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SHOW NOTES FOR EPISODE 151: STRATEGIC PASSIVE INVESTING
Introduction
There are many real estate investors who never purchase properties, speak to property managers, deal with tenants or even sign escrow papers. These investors are what are referred to as truly passive investors, whose primary investment is the capital they infuse into other (less passive) investors’ projects. In this episode, Dr. Buck Joffrey, a physician turned full-time investor, shares his insider secrets on how he is making investments that beat anything Wall Street has to offer.
Passive investing is an investment strategy that aims to maximize returns over the long run by keeping the amount of buying and selling to a minimum. The idea is to avoid the fees and the drag on performance that potentially occur from frequent trading. Passive investing is not aimed at making quick gains or at getting rich with one great bet, but rather on building slow, steady wealth over time.
Also known as a buy-and-hold strategy, passive investing involves buying a security with the intention of owning it for many years. Unlike active traders, passive investors are not attempting to profit from short-term price fluctuations, or otherwise “time the market.” The basic assumption that underpins a passive investment strategy is that the market generally posts positive returns given enough time.
Increasingly investors are looking for strong investments that will produce yields that surpass the fraction of a percent most bank savings accounts offer or even the 2-5% yield of CDs and
What You Will Learn
- The benefits of “real asset” cash flow investing
- How “tribal investing” has helped reduce risk
- Why real estate makes up 80% of his investment portfolio
- What does it mean to invest “for cash flow”
- How to understand and strategically leverage your investments in real estate syndications
- Why he prefers longer term investments to the typical 3-5-7 year exit plan investments
About Our Guest
Dr. Buck Joffrey
Dr. Buck Joffrey was a guest on the Old Dawg’s REI Network Podcast back in January of this year, on podcast #071, entitled “Part-Time Real Estate Investing.”
A little on his background – Buck is an accomplished Physician, Entrepreneur, Asset Manager and Podcaster. Since finishing his medical training in 2008, he has one from being broke to having an 8 figure net worth. Sharing some of his strategies and investment expertise and to help some of his high paid professional colleagues, he started a financial education website called WealthFormula.com and hosts the popular Wealth Formula Podcast.
Buck knows the old mantra of “investing in a diversified portfolio of stocks, bonds, and mutual funds,” is outdated and dangerous for high paid professionals given the volatility and instability of the current global economy. Therefore, he advocates entrepreneurship and/or investing in hard assets that provide a cash flow as a more reliable way of approaching personal finance. Through a strong foundation of financial education and emphasis on cash flow investing, Buck teaches professionals how to take charge of their money and prosper.
What is your personal philosophy regarding investing?
- Real asset cash flow investing
- Investing in things that are easy to understand verses Wall Street products that have multi-layers on complexity
- You can have ownership directly
- Can see, touch and feel them
- Something that has leverage, velocity and principles that create wealth
- Although he seeks real assets, if he sees something that’s interesting, that falls outside that definition, he also wants the freedom to invest “outside of his preferred products”
- Very anti-Wall Street
What Types of Investments he Likes
- When the cards are stacked in his favor
- He advocates in what he calls a “tribal investment” – investments made by people you know, like or trust
- He’s not a retail investor
- He likes to see a direct return
- That’s why he is sponsor (real estate syndicator and sponsor) – He has a unique perspective. Gets to see how deals are put together, what makes a good deal, what makes a bad deal
- He doesn’t like things that are purely speculative
What do you invest in? Real estate? Index funds? Annuities?
- Real estate makes up 80% of his portfolio
- No index funds
- No annuities
- But remains flexible
- If he knows someone that he likes and trusts that is investing in something that has weight
- If he knows someone who is the best at what he does and he is starting something, he may invest in it
Why he Doesn’t Invest in Typical Investments
- Most mutual funds have 3-4% fees that are regularly taken out and the yield in 3.5% on average and you take inflation at 2%, you’re yielding 1%, you won’t get wealthy
- Compounding or velocity is great when it works but every time there’s a market correction you lose the gain
How do you define a “Passive Investment?”
- Not necessarily a long term cash flowing asset
- He’s done notes for someone for 3-4%
Do you only invest for cash flow?
- He always wants cash flow but he is also interested in upside 5 years down the road
- If someone asks him to invest in something or co-sponsor something, this is how he evaluates his involvement or not
- He always asks who the sponsor is – Is he part of “my tribe” or does someone in my tribe know this person
- if he has someone he knows, likes and trusts that has invested with this person, that helps
What do you look for in real estate syndication investments?
- If multifamily real estate –
- Is it a market I want to invest in?
- Emerging markets – If someone says it’s an emerging market, as an investor, you need to really understand what that means and how to know if it is, in fact, an emerging market
- For example, he had a deal offer in Reno
- Dallas-Fort Worth
- Midwest – solid, steady returns
- Look at the underwriting
- Who’s the sponsor?
- Location
- Upside?
- You can’t look only at cash flow
- If syndicator says, “I won’t take any cash flow unless it reaches 10%,” that sounds good. However, if the exit strategy has they get 60% of the equity, is it worth it for the investor. The best deals have a healthy dose of both for the investor. Capital gains at the end are the big returns.
- A good deal
- 8-10% cash-on-cash returns
- Annualized return with exit 20%
- They show how they are adding value, how do they prove the return on investment
- If rent increases are planned, are rent comps are provided?
- If you’re investing with someone you know, like and trust, you’re way ahead of everyone else
- Look at exit cap rates – if you see the same starting and ending cap rates, that’s a red flag
- Most criteria depends on the investment and who is behind it
- Only wants quality asset (good team, track record, etc.)
- Is it a market I want to invest in?
Do you buy for the long term or short term (3-5-7 year cash out)?
- He actually would like to buy and hold forever
Do you invest inside a self-directed IRA or 401K?
- He doesn’t do IRA
- Has his own product called “Wealth Formula Banking” – he describes as a “Roth IRA on Steroids”
What are your non-real estate investments?
- His own businesses
- Not too much into other people’s businesses
- Block chain
- Cryptocurrencies
- Junior mining sectors
How to Reach Buck
- Podcast: Wealth Formula Podcast
- Website: WealthFormula.com
To Get Buck’s Bestselling Book
- On Amazon: 12 Secrets of Eternal Wealth by Dr. Buck Joffrey
- Or for FREE in PDF format:
- Get his bestselling book, 12 Secrets of Eternal Wealth, on his website or
- Can get it by texting 44222, type in the word: wealthformula
To hear Dr Joffrey’s first interview on the Old Dawg’s REI Network, entitled “Part-Time Real Estate Investing,” go here: http://olddawgsreinetwork.com/071-part-time-real-estate-investing/
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