616: Cashflow Connections: How to Build Wealth, Identify Stable Opportunities, and Create Multiple Streams of Income with Hunter Thompson

Speaker 1 0:00 Marketer of the Day episode 616, cash flow connections, how to build wealth, identify stable opportunities and create multiple streams of income with Hunter Thompson.

Robert Plank 0:17 Hey everyone, and welcome back to the marketer of the day podcast. We're chatting here with Hunter Thompson from cash flow connections.com and Hunter is a full time real estate investor, and he's the founder of cash flow connections, which is a private equity firm based out of Los Angeles, California. And Hunter has helped more than 250 investors allocate capital to over 100 properties, and he's personally raised them more than $20 million in private capital, and he controls more than $60 million in commercial real estate. So we're going to hear all about Hunter, his story about the cash flow connections real estate podcast, which helps investors learn the intricacies of commercial real estate from the comfort of their home, car or office. We're going to have a lot of fun. So Hunter glad to be talking to you. Hey,

Speaker 2 1:04 thanks again for having me on. Much appreciated.

Robert Plank 1:06 Heck, yeah. Well, I appreciate you. So, you know, you always hear about how everyone's got all this, you know, money advice, and, you know, save more than you spend and put your money into things that that grow for you. You know, don't buy the fancy car. Don't buy the fancy house. So what is your philosophy? What's your roadmap, as far as what people should be doing with their money these days?

Speaker 2 1:30 Well, I think the way you structured that question is actually really important, because you're right. We were taught a lot of mantras when we were really young, through high school, through college. None of them had to do with reality. I mean, we were taught, save your money so you can invest in a 401, K that you don't control. Save your money so that you can invest in stocks, bonds and mutual funds, and, quote, diversify, even though you're not diversifying out of those investment vehicles. And you know, most people, at the end of the day, they're really trying to build for their retirement, which essentially means having enough cash flow to pay off their expenses passively. And then people invest in those vehicles that I was mentioning earlier, those are very they're not very direct vehicles to accomplish that goal. So, you know, as I started to be interested in the financial sector, I started to realize this, and this kind of drove me down the path of focusing on the niche in non mainstream or alternative investment that I focus on, particularly in real estate generally, but then also in the mobile home park and sell storage businesses, which you can talk a little bit about, but generally speaking, you know, it's basically finding out what your actual goals are and Finding the most direct path to accomplish those

Robert Plank 2:42 awesome and I like, we're going with this already because, yeah, like, you always hear these cliches, but then when you look at people who are actually making money, they do kind of unconventional things, or they make money in ways that you otherwise wouldn't have heard about, right? They make money from raw land, or how you mentioned, like the mobile home park or the Self Storage stuff. So can you unpack that a little bit? Like, do you have a favorite way of growing your money? Or are these just kind of interesting stories here?

Speaker 2 3:13 Yeah, well, I mean, even before getting into some of that, just to give you an idea of where a little bit of this perspective comes from, most people start the story in some way, they were very greatly impacted by 2008 and it's overtly negative for me. I was lucky enough not to be involved in the financial sector at the time. So when 2008 happened, I was interested in financial assets very much. So because of the, basically, because the market had been so decimated, I assumed, just based on general counter cyclical investing strategies, that there'd be an opportunity there. And so I started focusing on stocks and bonds, because that was what was available to me, and that was what's easy and most accessible, and was really value investing, very similar to the types of strategies that Warren Buffett advocates and saw significant gains until about 2010 when I was also really recalculating that thesis. In 1010 something happened which was really much like 2008 for most people, which is the European debt crisis. And a lot of people don't talk about this, but for me, this was a huge moment in my investing career, because the it was very similar to what was going on in the United States, with the freezing up of a lot of the central banks, etc, was causing unbelievable volatility in the US markets. And I had built up this portfolio, and it was swaying up and down every single day. And I remember there were one CNBC talking about the Greece bond yields, and talking about, if the 10 year grease bond yields remained below 7% the s and p5 100 was going to be fine, but if the 10 year bond yields went above 7% the s and p5 100 was going to collapse. And I was just thinking like, how is it possible that the grease bond yield. Something completely obscure, not at all related to any investments that I had made. How is it that that's playing a significant role in my financial future? And by the way, for those of you that don't know the grease bond yields did end up surpassing that 7% they went above that, and they went above 25% and then above 35% so you could have unbelievable volatility in the US markets. This experience really made me realize that a lot of those lies that I had been taught were not true, and that diversifying within the stock market isn't going to give you it isn't going to be able to reduce the risk of those unforeseen situations. And so I started reformatting my portfolio in pursuit of being able to actually mitigate those challenges. Now to answer your question that led me down the road of looking for simplified investments that were counter cyclical, and that eventually led me to the mobile home park and self storage

Robert Plank 5:52 businesses, awesome. So quite a journey. And one thing that I'm curious about what you said in there is, did you have any difficulties separating the emotion from the decision making. Because, I mean, I tried to think back to 2008 2010 and when, I mean, I don't know, some people back then were saying that by now we'd all be homeless, right? We'd be living in a dystopian future, and it was a lot to take in. But then, you know, then the economy does really well, and then you hear that ever and ever, and ever, and it seems like there's just, there's a lot of emotional stuff at play from it's like you can't ignore the news, but then when you do listen to it, you get all this emotional stuff put at you. And then when you are doing your trading, your investing, your strategy, a lot of those emotions kind of creep in and mess with what you were trying to do in the first place. So can you speak to that a little bit, or do you have any thing to say about just the emotions messing up what that original goal was supposed to be? Yeah,

Speaker 2 6:51 absolutely. I think you're touching on a great point. This is something that almost no one is talking about right now, which is, there were many, many many people that a lot of people listening this program probably respect that at the time when 2008 and nine and even 2010 were happening, that we were basically taught that this could be the new normal, that this was we're going to see negative economic growth for decades, and we're not going to see a recovery in the stock market, and we're going to see overburden and debt because of What was going on with the Fed at the time that has gone by the wayside so much so that people don't ever bring it up again. Now, to your point, when I was making that decision, generally speaking, I have, just by my nature, been very countercyclical. That's not always something that's a strength in investing. You can get caught up being just going left, no matter what anyone's saying. If everyone's going right, you go left, no matter how valid their point may be. But at the time, I felt much more comfortable investing then that I would have been investing in 2005 this has been proven many times in my career, in the sense that I start to be really, really uncomfortable when volume increases. Generally, if everyone's doing one thing, I feel very skeptical. Another time that this happened, I don't have a lot of money invested in Bitcoin, for example, but the one time I made a significant money in Bitcoin or any cryptocurrency, was the moment that Ben Bernanke said it was a fraud. Or, excuse me not, Ben Bernanke the Jamie diamond. And so I feel much more comfortable making decisions like that. But that's not everyone's personality. To your point. It is something that you have to be cautious about. And if you don't have the stomach to make those choices when things are tough, then it is important to bring on a partner that does because it's important to balance that out, because it's necessary in the world of investing now, when you're not in those really bizarre, once a generation type of corrections, it's not as necessary to have the stomach to make this and that decision, but at that time, if you're trying to take advantage of that kind of correction, you absolutely had to, because no one, including banks, were making significant moves. Everyone had basically frozen up.

Robert Plank 8:59 Okay, so, I mean, so what do you do then? Because, like, you always hear about, you know when, when something is being reported on by the news, it's too late. So then where do you get your ideas from, if, if you want to be like someone who's kind of riding the wave up?

Speaker 2 9:15 Yeah, that's really, where this really comes in. So I would say that number one, focus on data and focus on big picture thesis that are not going to change quickly. And that's one of the reasons that I like real estate, because unlike stocks, it doesn't it moves like a barge. So the big picture thesis is the data that's in place can be in place for years and years and years, even if the market has gotten wind of it. I'll give you a couple examples that'll kind of paint the picture. So right now, about 10,000 baby boomers are retiring every single day, or at least hitting the age of retirement. That's not changing anytime soon. Something else that I find compelling is that a lot of these baby boomers are relying on Social Security as a force of source of income. Now, the average Social Security check. Back is about $1,300 a month, and the average two bedroom apartment in the US is about $1,200 a month. So mathematically, it's just not possible that more and more people are going to be able to do this. It doesn't make sense. That's the kind of thing that I don't care if anyone knows that that's not changing at all. So this really implies that there's going to be a tremendous amount of demand for affordable housing in the US markets. You compound that with the fact that municipalities, states all over the country are functionally banning the development of new mobile home parks, and you have a very rare supply demand disequilibrium that is very favorable for investors in the sense that we have all this increasing demand for the baby boomers, even in Social Security in its current state, which many people don't believe it's possible to continue on. I'm not even going to get into that, because it's not necessary. It's in its current state. It's very likely insolvent in its current state. It's not something that can mathematically work. So going back to that thesis thing, that's something that's not changing, and I don't think that changing for any time in the near decades. So if you're able to invest in mobile home parks, which have a lot of other advantages as well, that's just not going to be a risky play. It's not going to require that emotionality that we were talking about earlier. It's not going to implement those incredible, volatile swings that you're used to seeing in some of the more liquid assets.

Robert Plank 11:24 Interesting. I like it. So what you're saying is, you know, there might be something like, like you mentioned Bitcoin earlier. There might be some Chinese hacker or Russian hacker goes and, you know, sends 10,000 botnet slaves to drive out the price. That could happen overnight. But you're saying that you like to look for things that move slowly, like this whole baby boomer retirement thing. You say, Well, I'm seeing that there are more and more baby boomer retirements than there ever have been. They're looking for these low income mobile home parks, and at the same time, then these these cities are preventing the construction of new mobile home parts, so I know that there will be a rising demand and sort of a limited supply. So that's where I want to get in.

Speaker 2 12:11 Yes, exactly. I mean a couple other data points, 51% of the wage earners in the US are making less than $30,000 a year. More than half. 38% are making less than $20,000 a year. I mean, that's just data that's not going anywhere, no matter what happens with the Fed, no matter what happens overseas, no matter what happens from a geopolitical standpoint, no matter what happens with the price of oil, all those things can change quickly and cause tremendous challenges with investments in those sectors. But that lack of income growth is something that's here to stay. Another thing that I really like to focus on is the whole cycle of the economy. I mean, as of the recording this podcast, we're in our 100 and 11th month of the expansionary cycle. It's the second longest in the history of the United States. Meaning, from the trough June of 2009 to now. It's been about 111 months now. The longest ever is 120 months. So if we make it to next summer, we're going to set the record. Now that is something, again, it doesn't paint the whole picture, but at least an important data point to take note of. And again, not something that's going to change overnight, or when some weird headline comes out, or some hackers, to your point.

Robert Plank 13:22 Okay, so when, when we have this sort of news, when we're saying, you know, we can only live in the president, it's always easy to see, you know, in hindsight, 2020, all that good stuff, but we're saying, well, things are kind of picking up, picking up, picking up. There's always that feeling of, I wish I'd gotten in two or three years ago. I wish I invested at the bottom. What do we do in that situation where you're like, well, things are kind of going up and up, like, eventually there'll be some sort of downturn, right? Or do I do we just find things that are more evergreen, like you're saying?

Speaker 2 13:55 So my personal strategy is really focused around trying to be able to sleep at night, to be honest. And so I have selected asset classes and investment vehicles that I think are well positioned to accomplish that. So an example of that would be the mobile home park business, but also the Self Storage business, I think, is equally as compelling in the sense that the worse the economy does, the more demand there is for self storage because people are going through those transitional periods that can result in them using the product. So you think about people downsizing or moving home from college, or people having to move or change jobs, etc, all of them are more common during recessions, and all of them drive the demand for self storage. So I'm not trying to time the market. What I'm trying to do is find asset classes where the demand is either a stable during all stages of the cycle or, if possible, inversely correlated with the overall economy. Because I know that all types of real estate are going to perform well when the economy is booming in the capital markets. Are loose. Anything is going to do well when you're able to get a lot of financing for those properties, so what you can do to balance out your portfolio is have some asset classes where the demand is actually going to improve when the economy is worse, and that balances out the entire investment. So I'm really not as concerned with timing the market, but where you have to be really cautious, though, is, and I will say this right now, this is B if you're interested in investing, the number one thing you should be focusing on, from a risk perspective, is debt, understanding the terms of the debt. Because when things go wrong, especially as it relates to real estate, 99% of all the stories you will hear about loss of principal directly related to the debt portion. That's what the entire thing was about in 2008 for sure. That's always the case in real estate. So if you can get appropriate financing that has a term that's long enough for you to pad your equity position, add significant value to the property, add rents, if that's your thesis, etc, you're going to be in a well positioned situation by the time that the loan comes due, and that was the major problem in 2008 all these loans were coming due. Interest rates were rising, that were not fixed, etc. If you can mitigate that challenge and you can invest in assets where the demand is stable, you're going to be able to protect your capital number one and potentially generate lucrative returns for yourself.

Robert Plank 16:22 I love it. So it sounds like you're all about planning a few moves ahead and knowing that if something bad is going to happen, we're already prepared for this. And I love your philosophy there of choosing something that's stable, if not inversely correlated with the economy. And what you're making me think of right now is around when the economy was doing really terribly. I launched a course about membership sites, and I heard all this stuff about how, like, Oh, don't charge money for some course, or don't charge too much because the economy is doing so poorly. And I was thinking, well, if someone has been laid off from their job, if someone's, you know, retirement account has been called into question. They're going to be more motivated to create that online business, to create some other form of income, than they were if things were doing peachy keen, right? It's like they've been kind of forced into some other avenue. So it's like, when the economy goes down, there are some of these other industries, some of these other things that sort of increase on their own. And if we kind of focus on those stable or those inversely correlated things, then it's easy to find some when the economy is doing good, it's easy to find some of the other things to put our money in so that things are going super fantastic. And so this whole idea of the the mobile home parks and the Self Storage like, what's sort of your your strategy there? Like, are you investing in, like, a handful or a ton? Or what do you do when you say, Well, I want to, you know, put money in a mobile home park or self storage unit. How do you even go about that?

Speaker 2 18:00 Yeah, so I mean, part of that is identifying where you want to be as an investor. So if you want to be actively owning properties, then I would say that the mobile home park and the Self Storage business are extremely challenging to do that. And the reason for this is that there's a lot of nuances of these asset classes and complexities of the asset classes that lend themselves for mistakes to be made. They're complicated. Those complications, though, allow for there to be a significant difference between a mom and pop owner and a best in class owner. So my personal strategy and the way that I'm positioned, you know, as as a company, is we identify best in class operators. These are the people, the operating partners that all they do is implement the strategies when it comes to these particular asset classes. So we joint venture with these operators and provide our investors the passive investment approach. So rather than buying a mobile home park yourself, we partner with the operating partners, the on site managers, etc, and provide that passive investment strategy. And I think that's actually really important to consider, because when you look at something like a mobile home park, especially the case in self storage as well, the amount of value you can add by just knowing what you're doing. The difference between owning 15 Self Storage properties and owning your first property is extremely consequential in the sense that you already have systems in place. You'll have access to millions and millions of dollars of loans. You'll have access to all the ways that you can underwrite the deal and the ways that you can estimate the supply and demand. But this is really different than something like, let's say, single family, where it's relatively simple, and that simplicity makes it so that anyone can invest in it, but then you don't get the advantages of that big difference between a best in class and a mom and pop. So what we do is we create funds that have multiple properties in them, so our investor. Is typically invest somewhere in the range of 30,000 50,000 $100,000 they get spread across multiple properties. They get the benefits of diversification, but they also get the benefits of relying on someone else's time, energy and expertise and access to capital. So that's my preferred structure. That's not for everyone. That's kind of a gut check. Some people want to control every aspect of their investment vehicle. That's not the type of structure that I invest in personally, and because of that, that's not the way that we invest as a company as well.

Robert Plank 20:30 Interesting, yeah, so it's like if someone wants to figure out all the ins and outs and do all the homework themselves and then invest in some self storage property locally. That's one way to go about it. But then that that has all this extra work, all this extra time, all these extra risks, right? They have to learn all these ins and outs. They have to figure out some new strategy. And then if that one single property, for whatever reason, goes under, then they're totally screwed. But then when they use your your cash flow connection service, then it seems like now that can be spread out amongst multiple properties, and things are already vetted by you and your team, and they're already applying a good strategy. Is that right?

Speaker 2 21:13 Exactly? I mean, the whole point here I got went back to, is my whole portfolio is built around my ability to sleep at night, and it has a lot to do with my investors capital as well, and the way that I feel most able to do that is through diversification, true diversification, not just diversification between the difference between Apple and Microsoft. I'm talking about geographic locations. I'm talking about on site manager differences. I'm talking about different asset classes, but also in terms of gross dollars. So if you buy a property yourself, say you buy a $5 million self storage facility, you're putting in $2 million yourself. What we want, if you have a $2 million Portfolio, we want to get you in at least 20 deals. And those 20 deals can be all across the country, different asset classes, different risk profiles, different yield returns, and cumulatively, they really help you achieve that number one goal, which I mentioned earlier, which is just being able to know the mindset that goes along with being able to know that you're well protected during all stages of the economic cycle. And just to give you an idea of why it's important, you know, going back to that passive versus active approach, we buy from people that own one or two self storage facilities. In fact, one of the strategies we have we buy properties where there's no relationship with the truck rental company. So we'll buy a property based on in place income. They have no truck rental commissions. As soon as we buy the property, we have a relationship with U haul through our sponsors. We call that relationship with U haul. They park 15 to 40 trucks on our facility, and then we rent out those trucks to the tenants when they're moving things in and out, and we get a commission for facilitating that transaction. I have personally invested in properties where that one line item has gone from $0 a month to $3,800 a month directly to the bottom line. And that's not an aberration. That's kind of a standard process. And the key there is we're looking for things on a risk adjusted basis. There's no capital expenditure. It's just a matter of implementing the strategy. So it's not that we're going through the risks and headaches associated with development and the capital expenditure associated with development, we're simply implementing that strategy and adding somewhere between 600 700 $800,000 of value by doing that. And you have to have someone that has that relationship in order to facilitate that. So just an example. There's many, many, but that'll kind of give you an idea as to why I'm such a proponent of you know that asset class, but also the passive structure as well.

Robert Plank 23:42 Yeah, it's like you're using your existing relationships. You're replicating what's already working and and it sounds like you're not messing around. So if someone says, All right, well, this, this business model, this way of investing my money, sounds great. What do people need to know? Like, what sort of money should they have ready and what sorts of choices are in front of them as far as what they can put the money into?

Speaker 2 24:09 Yeah. So, I mean, first of all, you know the way that art we're positioned. We accept investor capital from accredited investors, typically somewhere in the range of 30 to $50,000 we provide right now. You know, we're really skeptical of where prices are, especially in the competitive asset classes, so we're very cautious. We'll probably do three deals total in 2018 probably do something similar in 2019 unless there's some kind of correction. But generally speaking, we're looking for proven, proven, proven teams, and if you're thinking about investing, that is exactly what you should be doing right now. You can always go to our website, cash flow connections.com, and take a look at some of the available opportunities we have. But more than anything, to be honest, right now, it's important to educate yourself. Find out who is out there. Find out the spectrum of the available opportunity. And you know, we're confident in the way we're positioned. We're not worried about competing with anyone. I mean, the whole point, though, is that you want to make sure the team is incentivized correctly, and we are really, really cautious about that, especially right now in the cycle, in the sense that we basically don't get paid unless our investors get their capital back and receive a preferred return. I mean, on a proportional basis, basically 90% of our compensation is derived by that. You have to be cautious about incentive alignment when it comes to investments, because you can clearly make the incentives not aligned, and put yourself in a bad position. If people are focused on transactional fees, and that's the way their business is set up. They're not incentivized to make sure the investments perform. We, on the other hand, or any other company that's structured similarly, we're very cautious right now, not because we're just incredibly ethical people, but because we don't want to work for free, and that's really the main thing that you should be looking for.

Robert Plank 25:57 Yeah, that makes a lot of sense. If those metrics aren't aligned with what you're trying to do, if it's just based on things like transaction fees, and it's easy to just run up a bunch of transactions, right? Better if your goal is also their goal. And so something else I want to make sure that we touch on before wrapping up here is you have this cash flow connections, real estate podcast, so we can you kind of tell us a little bit about what people can expect if they subscribe to that

Speaker 3 26:24 one.

Speaker 2 26:24 Yeah, so that's that's such a good segue from the educational component. I'm really, really, like I said, really cautious about where things are right now, and there's been some changes in laws going back to 2012 that allowed a lot of people that didn't really know that these types of investments were possible. They all have access to them now via the internet. There's this thing called crowdfunding. It's an entire industry that was basically created by the Jobs Act. So what we've seen now is an incredible run up of prices, and so it's very challenging to find out who knows what they're doing and who has been just an incredible benefactor of this once in a lifetime type of expansionary period. And one of the reasons we created the podcast is to help educate people to find out, you know, what types of investments are going to perform over the next 10 years, as opposed to just the past 10 years. So it's one of the more sophisticated podcasts when it comes to commercial real estate. If you're just a beginner, if you're just looking at potentially making your first investment, it's going to be a little bit challenging at first. However, if you listen to 10 episodes, you will likely be very, very knowledgeable. You'll be as knowledgeable as I was after one year of focusing full time on real estate, because the amount of content that's now available is incredible. So yeah, you can find that at the cash flow connections podcast on iTunes, and shoot me an email as well at info at cash flow connections.com and I'll be happy to shoot you some ebooks that will kind of outline some of our strategies as well.

Robert Plank 27:47 Fantastic. So just in case you guys missed that, that is info at cash flow connections.com and the podcast is the cash flow connections real estate podcast, and it can't hurt if you are looking into investing some of your money. Maybe it's money that you've built up from your business, or maybe that you've been hanging on to for a while. If you're looking to invest in real estate to grow that money, it helps to immerse yourself and always have some of those episodes, those podcasts, playing in the background. That way you're you can send that clear message to your brain that you're not just messing around. This isn't just a hobby. You are all in. You're looking to build something awesome as far as when it comes to you and your future. So when people go to cash flow connections.com Is there an easy way to contact you, or is there something specific you'd like them to do once they arrive at that site,

Speaker 2 28:39 if you go to cash flow connections.com you can click Create an account, and like I said, if you do send an email to info at cash flow connections.com, also gives you that free eBook specifically focused on self storage takes about 30 minutes to read, but you'll have a pretty significant grasp of where the opportunity is in the asset class,

Robert Plank 28:58 fantastic. So the place to go right now is cash flow connections.com Once you're there, click on Create an account to make that first step. Step Two for you is to send an email to inflow info at cash flow connections.com that way you can get that free eBook on the Self Storage. And then step number three, while you are talking with Hunter and his team or waiting for that that that appointment to arrive, then check out the cash flow, connections, real estate podcast. That way you get some new ideas, and that way you know what you need to know going in in order to make your money grow and not make these same mistakes that a lot of people make, as far as waiting too long, the missed opportunity, overplaying their hands, or any of these other problems aren't being too emotional, any of these problems that happen when you go in without a plan or with a half baked plan, it makes a heck of a lot more sense to go with a team that knows what they're doing, who has this down to a science, who can just repeat it. And the place to do that is at cash flow connections.com and we'll see you there. And thanks. Bunch Hunter, for stopping by and for sharing some really cool stories and some helpful information and strategies, you gave it kind of all to us in one nice package. So I really appreciate that. So thank you.

Speaker 2 30:12 Yeah, thanks again for having me on.

Robert Plank 30:14 Want to listen to more fantastic marketers of the day. Subscribe to us at marketer of the day.com/itunes and browse past episodes at marketer of the day.com

Speaker 3 30:31 now.