515: Investing in Real Assets

SHOW NOTES FOR EPISODE 515: INVESTING IN REAL ASSETS

Real estate is the most popular “real asset” investment known to most people.  However, did you know, there are also other less know “real assets” that have the same or better returns, with great tax advantages too?  In today’s podcast, entrepreneur, syndicator, real estate/real asset investor and tax strategist Dave Zook shares why he transitioned from multifamily investments into other real assets that have provided significant returns and outstanding tax advantages.

What You Will Learn

• How to test out an asset glass before committing 100% to it
• Matching your tax needs with the right real asset class
• Why Dave is into Self Storage in a big way
• How he took a $500,000 tax bill and brought it down to almost nothing by leveraging real asset investments
• What is so attractive about investing in the ATM marketplace
• Why carbon distillation is one of his top three investments

About Our Guest

Dave Zook

Dave Zook is a successful Business owner, Syndicator and Investment and Tax Strategist.  He has acquired more than $200 million of Real Estate since 2010, which include several thousand apartment units, multiple large institutional grade self-storage facilities and cleaner energy carbon distillation units which produce pharmaceutical grade oil and liquids.  His team is also one of the top 5 ATM Fund operators in the country.  Dave and his wife Susan, along with their 4 children, live in Lancaster PA.

Here is a link to his last interview on the Old Dawg’s REI Network:  189: Serial Entrepreneur Embraces Multifamily Investing  March 19, 2018

More About Dave

• He started acquiring apartment buildings back in 2010
• He bought his last apartment building in Fall of 2018
• Back at that time, there were a lot of deals
• As the great deals began to fade, he was looking to transition into other asset classes
• That’s when he moved into self-storage
• He had been interested in self-storage for quit a while

Getting Into Self-Storage

• One of the reasons he got into self-storage was that, back in 2016 he saw the economy up near the top of its cycle
• He wanted an asset class that would do well in a recession
• He found a very good self-storage operator and he partnered with him
• Over the last several years, he has done 17 or 18 deals with him on institutional grade self-storage facilities
• He loves the asset class…
  • The stability
  • How it performs in difficult economic times
  • And he loves his team

Other Investments

• Zook Cabins
  • This is his family business
  • It has grown a lot
  • It has done really well
• Investing in Businesses
  • Dave started his career not investing in real estate but investing in businesses
  • He founded and owned a couple of businesses
  • He’s partnered with others on businesses
  • Is well connected with various businesses
• Getting into Real Estate
  • He only started buying and investing in real estate because he had a tax problem about a decade ago (2011)
  • He ended up with a $500,000 tax bill
  • He got tired of these huge tax bills
  • He really loved running his businesses but hated the taxes
  • Giving half of his profits to the government was not fun
  • He started investing in multifamily properties primarily for the tax write-offs
    • He needed to protect his income from being taxed
  • He went from paying half a million dollars in taxes a year to 0-3%, all while significantly increasing his income
  • He has made a number of transitions within the real estate asset classes and other real asset classes within the last 20 years
    • Sometimes, he would test a certain asset class by partnering with an operator to see how it goes
    • He does extensive due diligence before investing in an asset class
    • He checks out:
      • How he likes working with the team
      • How he likes the asset class
    • ATMs
      • That’s how he got involved investing in ATMs
      • He liked the operators and invested in 2012
      • Invested in them a couple of times over the years
      • They saw what he was doing with multifamily and syndications and shared a big project they had for multiple ATMs and asked if he could help
        • He became a partner in the firm
        • They’ve really grown the business a lot
        • Today, the firm has become one of the Top 5 ATM operators in the country!
      • What about the movement to a “cashless society”
        • With Venmo, PayPal, Apple Pay, etc. we thought we were moving in that direct
        • But there are always people who prefer cash
        • There’s more cash in circulation now than there was 10 years ago!
        • The use of ATMs has gone up a lot over the last decade
        • They do a lot of research and it says the demand is high and growing!
          • Cash in circulation has doubled in the last 10 years
          • The demographic group that uses ATM machines is one of the fastest growing demographic groups in the country
          • When you understand the data, you see what a great investment it is

Real Assets

• Real Assets are not “paper assets” (coupon that gives you a share of some kind of a company, a derivative of some kind of a company or a derivative of a derivative)
• You can walk up to a real asset and kick it, touch it, and feel it
• It’s real and adds value to the customers it serves
• ATMs are real assets
• ATMs are also a real estate play in it’s simplest form
  • When you take a 10 acre parcel of property and you build a multifamily apartment or self-storage facility, you’re monetizing that 10 acre piece of property.  You’re getting it to it’s “highest and best use” for that area
  • When you’re investing in ATMs, you’re monetizing a 3 ft by 3 ft, highly coveted, highly trafficked, piece of real estate.  In fact it may be the highest “per square inch” real estate play you’ve ever seen
    • It is a real estate play
    • The ATM is a box that’s extracting the value from a piece of real estate
    • The prime market for an ATM is:
      • A busy street corner
      • A deli or convenience store
      • That has high foot traffic
      • That’s located in a lower-income neighborhood
  • Things have changed
    • In the past, a middle-aged worker would get paid on Friday, go to the bank, deposit his or her check and get some cash out to last the week
    • That doesn’t happen anymore
    • Today, it’s all ACH.  People don’t use checks. The companies ACH wages directly into the employees account.  They use their debit cards, at an ATM, to get cash
• Carbon Project
  • Has been involved with this for the last 4 years
  • The process works like this:
    • They take coal and they run it through a patented giant oven, called a distillation unit, that goes up to 2,000 degrees
    • They agitate the goal that’s in there with slow speed and high heat
    • At some point in that process, the coal starts to break down
    • It releases oil, gas and liquid
    • And they sell it to Exxon under contract
  • He gets even better tax treatment than he does with real estate
    • He gets 100% bonus depreciation in year one
    • That will offset ordinary income using IRS code 469
  • It’s a way to invest in the energy space
    • Get the tax benefits
    • With a fraction of the risk associated with oil and gas investments
      • You’re not taking on drilling
      • Without the price volatility
  • They are creating a medical-grade/pharmaceutical-grade oil and selling it (by contract) to a major international corporation at $182 a barrel
  • It’s used for drugs, vaccines, and all kinds of medical solutions
  • It’s also used for skin care and cosmetic applications

His Core Asset Investment Classes

• His three main real asset investments
  • Self-Storage
  • ATM
  • Carbon project
• He has been selling of his multifamily investments over the last two years

Matching Tax Needs With Asset Classes

• When it comes close to the last half of the year, he looks at his income and decides if he has a tax problem
  • He looks at his passive income where he has so much ordinary income
  • He figures out how he can protect himself from the tax liability on that income
• He next needs to find an investment that will help him offset the tax liability
• You have to fit the asset class with the specific need and let it do its job
  • If the need is not necessarily cash flow but you want to put your money somewhere safe, that will grow well over time, self-storage is best
  • But, if you want monthly cash flow with a big tax break at the end of the year, ATMs and the carbon project would be best

Other Investments

• He does, on occasion, invest in non-real assets, like Bitcoin pre-IPO or start-up companies
• But it’s only with money he could afford to lose
• He has investors and would never recommend non-real assets for his investors
• These types of investments would be more from a personal investing standpoint

Investment Yields

• He doesn’t necessarily seek a specific yield from a certain asset class
• Like self-storage, for example.  It’s not an “investment fund,” it’s a “value-add” fund.  It’s not designed to give a ton of cash flow during the hold.  It’s designed to “force equity”
• You need to look at the IRR, for example, of a self-storage investment that is being held for 7 years and the IRR of ATMs for 7 years
  • If the !RR is in the teens, that’s pretty good
  • It’s been hard to find good quality assets over the last several years but an IRR in the teens is still a pretty good return

Advice for Old Dawgs Looking at Real Asset Investing to Help Them in Their Retirement Years

• Planning 3 to 5 years ahead today is difficult
• The economy
  • When you look at the last booms and busts and past recessions, it would seem like there would be a cool-off period in the economy
  • But there are trillions of dollars being distributed as part of stimulus bills and some of those dollars will be looking for yield
  • There could be a couple of years of inflated asset prices but it’s hard to tell because we are not being run by basic financial fundamentals anymore
• Investment advice for a friend
  • It all depends on the amount of risk you are willing to take on
  • If it’s an asset class that will keep you up at nights, it’s not worth it
  • One of the safest investments is housing
    • People will always need a place to live
    • AirBNB is also a great investment (he is invested in short-term rentals too)
      • He’s been pretty active in the last three years and expect to be more active going forward
  • Self storage is also good
    • Try to get in the path of progress
  • ATMs
    • He understands this asset class well
    • He’s been investing in ATMs for a long time and expects to continue into the future

Tax Strategist

• He only counsels his own investors
• Has taken 7 figure tax bills and brought them down to just a few thousand dollars

Free Reports

• You can get FREE special reports written by Dave on the 3 main asset classes he invests in
• Just email him at: info@therealassetinvestor.com

How to Reach Dave

• Website: TheRealAssetInvestor.com

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com