The Case For Entrepreneurship (audio transcript)
M.C. Laubscher 0:00
My friend Dave Zook says you can be conventional or you can be wealthy but you need to pick one. At The Real Asset Investor, Dave and his company create value for investors looking for high yield returns from real estate ventures, domestically and internationally. To learn more about the exciting investment opportunities The Real Asset Investor offers such as the syndication opportunity at Mahogany Bay Village in Belize, or investment opportunities in the multifamily space in the US, visit cashflowninja.com/realassetinvestor.
Dave, welcome to the show.
Dave Zook 4:27
Hey, thanks for having me on M.C. I’m excited to be here with you today.
M.C. Laubscher 5:06
Can you please share a little bit about your background and journey with my listeners?
Dave Zook 5:10
Yeah, so my background is I grew up in a very entrepreneurial family. My dad’s a very successful businessman. I watched him invest in real estate early on, and when I was in my preteens and he was self managing some of his real estate, he was doing some of that on the side, and I just saw that that was not something I want to be involved in. So I made up my mind, specifically, that I was not going to be a real estate investor. Later on, as I invested in businesses and started a few businesses and those businesses got to be very successful, I started having a tax problem. And I got myself in a position where I was paying hundreds of thousands of dollars in tax and, through education or reading and doing webinars and reading Rich Dad, Poor Dad and listening to Robert Kiyosaki a lot, I just, you know, I realized that the myth that I was being taught that if you make a lot of money, you got to pay a lot of tax. I realized that that wasn’t necessarily true. And so it led me down to this path of education. I tell people I was sort of chased into the real estate space. I realized that real estate, with a little strategy, can be a really good tax shelter — specifically multifamily. So I got into the multifamily space and started investing there myself, and I bought a couple hundred units myself, and then eventually ran out of cash. At that point the opportunities were still coming strong, and I started inviting other people to invest with me. So today I’m a real estate syndicator — I do a lot of deals with partners.
M.C. Laubscher 7:04
It’s such an important lesson, that you just shared, to position your assets in an asset class to protect yourself from the biggest wealth destroyer: taxes.
Dave Zook 7:15
That’s correct. You know, I’ll just tell you for your listeners; if you’re trying to build wealth, and being strategic on the tax side is not part of your plan, you’re going to be swimming upstream. That being strategic on the tax side has to be part of your wealth plan if you if you really want to gain some momentum.
M.C. Laubscher 7:38
Absolutely. Now, Dave, you’re involved in three different asset classes. Can you share a little bit about them? You’ve mentioned real estate as a investor and syndicator. And can you also share a little bit about your business model?
Dave Zook 7:51
Yeah, so I mean, first and foremost, we invest for cash flow, the different asset classes that I’m involved in. Early on in my investing career, it used to be all about cash on cash return. And the number one question was, like, you know, what’s the ROI? How can I bump that return from a seven to nine to 10, to 12 to 15% return? Well, today, you know, that’s still important. But what’s also important — what’s very important — is what’s this look like from a tax perspective? If you’re doing a private money loan to an individual, and you’re getting a 15% return, which is what I did a lot at one time, you know, at the end of the day, you’re not making 15%. At the end of the day, you’re probably paying about 40% of that back to the government. And now it becomes a, you know, an eight or 9% return. When you got to give almost half of your money back to the government, it just takes a lot of fun out of it. So the different asset classes that we’re involved in, you know, multifamily is very, very tax friendly. Also the the cash flow and the appreciation, it’s, I mean — we’ve had a lot of fun and multifamily in the last few years. When switching gears a little bit and going to ATM machines, same deal: very strong cash flow. The depreciation schedule is a five year depreciation schedule, which really shields a lot of your cash flow. It gives you a lot of tax-free cash flow. Then the third asset class is Belize. we’re, we’re heavily invested in believes in fact, we’re the number one investor with a lead investor in the resort at Mahogany Bay Village. And so that’s been a lot of fun, but it’s also you know, cashflow, investment, appreciation — not so much on the tax side, but you got some diversification in there. So it’s number one, first and foremost, cash flow. But I’m also very conscious — typically very conscious — of the tax ramifications.
M.C. Laubscher 9:43
What I just want to emphasize too is you put a really strong emphasis of not only just the cash flow, but from what quadrant in the Rich Dad cashflow quadrant that cash flow is coming from. They’re heavily in the B and the I. So it’s a very, very big lesson. As you mentioned, if you are not strategic about taxes, I mean, to build wealth and lasting, and legacy wealth becomes really, really difficult.
Dave Zook 10:39
Yeah, you know, I got teenage kids and my oldest has a full time job. My, my second teenage son has a part time job. And I, you know, I said, “Look, if you’re gonna put your head down and just work like crazy, and you don’t have a tax plan, you’re going to become a tax slave.” And so I’m teaching them that already and they’re asking some good questions. But you know, it’s true. I mean, you get out there and in the world, and you just try to make as much money as you possibly can, and you don’t have taxes as part as as part of your wealth building plan? It’s gonna be a lot harder for you.
M.C. Laubscher 11:25
Dave, can you share a little bit about the business process of ATM machines? You’ve mentioned why you like the asset class as far as taxes, but share a little bit more information regarding the cash flow and the tax-favorable treatment that this investment has.
Dave Zook 11:43
Yeah, so I’ve done a webinar, and in fact, I’d be happy to send that out to you guys, to your listeners or to you so you can forward it out to the guys. But I’ve done a webinar recently. I’ve been on the Cash Flow Wealth Summit with Patrick and the guys doing a presentation on ATMs. But the the real simple version is somebody walks up to an ATM, swipes their card, gets cash out. And on that slip, there’s going to be some kind of verbiage saying that, you know, this transaction is costing you $2 or $2.50, or $3. Well, somebody is on the other end of that. Most people think that it’s the big banks that own the ATM machines but that’s typically not true. Those ATM machines are owned by a venture capitalist, private investor groups, those types of folks, private equity funds. So the simple version is they swipe their card, you get a piece of that transaction, you get a cut of that revenue, then that revenue gets gets split between you, the investor, the management team, and the real estate owner. You know, let’s say that machine sitting in a high foot traffic deli or a food court somewhere. The person that owns the real estate where that machine is sitting gets a slice of the revenue, the management team gets a slice of revenue, and you, the investor, gets a slice of the revenue. The interesting part also is you own the machine, so you get to take the deductions, depreciation — you get to write the whole investment off in five years. But you don’t have the volatility of just owning one machine. We take your machines, we put them in a portfolio with 100, several hundred other machines, and then you get a blended return. The management company is saying, look, we’ll commit to you that your machine is going to get a certain amount of returns per month. And you know, it’s almost like a preferred return. So your check or your ACH that you get every month is a fixed amount per month. Actually, it turns out to be straight out of the 24.9% return. When you take out the loss of value of the machine over a seven year contract period, then it turns you count you consider the tax benefits, the cash flow and the loss of value and machine it comes out to around it right around a 15 and a half percent return.
M.C. Laubscher 14:11
So depreciation — just with as with real estate — plays a big part of this tax strategy?
Dave Zook 14:17
Oh, yeah, absolutely. People ask me about putting ATMs in our IRAs. And, you know, if they were saying, look, I got all my money in the stock market, you think I should, you know, buy and pull them out of the stock market and put it into an ATM investment? I say, “Well, absolutely!” But the fact is, when somebody comes to you with money in their IRA, you can’t. You can’t use the depreciation when it’s in your IRA. So the only time I would recommend somebody buys a unit of ATMs in their IRA, is if their only other option is having it in the stock market. But typically that’s not a good way to hold an ATM investment because of the fact that you can’t use its depreciation. The depreciation is is really the icing on the cake in this investment.
M.C. Laubscher 15:08
Yeah, it’s putting a tax favorable investment into another tax favorable, so you kind of like, it kind of cancels each other out. Yeah. Now you have mentioned a very exciting project in beliefs. Being originally from South Africa, I understand the importance not just of asset class diversification, but also political diversification. What made you start looking for an overseas opportunity? And what would you say to investors that think it’s risky to invest overseas?
Dave Zook 15:40
Well, investors who think that it’s risky to invest overseas… I’m on the opposite side of the fence. In my way of thinking, investing all of your cash in one currency or economy — to me, that’s risky. So you know, it’s just a mindset. iI’s a mind shift, really. A paradigm shift. You know, I really got into it because I wanted to shift some money overseas. I was educating myself on economies and currencies and, you know, what can happen. I was concerned and still am concerned about the debt level in the US and how we’re not being responsible. And, I mean, will there be a total currency collapse? Well, maybe someday. I’m not laying awake at night, worrying about it. But at the same time, it’s one of those things where if you do take steps to protect yourself, and it’s in a good jurisdiction, it’s in a cash flow investment, maybe nothing will ever happen. And maybe we’ll just be, you know, 10 years from now, we’ll be $50 trillion in debt. Who knows? But if nothing happens, how could I be worse off? So I just look at it that way. I just think, it’s riskier, in my opinion, having all of your eggs in the United States basket.
M.C. Laubscher 17:08
No, absolutely you have to have a plan B. And, to your point, look at South Africa today. Their debt has just been downgraded to junk bond status. There’s a lot of turmoil going on in that country. And growing up there, and still having a lot of family and friends, they’re, they’re still on the mentality, “this will not happen here.” It’s not unique only to the United States. This is all over the world where people that live in their countries thinks that something cannot happen there, because, you know, they don’t necessarily see quite the effects quite yet, but they’re not looking down the line.
Dave Zook 17:50
Well, yeah. We’re conditioned to believe certain things, you know, in the country that we live in. Conventional wisdom will tell you that you got to go to school and get good grades and go to college if you want to amount to anything, and “your house is an asset,” “you got to invest in the stock market” is all conventional wisdom. But so, you know, your conventional wisdom, I got this kind of tagline that says, you know, you can be you can be conventional, or you can be wealthy, but you need to pick one. So, it’s just, you know, conventional wisdom. Apparently it’s not only in the United States, but also happen in South African and other countries around the world.
M.C. Laubscher 18:41
Yeah, I love that. I love that quote. So let’s talk about the Belize opportunity a little bit. Furthermore, how did you come across this? What are some of the factors that you saw, from Belize, the desirability of Belize and why Belize?
Dave Zook 18:57
I’m a strong believer of putting the team first, and any asset to me… the asset can be filled in later after you have a really super good team. So I was doing business with this team. The Real Estate Guys: Robert Helms, Russell Gray, Beth Clifford. I was doing some business with those guys in the US and I was getting to know them very well. I was being introduced to some really good people and, the closer I got to these guys, the more I wanted to be a part of whatever they were doing next. So as I was looking for an international option, my family and I went to the Cayman Islands. We went to several different places offshore, and nothing really, you know, jumped out at me. But when Robert Helms invited me to go to Belize with him to see what they were doing… I raised our relationship at that point where such that, well, if you guys are involved in it, I want to at least see what’s going on. So I went down in 2012. I was one of the original investors at Mahogany Bay Village. It was basically just dirt and some canals, dug into the dirt here in this in this 67 acre parcel development. I really got invested there because of the team that was there — because I really liked them. And it turns out, you know, when you invest with a really good team, good things happen. Now, fast forward the clock four and a half years later, we’re set to open in December as a curio collection by Hilton. Part of the resort is also exclusive to Coastal Living, which is part of the of the Time family (Time Inc.) So when you do business with good people, good things like that happen. When I’m going into a deal and it’s with a new group — which is very seldom for me — I like to do business with, you know, the people that I know, like and trust. I very seldom venture outside of that group, but when I do, I’m much more interested in the team than I am in the asset itself.
M.C. Laubscher 21:26
There’s a lot of things going on there — and factors and trends — that really plays nicely into that region. Especially Belize, you know, we think about the huge Bay, a baby boomer group, and demographic that is that is moving around, not only in the US, but outside of the US for their retirement. Then also the desirability of certain areas for tourist, you know, beaches and fishing and so forth. Places with character.
Dave Zook 21:59
You know, there’s a number of things that make Belize just a really attractive place to invest in for Americans. I mean, number one: I took the family on a trip down to Belize, we went through Mexico just to kind of get the experience, and kind of expose the kids and the family to the commercialized all inclusive resorts in Cancun. Then work your way down through Mexico and get to the Belize border and you could now read the road signs, because the English language is the language for Belize, which is very unusual for any country down in Central America. So you can read the road signs, you could read the menus, you could talk to people — the language is a big deal. The British common law is also a big deal. It’s very unusual for countries down there as well. Very similar to the United States as far as their property rights laws and a lot of other laws that we’re very familiar with. And then just the market drivers. I mean, you look at the supply/demand build up and you know, when you think about domestic markets, you may be thinking, “Okay, what’s the population growth? What’s the, you know, U-Haul activity going into a certain city?” There’s a certain number of metrics that you look at for, well, an international market. We’re keeping a really close eye on airlines. And this is interesting, because I’m going to Belize on Thursday, and Thursday is the first time ever, that I’d be able to take a Southwest flight to Belize. Before I couldn’t get from Philly or Baltimore to Houston in time to go to Belize. And same day — it had to be a two day trip in the past. Well, this time around, I get to fly out of Philly, go straight to Fort Lauderdale from there straight over to Belize. So you got a lot of things like that happening. The airlines are constantly adding new flights. New airlines are coming to the market. It’s just there’s a there’s a lot of exciting things going on. It’s one of the fastest growing growing regions in the Caribbean.
M.C. Laubscher 25:02
Very, very interesting. Now, let’s talk a little bit about the the project itself. These are lots that you can buy, and then you could put build homes on on them? And then are they managed by a management company? Hotel company? Share a little bit more about that with my listeners.
Dave Zook 25:19
Yeah, so there’s several opportunities. If you got $850,000, you can go in there and buy a lot. That lot will have three homes on it, that a lot will have a management component built around a very strong management team, and that lot will also be in the Hilton program. So you got a marketing engine of 50 million Hilton honors members. That marketing engine will be pointing at your rentals. It’ll be pointing at Mahogany Bay village. There’s over 100 million active users — not only is it going to be a Hilton honors resort, but the rest of Hilton’s database will see our resort. So you’ll be able to own that now. If you don’t have $850,000 and you’d like to be part of a syndicate, we are the lead investors at Mahogany Bay village. That’s what we do, we put two or three lot packages together worth, you know, $2.5 million. 15-20 investors come together and we we invest in the deal together. So that’s what we’ve done a lot of over the last few years.
M.C. Laubscher 26:35
Very powerful, just the access you have to the marketing channel as you mentioned with Hilton. And then also other marketing channels are now pointing to that region, and specifically, that area and beliefs, I believe that area was rated on TripAdvisor as one of the most desirable places to vacation,
Dave Zook 26:57
It was the number one island in the world two years in a row in 2013 and 2014. It’s the first time that TripAdvisor had ever called the same place number one in the world. And, you know, you’ve got Huffington Post calling this the number one, or in the top 10 places on the rise to go visit before it gets popular. You just got a lot of US News and World Report. You know, it’s called the top destinations to retire to. So you got a lot of big marketing engines kind of taking notice and pointing in that direction. The thing that’s interesting is they’re not sponsored, those things. For the most part they aren’t sponsored events. Those are people giving their opinions — people that have been there. Tourists and travelers that have been there and are just giving their opinion.
M.C. Laubscher 27:51
And that’s huge. Now we’ve spoken about the importance of the team. We’ve spoken about the project a little, but we’ve spoken about the management that’s there. And then also the exposure and the marketing that’s basically done for you from outside sources. One thing that’s not available in the research that I’ve done and this might have changed in the last couple of months is financing. Financing is not available yet for people looking to purchase some of those lots, correct?
Dave Zook 28:17
You know, I’m glad you brought that up because, you know, whenever you see a problem, on the other side of that problem is massive opportunity. And so when I look at the lack of financing in the marketplace, I want to grab as much real estate in that marketplace as I possibly can before financing comes, because a lot of your listeners probably know what happens after financing comes to marketplace. The prices go up! Here’s the real opportunity for an appreciation play as an investment in Mahogany Bay village — right now you can buy a lot fully built out for 850,000. 3 homes on that same lot appraises by a third party appraisal company for 1.4 million. Well, that’s not going to last. That window of opportunity is not going to last very long. Number one, the resort opens in December. Number two, we know financing is coming. So when those two things happen, that window of opportunity is gonna close quickly.
M.C. Laubscher 29:24
Very, very, very exciting stuff. Now, Dave is looking at the real estate market in general, you’re involved in multifamily. And obviously, this project in Belize…what are you seeing out there in some of the real estate markets? I know it’s very a local business, but generally across the United States what are some of your views on what’s going on in the real estate market?
Dave Zook 29:48
Well, multifamily in general is kind of the asset class in the US that I’m investing in. It’s my opinion that we’re getting toward the upper end of the buying cycle. There’s not opportunities around like there was a few years ago. So we’re slowing down, we’re being very picky, and we’re letting opportunities come to us. We want to be in the position where we’ve got cash, and we’re in the right place at the right time. You can still find good deals that cash flow really well — you just got to look harder. I mean, it’s getting harder, you know. When people say to me — and I do get into a lot of deal flow, people were sending me deals all the time. And when they say to me, “Hey, I got something in whatever St. Louis,” or Austin or, you know, some other place, I really really think we’re on the wrong end of the buying cycle for myself to spend the time and energy to set up a team somewhere in some city that I’m not familiar with. I just think we’re on the wrong end of the buying cycle for me to go out there and spend that energy to do that. Now we have a really super good team in Memphis. And we’ve definitely got the advantage in that marketplace. I mean, if I’m going in fresh into the marketplace, and I’m coming in as first time buyer, I’m at a severe disadvantage. The marketplace is not fair. And so I see it on the other end, on the other side of that, I see it as a buyer. in Memphis, you know, we’re going in expecting a five day to 10% coupon on a buyer, let’s say there’s three to five, you know, best and final bitters, we’re expecting a nice coupon because of who we are, and the track record we that we have in that marketplace. So I’m not really anxious to go out into other marketplaces, looking for new deals and new teams that I think were high and in the buying cycle.
M.C. Laubscher 31:53
Definitely one habit I’ve observed from wealthy and successful people is that they’re always studying new subjects and learning new skill sets. What what are you currently studying? What new skill sets are you currently learning?
Dave Zook 32:04
You know, I am very conscious of — when I go into an asset class — how would this asset class perform in a recession? In a 2008, or 2009, style recession, you got to remember, we started building this portfolio, we’ve got about almost 3000 apartment units now. And we started building this portfolio back right after 2000, very shortly after 2009. And, you know, the number one question for us was, how can we build a portfolio that will be recession resistant. So I’m constantly studying recessions, different asset classes, and how they perform in a recessionary type environment. And economic stuff, I mean, reading a lot, trying to get my mind around, you know, I want to be in position. I mean, it’s, it’s different for me now than it was 10 years ago, when when I was just managing my own investments, manage my own money. Now I am responsible for my investors money. And so I take that seriously. So I’m always studying those sorts of things and trying to figure out, you know, how I can position myself for whatever may come.
M.C. Laubscher 33:23
Now, Dave, a core message in our show is to leave our families, communities and the world better than we found it by passing down mindsets, values and principles to future generations — not just money. So if you cannot pass on any money to future generations, and we’re only allowed to pass on three principles to them, to build wealth and achieve happiness and success, what would they be?
Dave Zook 33:45
You know, if I had to kind of just go with three, I mean, probably the number one [common] denominator for success as an entrepreneur is just grit. You know, being able to do — or being willing to do — the things that aren’t fun, being willing to put in the work, being willing to fight through the obstacles, because they’re there, there will be obstacles. So grit is number one. Integrity — being someone who folks can count on even when the going gets tough. If you got it, you got grit and integrity, and then self-sustainability. I mean, you know, I’m trying to teach my kids to not be a burden on society. Be someone who adds value. Be someone who not only takes care of yourself, and is self sustainable, but also can add extra value to those around you. So I would say grit, integrity and self-sustainability.
M.C. Laubscher 34:56
I like that. And, you know, that’s one lesson that I’ve learned too. If you want the life that no one else has, you need to be able to do what most people don’t want to do.
Dave Zook 35:07
Yeah, I agree. I mean, a lot of folks now I think… what I do? It looks easy to them. But it wasn’t always easy, you know. You get to a point, you got it, you got to slog through the muck, and you got to be willing to put in the time and effort and the blood, sweat and tears. You get the other side of that, and, and really build up that momentum? Eventually it becomes a lot easier, but you got to have the grit to get through it.
M.C. Laubscher 35:37
Absolutely. Now, Dave, how can my listeners learn more about you, your company and stay informed of all these projects that you’re involved with? And where can they find a little bit more information on the on the Belize opportunity and all of the other projects?
Dave Zook 35:51
Yeah, so the best way is to visit our website at therealassetinvestor.com. You can email me or my right hand, man Tom Bertz at info at the real asset investor.com. And if you email us, I promise you, we’ll we’ll get back to you. And we’ll you know, feel free to email us with questions, feel free to email us for information, we got some information on our website, but Email us at info at the real acid investor. And we will we’ll get back to you and for the real acid investor calm also just as a an extra added value. We didn’t talk about this, but I have a little pamphlet that I would be willing to send out to your listeners if they if they email me. It’s it’s a little booklet that I wrote up. It’s a eight real life lessons for syndicators and their investors. If anybody’s interested in putting bigger deals together and being a syndicator You know, there’s some eight real life lessons in there, I’d be happy to send out a copy. So yeah, I’m looking forward to it. I’m looking forward to adding value added content your listeners and feel free to reach out to me
M.C. Laubscher 37:06
Awesome. Well Dave, thank you so much for coming on the show and sharing your journey and knowledge and providing so much value for my listeners. It’s quite funny that we we connected and we find out we’ve we actually are in the same area more or less very close to each other. So I look forward to to meeting you in person and connecting again.
Dave Zook 37:28
We have a manufacturing facility out here where we employ about 70 Amish employees. We build modular buildings. I’d be happy to give you a tour around the plant if you stop by here someday.
M.C. Laubscher 37:41
That’d be fantastic. Thank you so much.
Dave Zook 37:43
All right, you got it MC I enjoyed it, I hope by added value to your listeners and I look forward to meeting you!