Invest, Don’t Speculate: Why Appreciation Cannot Be Trusted | Ep. 7

0:00 – If you’re chasing appreciation, you’re speculating. If you’re building cash flow, you’re investing.
0:06 – And the fastest way to lose real wealth is to confuse the two.
0:10 – Invest, don’t speculate, is a philosophy about time, temperament, and durability.
0:16 – Real wealth is built by owning compounding machines that throw off cash flow over many decades.
0:21 – Not by flipping assets and hoping the next buyer pays more.
0:25 – By the end of this episode, you’ll clearly understand why buy and hold outperforms fix and flip in the real world.
0:31 – How cash flow, not appreciation, creates durable wealth and how sage investors structure their entire lives so they never have to sell.
0:41 – Welcome back to the sage investor. My name is Brian Spear and my mission is to help you generate cash flow in both legacy wealth and a tax efficient manner.
0:48 – Because that’s what I’m trying to do for my family and I’m going to help as many people as possible do that as we possibly can along the way.
0:54 – So today we’re in part four of a seven part strategy where we’re digging in deeply into each one of the letters of the sunrise capital strategy.
1:01 – Today is I invest don’t speculate and one of the most dangerous lies in investing is this.
1:09 – If it works in a spreadsheet, it’ll work in real life because spreadsheets don’t account for fear.
1:15 – They don’t account for bad timing. They don’t account for forced decisions and they definitely don’t account for what happens when the market turns against you.
1:23 – At the exact wrong moment. The truth is most investors don’t lose money because they were wrong on paper.
1:29 – They lose money because the real world doesn’t behave the way a spreadsheet says that it should.
1:35 – We just got done in the last episode talking about Pete protect the downside.
1:39 – It’s obviously leveraging Charlie Munger’s invert always invert philosophy to ensure that you’re mitigating the downside risk along the way.
1:47 – But when you go through that strategy of protecting the downside in every way shape or form before making an investment,
1:53 – one thing that you literally cannot remove as a risk from an investment is market timing risk.
1:59 – You literally cannot remove it from the investment.
2:02 – So the only way to mitigate that risk to the best of your ability is to truly invest and not speculate.
2:09 – It’s to extend the time horizon of your investment as long as possible and the longest possible time horizon is forever.
2:17 – Warren Buffett would say my favorite hold period is forever because when you’re investing in durably wonderful businesses,
2:24 – where the long term macroeconomic tailwinds are heavily in your favor, where the demand for your product goes up at a higher rate than the new supply coming online,
2:31 – where you’re definitely going to have high quality long term macroeconomic tailwinds compound interest over very long periods of time.
2:37 – Why would you ever sell that durably wonderful business?
2:41 – The favorite hold period is forever.
2:43 – And that’s why buying and holding assets in real estate is far superior than investing in fixed and flips indications.
2:51 – I’ve had numerous different folks share with me that the internal rate of return on XYZ deal may be superior to the internal rate of return projected on this long term buy and hold investment.
3:05 – But the sad state of affairs is the spreadsheet is not the real world.
3:10 – While the internal rate of return is an important metric when you’re ultimately underwriting deals,
3:14 – the truth is it’s just one of many different individual metrics that you need to look at.
3:19 – I would pose to you that cash flow is far superior to the internal rate of return as evidenced by Warren Buffett vehemently arguing in favor of cash flow,
3:29 – Henry Singleton optimizing for free cash flow over long periods of time in the outsiders.
3:35 – That is a far superior way to ultimately invest in real estate as the old adage goes, you can’t eat IRR.
3:43 – And what doesn’t show up in a spreadsheet is market timing risk, illiquidity, investor psychology, the ups and downs of Mr. Market,
3:53 – the pressures associated with managing these investments.
3:56 – And when you structure an investment in a spreadsheet to optimize for the internal rate of return over a very short period of time,
4:03 – you’re adding significantly larger amounts of risk to that individual investment.
4:09 – Because the only way to actually draft that internal rate of return is to create a terminal cap rate at a specific date in the future when you intend to sell that asset.
4:19 – And it’s forcing you to exit at a predetermined period of time.
4:23 – So if you are going to be forced to exit at a predetermined period of time, you are inevitably going to create some unforced errors.
4:31 – As we’ve stated on numerous occasions, my crystal ball is broken, your crystal ball is broken, the Fed doesn’t even know what they’re doing.
4:39 – So to assume that you know what interest rates are going to look like in three years or five years or seven years,
4:46 – or whatever your predetermined hold period time is, is foolhardy.
4:51 – It is unlikely that you know down to the decimal point what that will be.
4:55 – So you have to build into your model the ability to hold into perpetuity to ensure the success of your respective investment.
5:05 – I’ve seen folks go so far as to say, well, I can do a fix and flip into this individual deal.
5:10 – It has a subtly higher internal rate of return.
5:12 – And then I’ll do another 1031 exchange.
5:14 – And I’ll flip it into this other value add deal that has another high internal rate of return.
5:18 – And then I’ll do another 1031 into that next deal that has a yet another high internal rate of return into perpetuity as if everything in the real world is perfect like your spreadsheet is.
5:30 – The sad state of affairs is that that speculation and sometimes speculation looks brilliant until it doesn’t.
5:37 – At some point, somebody somewhere is going to mistime the market and they’re going to hurt investors dearly.
5:43 – That is a game of hot potato.
5:45 – We’ve seen it play out over the past couple of decades where you’ve seen syndicators, sponsors, real estate investments go up and being promoted as a value add investment.
5:56 – And then after a three to five year fix and flip, it gets promoted again by yet another syndicator as a still a quote value add investment that comes back out of the market three to five years later still being promoted as a quote unquote value add investment.
6:12 – At some point, you have to take the position that this deal has largely been stabilized and there’s not much more value accretive value add in that individual transaction and you’re really playing a game of hot potato hoping and praying the terminal cap rate will save you and you’ll have a lower cap rate upon exit and will be operating in this greater full theory environment where you’ll be able to sell for a higher price down the road than what the purchase price was at acquisition.
6:39 – And that is the greater full theory where you’re literally focused exclusively on appreciation of the assets as opposed to the underlying durably wonderful macro economics of the niche and the individual business itself.
6:53 – You should be focused on actually investing and not speculating by assets in niches that have durably wonderful long term macro economic tailwinds and then operative business model that increases the ongoing cash flows into perpetuity so that the values are actually controlled by you the outcome is controlled by you as opposed to the whims of Mr. market.
7:18 – Most operators choose internal rate of return in a high IRR to impress not to protect they do it to attract capital to go acquire deals and they’re intentionally trying to operate by fixing cell business models so that they can try to pay themselves as quickly as possible.
7:36 – That is a poor alignment of interest with the limited partners. The fact of the matter is you should be running a business very much like Warren Buffett shares to every one of his different managers.
7:47 – Any time Warren Buffett goes out and buys a business he provides them with three lines that they need to adhere to run your business as if one you own 100% of it to it is the only asset in the world that you and your family ever will have and three you can’t sell it or merge it for at least a century.
8:10 – This provides a true alignment of interest between the manager who’s running the day to day operation and the owner the stakeholder the individual that actually owns the business if you don’t provide that alignment of interest there will be.
8:24 – Incentives that are at opposition at odds and that’s what you see in typical fix and flips indications a deal specifics indicator that’s going to run a business model for three to five years that’s doing a fix and flip he’s trying to get to the payday as quickly as humanly possible.
8:39 – And what happens if ultimately the first deal goes pretty well he does a pretty good buy fix and sell he implements the business model well the investor does well congratulations you do get that that high quality in turn return thumbs up life is good and the sponsor he does well as well congratulations to both parties involved.
8:57 – So oftentimes what occurs in the scenario the investor chooses to roll that money into the next indication maybe do a 1031 exchange roll all that money forward the sponsor did such a great job he must be wonderful let’s roll that money forward they do a 1031 into the next respect of transaction.
9:11 – The sponsor in the same vein he’s doing the same exact thing he’s trying to do a fit a buy fix and sell model so that he can get to the big payday in the big promote.
9:18 – On the back end he’s less focused on how much money he could ultimately make from the cash flows he’s more focused on I can make a gigantic windfall by virtue of the price appreciation selling the assets and being able to get into the promoters quickly extremely possible.
9:32 – And this is at odds with the long term best interest of the investor because the sponsor is is incentivized to take significantly more risk than the investor with otherwise want him to if the sponsor was putting up every single red cent of equity to go ahead and buy that deal and if he owned 100% of it.
9:54 – And so what inevitably occurs is at some point somebody somewhere they’re going to miss time the market that first high internal return deal Michael well the second one Michael well in the same vein the third one might but at some point he’s going to miss time to market liquidity is going to dry up.
10:11 – And this is why you’ve had so many scenarios where you’ve had paused distributions capital calls and sometimes total loss of capital and regardless of how big that number was for the original investor if they double their money on the first deal triple their money after the second deal unfortunately any number multiplied by zero is zero.
10:31 – So that’s the fairs but that’s what happens over long periods of time most operators chase in turn or rate of return not protection and that speculation we prioritize preservation first then cash flow and we never have to sell durably wonderful assets cash flow not appreciation is wealth creation.
10:53 – Appreciation is just speculation real wealth is built on durable yield patience and prudence over long periods of time real sage investment advice is to buy and hold durably wonderful assets that compound wealth that protect the downside and that build legacy fixing flip is speculation buy and hold is sage wisdom.
11:18 – And there’s so many things that the spreadsheet doesn’t catch when people are doing the fix and flip business model when you’re doing the fix and flip you’re stopping the compounding even if a deal performs well even if it’s successful congratulations you generate a nice internal return you have to stop and pause the compounding when you sell one individual asset there’s a cash drag between when you sell investment a and when you buy investment be and even if you’re going to do a 1031 exchange you’re ending up with a lower amount of principle than what you’re going to do.
11:48 – You would have otherwise thought why because there’s transaction costs there’s friction costs you’re going to have to pay brokers and mortgage fees and this that in the other a prepayment penalties oftentimes if they’re selling it improved times that take out some of the original principle that you would be able to have continued to compound also if you think a 1031 is going to save you in terms of not having to pay the tax man you’re sadly mistaken oftentimes when you sell you’re going to get crushed by capital gains on the way out but if you’re going to do a 1031 exchange you could save some of that.
12:18 – But you still can’t escape depreciation recapture tax and given the fact that a lot of folks are leveraging cost segregation studies to accelerate bonus depreciation when you sell the asset you’re actually having all that come back and the time value of money is lost in this regard.
12:36 – You’re getting depreciation recapture tax paid at a flat rate of 25% along the way so you’re getting crushed by the tax man and Uncle Sam is keeping a huge chunk of the profit that you thought you were receiving the truth is you should be focused on the after tax cash on cash return along the way not just what was the
12:55 – internal rate of return you should be thinking below the line at the end of the day not what’s going into my pocket right it’s not about what you make it’s about what you keep at the end of the day.
13:05 – So again there’s so many different things here and once you understand that the spreadsheet is not reality the next question becomes obvious if appreciation cannot be trusted then what actually builds wealth over time cash flow is real.
13:21 – You can spend it you can reinvest it you can live on it appreciation on the other hand is just an opinion until the day you sell it and the moment your wealth depends on selling you’ve introduced speculation into the equation so let’s explore the difference between realize and unrealized wealth right if you’re focusing on price appreciation.
13:43 – You’re you’re focusing on unrealized gains you guys have a I’m sure you have a stock portfolio and you’ve bought something with a stock ticker and you know you look at your 401k or you look at your retirement account or you look at your brokerage account and you can see that you bought it for X and it’s now worth why right and you’ve not yet sold that individual stock ticker so you have a quote unquote unrealized gain congratulations but you can’t do anything with that you can’t pay bills with unrealized gains just like you can’t eat internally.
14:12 – Return cash flow is wealth appreciation is speculation and to try to exemplify that further a Warren Buffett and Charlie Munger go on ad nauseam about the idea and the concept of buying income producing assets as opposed to focusing on price appreciation because that is speculation.
14:34 – So when folks bring up the idea in the concept of investing in gold or the idea in the concept of investing in Bitcoin there are many different means associated with this right but I’ll use Bitcoin as an example where Charlie Munger just goes on and out about how ridiculous Bitcoin is and all the various cryptocurrencies calling them rat poison and a litany of other things neither here nor there for my personal perspective but it is outside of his circle of competence and he believes that it is not a legitimate tangible asset that is an income producing asset.
15:04 – Rather it is something that the only way to earn any sort of return on that is by purchasing it for X price and somebody else buying it from you where you sell it for a price higher than that which you purchased it for and that is inherently speculative it is a greater fool theory it may or may not be a phenomenal investment from his perspective that is speculation it’s for the same reason that they don’t believe that gold is a quote unquote investment.
15:33 – So when Buffett uses this great example as to why gold is not a legitimate investment you should be focusing on income producing assets something that throws off cash flow to you.
15:42 – If you took all of your money and you ultimately took every single dollar that you own every piece of your net worth and you were simply going to go out and invest all of it in gold what would you end up receiving in return.
15:54 – You would end up having this gigantic block of gold in your living room and what would it do for you it would do nothing for you it would be a testament to your ego but you could sit there you could look at it you could you can brag about it it would be a testament to your ego but you couldn’t eat from it right you could not live off of that.
16:12 – And for this reason Warren Buffett would convey that it is not an actual investment an investment is owning a part part part of a business or an entire business that actually throws off cash flow to you because if you need appreciation to win then you’re just guessing and durable yield real income producing assets throw off cash flow beat paper gains every single time.
16:37 – So if we’ve established that we have to protect the downside and think through every single way in which we could lose money and squash that and one thing that we cannot remove is market timing risk so we have to extend the market timing risk as long as humanly possible forever in a perfect scenario.
16:51 – Then whatever investment you’re going to make you had better make it in a durably wonderful business where the demand for that product goes up at a higher rate than the new supply coming online and that’s why we love what we do in the mobile home park sector because it has ridiculously phenomenal and profound long term macro economic tailwinds where the demand for the product and our product is affordable housing is going up at a higher rate than the new supply coming online housing in general over the last several decades has been underbuilt under supplied.
17:20 – And on the affordable wrong which where were the most affordable unsubsidized housing in the country there is a dearth of unsubsidized affordable housing literally every single county in the country at one point per a recent Harvard study Harvard’s joint center for housing studies put out a recent survey which basically convey that every single county in the country has a lack of affordable housing.
17:43 – It is not lost on anybody that we’re in an affordable housing crisis but it is for this reason we know in our little business as of today that the demand for our product which is affordable housing is going up at a higher rate than the new supply coming online.
17:57 – And for the next several decades dare I say generations we’re going to have a massive demand for our product affordable housing has been in high demand for thousands of years it will likely continue to be in high demand for the foreseeable future I’m happy to go ahead and buy assets with the intent to hold them perpetually knowing that they throw off exceptional cash flow very durable safe predictable cash flow every single month every single quarter every single year.
18:26 – And there are wonderful businesses because of the long term macro economic tailwinds meaning that they’re going to create better long term same store and a wide growth and any other asset around i.e. better long term compound interest than any other real estate investment.
18:41 – This is exactly what Warren Buffett is conveying when he says you should be investing in durably wonderful businesses mobile home parks are just that durable in that they produce safe predictable durable income over long periods of time and wonderful in that those expected cash flows are very likely to continue increasing into perpetuity.
19:03 – A green street has rolled out a litany of data we pay tens of thousands of dollars every single year for data that helps escape where the fuck is going and green street has conveyed since inception that we’ve looked at this data that mobile home parks have always have and continued to have the highest long term same store and a wide growth out of any respective real estate sector and when you’re actually a real investor that’s what you should actually care about how much cash flow are these assets going to throw off over the very long term.
19:32 – There are other niches that have come and gone in whims over time where office should out perform and bounce back off of the covid floor where lodging ebbs and flows with the GDP over time where sfr institutional single family residential has ebbed and flowed in terms of being the new hotness and the new high quality real estate sector data centers industrial and all these litany of things come and go with the breeze but durably predictable wonderful.
20:02 – Businesses like mobile home parks have always been in high demand and will continue to be for the foreseeable future and that’s why we would much prefer to actually invest and not speculate by assets that are durably wonderful and hold on to them over a very long periods of time.
20:16 – The sad state of affairs is that’s very boring it is not hot it is not flashy it’s not sexy like all these new AI style of real estate sectors popping up right at this juncture the likes of data centers obviously been massive IOS industrial outdoor storage and a gajillion other types of little niche assets that have risen and gotten hot as of late but we would much prefer durably wonderful safe predictable boring cash flow.
20:46 – For decades into the future and I do genuinely believe that’s what separates investors versus speculators it is expanding your time horizon you need to be thinking in decades you need to be thinking in generations most folks have difficulty thinking in quarters they’re thinking they’re caught up in the world into the day today but the longer you can extend your horizon and think beyond the immediate myopic future in front of you the better you can grab
21:16 – the idea and the concept of actually investing in really high quality durably wonderful businesses over very long periods of time because you have a much higher likelihood of outcome when you can invest in much more of a sure thing and that’s what we’re trying to do in our businesses we progress once you stop worshiping appreciation you’re forced to confront something that most investors avoid time most investors thinking quarters some thinking years almost nobody thinks in decades
21:46 – and that’s exactly why time horizon is the ultimate competitive advantage real estate is incredibly forgiving if you give it enough time but it’s absolutely ruthless if you don’t I’ll revert back to the syndicators that are running around today I from my personal perspective long term thinking is rare and it’s even more rare in the syndication space because most syndicators are unwilling to extend their holding period because you’re delaying gratification over very long periods
22:16 – of time they’re incentivized to try to do a bifix and sell and get to the promoters quickly as humanly possible and that is at odds with what the ultimate investors owning the business should be seeking from our personal perspective it’s why so few people are willing to put out a long term perpetual hold structure it’s why it’s so rare from where I said I want an exceedingly high assurance of outcome I want a sure thing in a perfect world I would want 100%
22:46 – success rate in every way shape or form obviously I understand that every time you put out a dollar of investment there is some level of risk associated with making any investment doesn’t matter but I want the best risk adjusted returns possible and so I want to make sure that I could buy more time as Charlie
23:01 – Mugger put it right time is a friend to a business that has exceptional economics working in its favor and it’s a curse to the mediocre one real estate is incredibly forgiving I would say real estate is a real estate is not a get rich quick style of business over a short
23:18 – period of time with a low probability of success real estate is a build massive amounts of wealth over a very long period of time with a very high probability of success but you have
23:27 – to actually invest to be able to take advantage of that once you own durably wonderful business you just allow time to do the vast majority of the work Charlie
23:35 – Mugger he’s now unfortunately just passed God rest his soul right he just passed at age I believe 100 or in his 99th birthday but he was worth
23:44 – multiple billions of dollars upon his passing however by the time that he was in his mid fifties I think it was about 50 years old
23:52 – he was only worth about five million dollars at the time he was 50 he’d already gone through multiple careers he was already kind of
24:00 – investing he’d become quote-unquote successful in the eyes of society but broadly speaking he was nowhere near where he was going to
24:08 – ultimately go by virtue of simply allowing compounding to do the heavy lifting he’d already selected the businesses had already
24:16 – selected the philosophy and simply needed to apply the logic associated with buying durably wonderful businesses and allowing compounding to do the heavy lifting over very long periods of time
24:28 – and same thing with Warren Buffett like 99% of his net worth occurred after the age of 50 not because he suddenly became smarter not because he found better tricks tools at the trade
24:39 – but because compounding accelerates over time and just he didn’t interrupt it the strategy never changed only thing that happened was the clock clock kept on ticking over time
24:51 – so once you find phenomenal durably wonderful businesses just buy and hold over very long periods of time
24:57 – but there’s one thing that destroys time faster than almost anything else and investing and that is leverage
25:02 – Warren Buffett has this great story about leverage and the benefits and drawbacks associated with it right
25:06 – everybody’s at a party having a good time feeling good leverage is great on the way up and everybody’s feeling good when they’re in that environment
25:12 – however it’s like being at a party and you have to leave by midnight but there’s no clocks on the wall
25:17 – the sad state of affairs is you’re enjoying the ride along the way but all of a sudden the clock strikes midnight
25:24 – and everyone gets in a precarious situation very quickly and you have no control of when that’s going to occur
25:32 – because my crystal balls broken your crystal balls broken the fed doesn’t even know what they’re doing
25:36 – and that’s why getting aggressive is inherently speculative when timing determines your survival
25:42 – you’re no longer investing you’re speculating and that’s why short term floating rate debt
25:48 – aggressive leverage high LTVs and forced exits they destroy investors during every single downturn
25:55 – they don’t fail because the asset in and of itself was bad they fail because the structure
26:01 – removed time it didn’t allow that asset to breathe so let’s make it real here and we’ll show you
26:07 – kind of the structure that we’re talking about and how you can actually invest in your own deals
26:13 – to allow for that compounding to take place this is really where investing becomes unfair in a good
26:20 – way because we bought a wonderful business a durably wonderful business with a margin of safety
26:26 – with debt so good that inflation does the work for us we ended up buying a mobile home park in
26:31 – Minnesota for $10 million from a generational owner who ended up developing the property literally
26:36 – decades ago the deal appraised immediately out of the gate at $10.8 million so we ended up buying
26:42 – it with a nice $800,000 margin of safety and based on the equity that we invested in that respective
26:48 – deal we ended up having a return on equity or in the in the mid 20% range immediately out of the
26:55 – gate so phenomenal margin of safety along the way but the unique way that we structure this deal
27:02 – to mitigate downside risk and buy ourselves more time to allow for that durably wonderful
27:08 – compounding to occur is by garnering seller financing we ended up we ended up structuring this
27:14 – transaction where we got a seller finance loan at a 30 year amortization and ended up getting a
27:21 – full 15 year term on the balloon in commercial real estate that’s largely unheard of and you know
27:28 – when you’re going in getting your individual single family mortgage it’s likely that you ended
27:32 – up getting either a 30 year amortized loan or a 15 year amortized loan that’s much more common
27:37 – place where it’s fully amortizing over the course of that term however in commercial real estate
27:43 – is much much much more commonplace to have an amortizing loan that is over a 30 year amortization
27:49 – schedule but the term debt expiration is much shorter where there’s a full balloon in place where
27:55 – you have to pay off the entirety of that loan and a much shorter period of time typically about 5,
28:00 – 7, 10 years something like that but in this scenario because we’re negotiating directly with the
28:04 – seller we’re providing them with an income stream for many decades into the future largely in this
28:10 – example for the rest of his life and so the seller was very very comfortable taking a guaranteed
28:15 – stream of income over the course of the next 15 years and we were more than happy to bake in
28:21 – that 15 year full term of a note that was literally 250 basis points below the prevailing
28:28 – interest rates at the time that we ended up signing that deal so this this literally has a
28:33 – four and a half percent interest rate with multiple years of interest only on this respective
28:38 – transaction and we ended up getting a 70% LTV on this particular deal phenomenal type of financing
28:44 – that you would never be able to get on the open market truly phenomenal stuff and what does that
28:48 – allow us to do it allows us to generate phenomenal cash flow in the interim period of time where we’re
28:54 – generating safe predictable durable cash flow on the asset immediately out of the gate and we’re
29:00 – allowing for the wonderful macro economic tailwinds of our industry to take effect over 15 years and
29:07 – allow for compounding to continue to grow the value of this particular asset we’re never forced to
29:12 – sell whatever forced to do any sort of cash out refinance or exit any of that stuff and in
29:18 – opportune time we have a full 15 years to allow for beautiful long term macro economic tailwinds to
29:24 – take place in this particular transaction and just move further and further and further towards
29:29 – the underlying intrinsic value of that particular asset and that’s how you structure a deal
29:34 – to minimize downside risks so prior to closing that transaction we minimized every sort of
29:39 – downside risk by protecting the downside then in the in the form of invest don’t speculate we
29:44 – structured the transaction in such a way that we were able to buy ourselves the maximum amount
29:49 – of time and flexibility to allow for that asset to do what it needs to do to simply allow it to
29:55 – breathe and allow compound interest to take effect and like we said the debt is so good that inflation
30:01 – largely is doing a lot of the work for us here inflation is like magic in real estate if you
30:06 – structured the deal correctly we’ve had scenarios where we’ve got an interest rate on a deal that’s
30:10 – maybe 4% and when you look at the government’s stated inflation rate they’re literally trying to
30:15 – intentionally inflate away debt the Fed’s target is 2% we’ve seen scenarios where that inflation
30:20 – number has been significantly higher and this is just the stated inflation rate obviously during the
30:25 – the Carter Haydays you know inflation was 18% massive in the teens and if you’re in a scenario
30:31 – where you’ve locked in long-term fixed rate debt by way of example of 4% and the inflation rate is
30:37 – 6% then you are already earning 2% annually on that on that investment without even having
30:45 – seen the additional incremental rent increases or minimizing expenses or actually adding value like we
30:51 – talked about in the earlier episode of AAD value where you’re controlling your own destiny by
30:55 – pulling one of our three levers inside of the mobile home parks and how you’re adding value
30:59 – but inflation is so unbelievably phenomenal in this regard how do we mean because inflation is
31:05 – beautiful it’s it’s it’s an opportunity for you to take advantage of the time value of money
31:10 – and that brings us to the most important lesson of all fix and flip is exciting buy and hold is
31:17 – effective one makes for great dinner stories but the other builds generational wealth invest don’t
31:23 – speculate is ultimately a statement about time about temperament and about value creation speculation
31:29 – tries to profit from other people’s changing opinions of value over short time horizons but investing
31:36 – tries to profit from the underlying economics of the asset or the business compounding over very
31:44 – long periods of time and the lesson from history is that the most durable fortunes whether they’re
31:50 – in operating companies or whether they’re in investment portfolios they come from building or
31:56 – owning compounding machines phenomenally durably wonderful businesses and then improving them over time
32:03 – and holding on to them throughout many market cycles now we’ve come to realize that fix and flip
32:09 – is speculation and buy and hold is wisdom you know we realize that we were leaving way too much
32:15 – money on the table we’re guilty of it personally look I’ve gone full cycle on 16 different mobile
32:20 – home parks over time been there done that got the t-shirt generated an average alternative return
32:25 – north of 40 on those transactions and I can promise you that I regret selling those deals
32:32 – because they are durably wonderful assets that are still compounding wealth today for the new owners
32:38 – of those transactions it’s why we’ve iterated improved and evolved over time in our shop here at
32:45 – Sunrise we’ve now evolved to the point where when we acquire assets we do so with the intent
32:50 – of holding them forever our favorite hold period is forever and we’d much rather implement that
32:56 – business model for all the reasons that we’ve outlined here today sage investors don’t chase
33:01 – returns they build machines they protect the downside they let time do the work they invest
33:10 – they don’t speculate if this episode resonated with you it’s because you’ve already started thinking
33:15 – like a sage investor so if you want to see how we actually apply these principles inside of real
33:20 – deals whether they’re parking assets or mobile home parks that have durable wonderful predictable
33:26 – cash flow over long periods of time you can go to invest with sunrise.com and book a discovery
33:31 – call with our investor success team no hype no speculation just real investing done the right way
33:37 – so this concludes the fourth part in our seven part series on the sunrise capital strategy next
33:42 – episode we’re going to be digging into tea tax efficient structure because at the end of the day
33:47 – it’s not about what you make it’s about what you keep and we want to help you keep more of your
33:52 – harder money in your pocket so until next time you’d be great