Jeremy Roll & I co-founded a investment network called FIBI (For Investors by Investors) 4 years ago. I consider him to be a tremendous resource of knowledge & information in the investment arena. Here is an article that I hope you will enjoy.

There is a common argument in the investment community between people that invest in lump sum pay outs or those that focus on cash flow returns. I believe there are many reasons to concentrate on investments that produce cash flow on a monthly or quarterly basis. Essentially, if your goal is to make passive income, cash flow should be your main goal as your expenses come in an interval schedule, rather than investing in stocks and bonds that do not create a steady and reliable income stream. I asked Jeremy Roll, a full-time investor and co-founder of FIBI, to write some words on the importance of cash flow in preparation for his upcoming seminar on the very topic:

“I have been a cash flow focused investor since 2002 and, after nearly a decade of cash flow investing, I have experienced the benefits of cash flow investing first-hand. For example, while the stock market was plummeting in 2008, my cash flow investments were on their usual schedule, paying on time and with the type of certainty that I knew I could count on. In essence, I could watch CNBC and hear about the day’s plummet while knowing that 10 minutes later I would fall asleep without great financial worries.

If this sounds too good to be true to you then I would highly recommend that you research cash flow investing further, as there are plenty of ways to invest for cash flow and I have nothing to sell you – except for a change of mindset. While most financial advisors continue to push stocks and bonds, both of which aren’t cash flow focused and have great uncertainty associated with them, many cash flow investors have learned that earning stable 10%+ returns in readily accessible cash that can have great tax advantages and that can be used to pay for living expenses and/or reinvest is not only a better path to take but can be much more lucrative than the historical long-run return of stocks and bonds (8% for the former, for example) and, in many cases, with equal or even less risk. As a Wharton MBA who knows many Financial Advisors, I can tell you that it’s a secret that financial advisors don’t want you to know because, in most cases, their earnings are directly tied to how much of your money you let them hold. It’s also how the wealthy invest, as they clearly don’t simply “roll the dice on” stocks and bonds like the majority of Americans.

If you’re a relatively low-risk investor and a conservative person, like me, then you’ll probably appreciate some of the benefits of cash flow investing, as it allows you to:

Earn more predictable returns than the stock market (with equal or less risk in many cases)
Earn better returns than the stock market (with equal or less risk in many cases), resulting in a higher net worth for you and your family in the long-term
Better plan for your future by being able to predict your future returns with more certainty
Have access to your cash flow for living expenses and/or for reinvestment, allowing you to spend or reinvest without encroaching on your invested capital

Sleep better – or at least with less worries – during today’s economically volatile times!
Although cash flow investing is a key focus from my perspective, passive cash flow investing is a more specific approach that makes cash flow investing that much more interesting and worthy of consideration. In essence, many cash flow opportunities exist that allow investors to participate passively, which means that they are operated and/or managed by an experienced investor who earns a fee that is typically aligned with the investor in exchange for managing the opportunity. This type of approach results in an investor simply collecting cash flow from the opportunity, typically on a quarterly or even monthly basis, without any additional effort. This strategy synonymous with “hiring experienced investors” on your behalf and it’s the strategy that I have employed since 2002 with some luck and good success.

Passive cash flow investing is clearly not for everyone, as it involves handing over control to the operator/manager, which some people are clearly not comfortable doing. It can also increase risk, as you’re now counting on an operator/manager and it’s imperative to find honest and capable operators/managers to work with (although these risks can be somewhat reduced by performing background checks and depending on the structure of the investment).

In summary, passive cash flow investing could open the door to a hands-off approach to earning cash flow for investors who don’t have the time to actively create the cash flow or for investors who simply prefer to hire experienced investors on their behalf, like me. It also presents the possibility of a more predictable financial future that allows you to sleep well thanks to less financial worries. If this sounds intriguing to you then you might want to take it upon yourself to investigate this method of investing in more detail, as I wouldn’t expect your financial advisor to make the recommendation to you anytime soon. Otherwise they might be out of a job!”

Jeremy is speaking on this Thursday May 26th at an FIBI event in Long Beach California. If you have not attended an FIBI event, they are networking events for investors that focus on education with absolutely no selling. This is a rare opportunity to hear someone extremely knowledgable speak on passive income without getting up-sold on books or tapes.

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Applying Wealth Principles to Trust Deed Investing

I am currently reading a great book recommended by Tim Ferriss, author of “The Four Hour Work Week” & more recently “The Four Hour Body”. The book is called “Poor Charlie’s Almanack- The Wit and Wisdom of Charles T. Munger by Charles T. Munger. Charlie Munger is the lesser know genius behind Berkshire Hathaway. Warren Buffet get’s the lions share of notoriety as a brilliant investor. However, this partnership which has lasted since 1959, exhibits some of the brilliance of decision making skills that have taken place through economic cycles & turbulence.

There are a few great quotes from the book that I intend to have mounted on the wall on my office at The Note Guys, here is one of my personal favorites…
“It takes character to sit there with all that cash and do nothing, I didn’t get to where I am by going after mediocre opportunities”. –Munger

“Accordingly, Charlie is willing to commit uncommonly high percentages of his investment capital to individual “focused” opportunities. Find a Wall Street organization, financial advisor, or mutual fund manager willing to make that statement.”– Michael Broggie

Did you know that Berkshire Hathaway’s annual compounded return since 1965 to 2009 was 20.3%?

The term “Compounding Machine” is borrowed from a money manager Chuck Akre (FBR Focus Fund). Two major components of his definition of a compounding machine were
1) A business that earns an above average rate of return on owner’s capital (equity).
2) A business that also has the ability to reinvest excess cash at above average rates of return.

We just may integrate this definition into the mission statement & identity of The Note Guys.

“We are an investment company that focuses our capital in exceptional opportunistic investments to earn above average returns on our capital & also reinvests excess cash at above average rates of return.”

Happy investing!

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I have been invited to speak at the Ventura County Real Estate Investment Club on February 10th at 6:30pm.  The meetings are held on the 2nd Thursday of the month at Marie Callenders restaurant, in Simi Valley.  I will be discussing trust deed & note investing basics.   My goal is to present practical applications to reach financial goals, such as retirement, education funding, salary replacement etc. using income from smart note buying.

I learned how to invest and manage real estate in Ventura County from my parents.  It will be nice to meet investors near my hometown & hopefully other note buyers from other cities in Ventura County .  I am really looking forward to it.

If you can make it out to the meeting I would love to meet you.  There aren’t a great deal of events for real estate investors or note investors out there, so I am hoping for a good turn out.

Happy investing!

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Hey everyone,

I wanted to share an excerpt from the website of one of my note mentors Henry Dvorken.  Henry is a spry 81 years old & I was so happy to have the opportunity to have him teach me, for a full day, his approach for note investing.

Tax free & tax deferred investing with notes can supercharge your goal for financial freedom:

As you no doubt know, growth inside a retirement account is either tax deferred or if it is a ROTH, it is TAX FREE for ever. Since there is no tax, IRA owners will accept lower returns. Think of the low rates on TAX FREE municipal bonds. Look at the chart below:

Yield on the Note Tax Bracket Tax Bracket Tax Bracket

10.00% 28% = 13.89% 32% = 14.71% 35% = 15.38

In other words, if income taxes are involved, the yield has to be the greater amount in order to net 10%. One note of caution even though they might except less then 10%, never sell a note for a yield less then the note rate, as there could be a problem in the event of an early pay-off.

You find the following note:

16 payments have been made on time

After a long discussion with the note seller, he admits that $37,500 would solve his problem. You offer to buy ½ of the note for ½ of the remaining payments. “I know you only need $37,500, but I’ll pay you $39,102.55. Will that be OK?”

I = 19.96

You offer an IRA a yield = to the note rate of 10.00% and they agree. You now have several choices

1. Sell all the payments to the IRA and make $16,967.92

$56,070.47 – $39,102.55 = $16,967.92

Keep $150 per month and make $6,073.68 up front and get $16,800 in payments over time.

Remember if you buy the note inside your own IRA, and then sell it to an investor, the profit goes NOT TO YOU, BUT YOU’RE IRA. If you buy the note and then flip it to someone else’s IRA, you can keep the cash flow and profits for yourself.

There is literally over a TRILLION Dollars in IRA’s Using these funds will make you more competitive in the note and real estate game.

Henry Dvorken

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