okay, so what are some of the practical things that someone could do over the next two to three years? Very specifically, our favorite category to create monthly cash flow is a very broad term

[04:16] called a bridge loan. And bridge loans to me just mean a place where you as the investor lend money to somebody else or something else, usually real estate, and that entity, the person or the real estate pays you a monthly income. And then at the end of two to three years, they give you your principal back. And so there are deals out there in the marketplace, even something as simple as the peer to peer lending space like Lending Club or Prosper or some of the things that do that type of personal quote, bridge loan, bridge loan might be my term for it, but it’s still an accurate statement all the way up. So we’re just talking about the 5k cash flow right now. So I’m going to just say all the

[05:07] way up to a simple real estate bridge loan, where you would lend money on a single family house for a two to three year time frame. Maybe it’s a lease to own environment where somebody is going to work on getting their credit improved and then refinance and pay you back your principal. And those are usually available in minimal amounts of money for a fairly short period of time like we’ve talked about here in the two to three year range. Okay. And in not all situations, people don’t have to be accredited investors, correct? Correct. So the first three examples that I’ve given specifics on the idea of Lending Club, Prosper, and a lease to own environment, those are all available to any investor in any state

[05:57] with small dollar figures. So literally like a thousand to 2000, you would probably use Lending Club or Prosper all the way up to let’s say 50,000 where you could do a lease to own property or maybe even 25,000 and have exactly what I talked about, principal return after two or three years, monthly income or cash flow during the time paid on either a monthly or a quarterly basis. And just to put some generic interest rates on it, because people are of course are always curious, you can definitely get in the, I would say five to eight percent range generally speaking in this space. And for our listeners, there’s one thing that if you’ve listened to the episodes before, you’ll notice that we’re not using that verbiage of like, hey, look, the more risk,

[06:48] the more return, like that’s garbage. And if you do have specifics on what type of bridge loan is best for you, obviously reach out to Kim at hello at partnersforprosperity.com. So after we’ve run that 5K, we’ve started, we’ve built that habit, half marathon territory, where are we at there? So now we’re talking about a time frame of maybe five to 10 years. And you’re going to see about the same interest rates that five, six, seven, maybe eight percent environment. And it is absolutely something that you want to again, look for a secured loan if you can. So in the earlier phases, we were talking about Lending Club and Prosper. Those are typically unsecured loans. If you can get into the real estate environment, you can get a secured loan.

[07:40] And ideally, at this phase, maybe you’re stepping up a notch to like an apartment building or a condo unit or something like that. And you are committing your dollars for maybe a three to 10 year time frame. Again, similar interest rates. You’re starting to cross over the line potentially of needing to be an accredited investor. That means a million dollars of investable net worth, not including your home equity. It also could be, you could be qualified as an accredited investor if you earned two or three hundred thousand per year, two hundred if you’re single, three hundred thousand if you’re married. So both of those things, either million dollars or the two to three hundred of income are what qualify people as accredited investors.

[08:29] And there are lots of investments out there that are accredited investors that will create cash flow on a monthly basis. So now in this mid space, we’re ramping it up a notch and we are looking for something to collateralize our money if at all possible. OK, do you ever go into the world of looking at different types of, you know, maybe oil and gas or other types of real estate, maybe turnkey, things like that? Absolutely. It’s not something that I have a lot of expertise in. And yet we’ve been gaining knowledge in this space because it is a very important one. I have more in the oil and gas arena. And I was going to talk about that at our third level. You probably have more expertise in the turnkeys than I do, although I will admit that our source for

[09:18] bridge loans in this non-accredited space also offers turnkeys. But why don’t you go ahead and just define that for our listeners? Sure. So, you know, turnkey real estate is something that often people, you know, they may have heard about it through a friend, through someone else. So there are two ways to approach real estate. One is to be the person that goes out and markets and pounds the pavement and tries to find the property, get it a good deal, do the rehab. Then you go through and you put your tenants in the property. And while that can be extremely profitable, there’s a lot of different pieces to learn and to get right. And it can be a really lengthy process. So there’s a faster way to go about

[10:03] it where you can go to an investor pool or a company or whoever that may be. And they’ve already found a property. They’ve done the rehab on it. So renovated it. And they’ve screened a tenant and put a tenant into that property. And now they’re willing to sell you that house. And oftentimes it can be at a discount, but it’s always at a cash flow positive. And so for someone that doesn’t want to add another full-time job to their life or even a part-time job, it’s a great option. And that’s one of the ways to look at turnkey real estate. For me, I love real estate. That’s one of those things I grew up just absolutely loving. But there are times when even as a person that loves real estate as much as myself, I hate it. So you got to look at it as turnkey

[10:54] is a great thing. Well, it’s definitely an easy thing for the person, like you said, that doesn’t really have the time or the knowledge. And I find getting involved in the landlord environment is a scary deal because there are people that are professional renters that know how to take advantage of newbies in the landlord arena. So it’s why I like this bridge loan space so much. And as you define the turnkey, I would wrap that under our bridge loan category because it’s still involving somebody else that has the expertise with the real estate to take care of the money for you and to take care of a lot of the pieces and parts of the deal for you so that you can go back and do what you’re good at. Absolutely. So let’s go and let’s bridge this conversation. Here we go.

[11:47] How about that for a pun to the next part, which is like the marathon, a very long term approach. Yes. So now we want to, in my mind, get involved with that oil and gas space where our dollars are committed for a longer term, where we can be assured of the money coming in all the time. I also want to add another element, which is the single premium immediate annuity. Now, this is not until people are in their eighties, do I think that the single premium immediate annuity is a good way to create cash flow. But there’s an interesting element to single premium and immediate annuity, SPIA, they’re abbreviated as SPIA, whereby it pays you for lifetime. So if you’re looking at, for example, a 30 year period from 60 to 90,

[12:45] ideally you want to wait until it’s more like 75 to 105 or more, then a SPIA can be a very certain, in fact literally guaranteed, and there’s not very many products we get to use that word with, a guaranteed source of income. But it is, again, not very effective until you get into your seventies and eighties because a SPIA’s income is determined by your age and your life expectancy. So we don’t want to commit our dollars because it’s also an irrevocable decision to the SPIA until we’re a little bit older. So in the meantime, if you’re looking for that marathon cash flow, we’re back to real estate, ideally bought and held real estate, again, on your own or with somebody else where someone can help you use that real estate to create

[13:46] income in a more long term fashion. And this is an important distinction. This is not real estate where we are wanting to have the value of the real estate increase. We don’t really care what the value of the real estate is. It can go through a crash correction, whatever. What we care about is the cash flow. And that’s measured and identified very differently than the value of the real estate. Absolutely. I completely agree about that. And I think oftentimes people are trying to chase the cycles too much. They’re waiting to buy at the bottom or they’re wanting to sell at the top. And it’s nice to know when you think of cash flow, those cycles don’t matter at all. That’s correct. So one of the things that I wrote down as I was

[14:32] taking notes, and one of the things for our listeners to think about is when we speak about bridge loans, we speak about real estate and all these other pieces, not once did we mention creating an active side income. So if you decide to set up an Amazon store, Etsy store, do some other side business, you can. The nice thing about these cash flow pieces that we’ve talked about, this is something that you don’t have to invest a lot of time of education or time commitment. And that’s what I love about it. Yes. And it is amazing what is starting to come online. Again, no pun intended, maybe actually pun intended in terms of creating businesses where there is cash flow. I just watched a fabulous presentation by Tony Robbins and Dean Graziosi on what they’re calling

[15:24] the knowledge builder base, I think. And it’s where you as a person either have knowledge that you can share or you can curate knowledge that you can share. In other words, go out and interview people that have knowledge and then put that into special reports and create mastermind groups, etc. And so as we go forward in today’s world with the internet’s capability, with online activity, with anybody being able to be an expert and share their knowledge, with anybody being able to check out real estate examples or whatever it is that you are wanting to verify. Just a quick fun note on oil and gas, one of the ways that you can verify some of the mineral rights and other activity on an oil and gas is through,

[16:17] like in Texas, the Texas Railroad Commission. You can actually look up your lease number and verify that it exists. And so that strength of collateral is an important thing as you go forward and the internet and blockchain coming down the road is going to enable this to be even more available can really help you get the confidence that you need to take a step and lend money to create that cash flow. Absolutely. Well, this has been a fun episode because I think for our listeners, it’s really easy to get overwhelmed and think that you have to know everything out there or maybe you think that you’re limited by the income. And now to even hear about the opportunities with SPIA, I think some of our listeners can

[17:02] turn to their parents or grandparents and say, hey, you have a choice now. Yes. So that’s wonderful. For all of us, if we have additional questions, I assume the best is to go to hello at partnersforprosperity.com and just ask you a question. Is that the best? Absolutely. I monitor that carefully and am delighted to answer questions via email when appropriate and even get on the phone if that’s a good next step. Well, listeners, thank you for spending time and learning about cash flow. Arguably, this is one of our topics that is the most favorite thing to talk about. And if you have any questions, please send those off to Kim. We’ll put a link in the show notes to that email address so it’s easy for you to just

[17:42] click with one button and make sure you’re subscribed to this podcast. We love sharing these with you every single week. So thank you, Kim. Happy to do. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.