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Jeremy Roll has forged an incredible career path since 2002. After leaving the corporate world in 2007, he dedicated himself full-time to passive cash flow investments and successfully built up a portfolio worth over $1 Billion with more than 60 opportunities across real estate and business assets.
As Founder & President of Roll Investment Group, Jeremy helms a group of 1,500+ investors aiming for profitable returns through managed investment solutions. He is also co-Founder of FIBI – For Investors By Investors: A non-profit organization launched in 2007 which seeks to bring education and networking together within California’s largest public real estate investor meetings without any sales pitches being made.
Faced with a dwindling stock market return, Jeremy decided to take his investing strategy in a new direction – passive investing. With this approach he sought out the best way to build cash flow and has been successfully putting money into these types of investments since 2002. This long-time investor’s penchant for passivity shows how far you can come from taking an alternate route!
Jeremy shares how he is a savvy investor who takes great care when choosing which projects to invest in. He only considers conservative projections and strives for investments that over deliver on their promised results. A rigorous background check of member entities ensures Jeremy is investing wisely, taking into account the experience needed to be successful in any sector he chooses.
With such attention paid even before investing, it’s no surprise that Jeremy stays firmly on track with his goals. Listen more and take notes of this informative episode with Jeremy!
In This Episode
- Jeremy’s background and journey that led him to this space.
- What drove Jeremy to passive income theory?
- Top 5 Ingredients Jeremy looks at before investing.
- The current market and Jeremy’s input.
- What is Jeremy’s profile now and where he’s headed.
Welcome to today’s episode of Wealth Strategy Secrets. We have another fantastic show lined up for you. Joining us is Jeremy Roll, who has built an impressive career since 2002. After leaving the corporate world in 2007, he dedicated himself full-time to passive cash flow investments, successfully amassing a portfolio valued at over $1 billion across more than 60 opportunities in real estate and business assets. As the founder and president of Roll Investment Group, Jeremy leads a community of over 1,500 investors seeking profitable returns through managed investment solutions.
Jeremy is also a co-founder of Phoebe, a nonprofit organization established in 2007 that connects investors through education and networking at California’s largest public real estate investor meetings—without any sales pitches. With an impressive MBA from the Wharton School and a vast global network, Jeremy is well-equipped to assist real estate investors of all sizes. He currently serves as an advisor for Realty Mogul, the largest U.S.-based crowdfunding platform in the industry, boasting over 30,000 members.
Jeremy, welcome to the show.
Thank you for having me! I just want to clarify one thing from the intro: I don’t have a portfolio valued at $1 billion. I’m invested in assets totaling well over that amount, but I only hold a small portion individually.
I appreciate that clarification. I’ve been looking forward to this discussion, Jeremy. Your investment thesis is strong and compelling, and it will provide significant value to our listeners. Let’s start by having you share a bit about your background and journey for those who may not be familiar with you.
Thank you again for having me. I hope this discussion is helpful for everyone listening. I’m originally from Montreal, Canada, where I grew up. I earned my undergraduate degree in business there and gained a few years of work experience before moving to the U.S. for my MBA at the Wharton School, University of Pennsylvania, graduating in 2000. After that, I relocated to Los Angeles, where I’ve been ever since.
From an investment standpoint, my journey began after the dot-com crash in 2001. I grew frustrated with the stock market due to its volatility and unpredictability—particularly the unpredictability, which was incompatible with my long-term retirement strategy as a cautious investor. I started exploring alternative investment avenues and discovered the concept of cash flow—specifically, the benefits of more stable and predictable cash flow. This led me to pivot towards real estate investments in 2002.
I ended up rotating all my money from stocks and bonds into cash flow opportunities between 2002 and 2007. Interestingly, I didn’t initially plan to leave the corporate world; my goal was to secure a steady paycheck and a more predictable investment strategy for retirement. However, I had a pivotal moment with my manager while working at Toyota’s headquarters in Los Angeles, which led me to take a chance and exit the corporate world. By then, I had built up enough cash flow to live off, even if that hadn’t been my original intention.
So, I’ve been investing in these types of opportunities since 2002, which makes it over 20 years in total, and full-time since 2007, giving me more than 15 years of experience. I’m highly diversified, currently involved in over 60 different opportunities, and since 2002, I’ve participated in 150 to 200 investments. I’m a strong proponent of diversification and have always taken a passive approach to investing.
While I’m not solely focused on real estate, everything I invest in is managed by someone else. This passive approach started because, when I began investing in 2002, I was too busy to manage things actively. I was actually working at Disney’s headquarters at the time, and it was simply too hectic to handle active investing. Even after leaving the corporate world, I found it was a better fit for my personality to invest in people rather than to manage investments myself. That’s a bit about my background.
Was there a specific moment, Jeremy, that drove you to pursue passive income strategies?
Absolutely. My motivation to shift away from the stock market was the most significant factor. For those who remember the dot-com crash, it was a period of extreme volatility, and I was uncertain about where my retirement account would stand in 10, 20, or even 30 years. I didn’t want to experience a situation where my investments could fluctuate by 30% in a single year. This uncertainty was incompatible with my long-term financial goals and motivated me to seek a different path.
Did you develop a particular investment thesis over time that you have refined?
Yes, I would say that I’ve maintained a consistent focus since 2002. I’ve tried not to deviate from this focus because it aligns well with my personality. I’ve always sought stabilized, cash-flowing opportunities, preferably asset-based but not exclusively. From a real estate perspective, I typically look for properties that are 80 to 100% occupied and stabilized, regardless of whether they have any value-add potential.
I do adjust my strategies depending on where we are in the market cycle, avoiding certain risks at different times. However, my core philosophy remains centered on investing in highly occupied, stabilized, cash-flowing opportunities for greater predictability. I’m not chasing huge gains; in fact, about 1% of my investments are in various startups, but that’s not my primary focus.
I only consider those situations when I have a strong connection with someone involved. The other 99% of my focus is on a more predictable, stabilized cash flow, which aligns with my personality. For instance, 20 years later, I’ve never invested in a development opportunity. Although I’ve been tempted and missed out on some interesting ones, it ultimately comes down to comfort level and a personality fit.
If you want to be successful, be consistent.
That’s an important point, and many people overlook it. It really speaks to the investor DNA you have. Some people thrive in the trading environment or enjoy the volatility of the market. For them, there’s money to be made. However, it’s a completely different game compared to investing in real assets, which tend to be more predictable.
I agree. I always tell everyone the same thing: there are a thousand ways to invest, and none of them are wrong. It’s all about finding the best fit for the individual. If someone is a 100% startup investor, that might be the perfect fit for them and their personality. The interesting thing is that I’m convinced many people will outperform me in the long term by taking more risks; it’s just not the right fit for my personality. I need to be in a space that allows me to sleep at night.
Let’s rewind a bit. Many people still have positions in the equity markets. For you, transitioning your portfolio into real assets, what compelling factors did you find that made these types of investments more appealing than equities?
First of all, it’s interesting because my perspective has evolved. When I started, it was clear to me that if I made smart choices given the pricing, I could probably outperform the stock market by a significant margin. I don’t say that to imply I’m an amazing investor; rather, the opportunities I was looking at had projected returns that were significantly higher than the long-term average of the stock market.
If you compound that difference over time, it makes a huge impact, especially since I started at a young age—28 years old—so many decades down the line, it became compelling for long-term wealth building. Additionally, the predictability of cash flow in these investments was a much better fit for me. Most of the opportunities I’ve invested in involve quarterly cash flow distributions, which are projected. Having that cash flow—whether I reinvest it or use it for living expenses—adds a layer of predictability that I find essential.
If I buy Apple stock today, I have no idea if it will be 10% higher next year or 8% lower, or even 20% higher. That uncertainty is challenging for me. So, cash flow is a significant focus for me, as it supports my lifestyle and generates the predictability I seek.
I pay much less attention to appreciation; for me, any increase in value is just a bonus. Appreciation tends to happen with inflation and mortgage paydown over time if you hold onto an asset long enough, but my primary focus is the cash flow aspect, which is important to me.
Do you use a specific calculator or analytics tool to manage your portfolio?
My approach is quite rudimentary. I concentrate on cash flow. Most of the opportunities I invest in have a 10-year term, based on a fixed-rate loan. They typically provide annual cash flow projections, along with some type of payout at the end projected upon a sale. I use a simple spreadsheet that extends over 10 years, with rows for each opportunity and a breakdown by month.
I take the projected cash flow, let’s say it’s 8% or 9% net to investors, and divide that by four. Then, I’ll input that into the month when I expect the distribution to be made, which isn’t necessarily when the quarter ends. It can take anywhere from 30 to 60 days for the distribution to occur. I extend this throughout the entire time using a basic Excel spreadsheet—nothing fancy at all.
Every quarter, when I receive a distribution, I compare the actual amount to what was projected. If it falls within plus or minus 20%, I let it go; it’s in the normal range. Projections are just that—projections. They’ll never be perfectly accurate, especially when you consider all the factors of expenses and revenue involved.
If the actual distribution is outside that 20% range, whether higher or lower, I make sure to understand what’s going on. If it’s covered in a quarterly report, great; if not, I start asking questions to get to the bottom of why it deviated. I find it almost as important to understand why something is overperforming as it is to know why it’s underperforming. While underperformance is more critical for cash flow, if something is significantly overperforming, I want to know why.
Did market conditions change? Did they make a strategic decision that benefited investors? Are they simply lucky, or are they performing exceptionally well? I want to learn from these situations for future investments. So, if it flags outside the plus or minus 20% range, that’s how I track everything—it’s a straightforward approach.
That makes sense. From a due diligence perspective, I know you take a conservative approach to evaluating investments. If you had to summarize your top five criteria for investment decisions, what would they be?
We could have an hour or two-hour discussion just on that alone. But at a high level, I’ll say this: the person I’m betting on is more important than the specific investment itself. While the assets you’re investing in are a close second, the people behind those assets are paramount.
I look for individuals who are conservative and use conservative projections. They should aim to underpromise and overdeliver for investors by aligning their assumptions accordingly. Additionally, I want to work with someone who is focused on building long-term relationships with their investors based on consistent performance.
I try to avoid individuals who rely on flashy numbers and aggressive marketing tactics to attract investors. Those who are set up to potentially underperform and don’t care about fostering long-term relationships, simply viewing investors as numbers in a marketing machine, aren’t for me. So, at a high level, I’m looking for alignment with my conservative personality. There are a few other points to consider as well.
First of all, I always conduct a background check. That’s a hard rule for me. If I’m reinvesting with someone, I’ll perform a background check every time. If it’s two deals within a month, I won’t do it again. But if it’s been a few months, I will run a check on every manager, every member of the managing entity. For me, this is crucial. I don’t care who I’m investing with; it’s essential for my peace of mind. I’ve saved myself from potential issues in the past by doing this.
Unfortunately, I think many investors overlook this step, but it’s vital. I also want to invest with someone who has experience. I know this might not sound great, but I want to avoid the scenario of someone learning on my dime. When someone is new, that’s often part of the process. So, I typically require that the person has sufficient experience—not necessarily 20 years, but they shouldn’t be on their first, second, third, or fourth deal.
Additionally, I’ve refined my investment criteria over the years, narrowing my focus significantly. This is important because it prevents me from wasting time on opportunities that don’t fit my strategy. For example, while I’ve been tempted by a few developments from people I want to bet on, I’ve stuck to my defined investment box. This approach has served me well and aligns with my long-term personality fit.
This is particularly helpful during market cycles when people are making a lot of money, like recently with shorter-term deals or in cryptocurrency. I may make small bets in those areas because they’re tempting, but sticking to my criteria helps me avoid making larger bets that may not align with my strategy. The clearer you can define your investment focus, even if you’re brand new, the more successful you’ll be at staying the course, avoiding distractions, and not wasting time.
If you’re a brand-new investor, I recommend focusing on one asset class first. I’m not a financial adviser—this is just my perspective as an investor—but I always say it’s best to learn one asset class thoroughly. You can then transfer about 80% of that knowledge to other asset classes within real estate, for example. There are common factors like revenues, expenses, entry and exit prices, multiples, interest rates, and loan structures that are very similar across asset classes.
So, especially if you’re new, don’t get distracted by multiple options. It can be paralyzing and make it hard to decide where to start. Focus on the one asset class you understand best. If someone is a new investor who grew up in mobile home parks, I’d advise them to focus on mobile home parks first. It’s the lowest-hanging fruit and the easiest for them to grasp.
Many people start with apartments because they’re familiar with them; it’s a relatively straightforward business model, and they can learn from there. Just try to avoid getting sidetracked by all the different asset classes early on, as it can be very distracting.
Many great points there, Jeremy. I think having a solid buy box for what you’re looking for is key. That way, you know what fits your criteria. We receive numerous deals every week that come across our desks.
But it’s much easier to say no when you understand what you’re looking for. We’ve spent a lot of time connecting with our investors and running surveys to find out what people are seeking. Are they looking for cash flow? Value-add opportunities? Understanding the dynamics of the deals they’re interested in allows us to become much more laser-focused in our approach.
I couldn’t agree more. That’s sage advice in terms of conducting due diligence upfront as an investor and betting on the team. I echo your sentiments on that; it’s always about betting on the jockey, not the horse.
Another important factor to consider, especially in the current market, is not only the operating team’s consistent track record but also whether they have a healthy balance sheet. Many newer players or individuals who may have entered this game should not have. If a deal starts to underperform—like right now, if they don’t have a rate cap on their debt terms—it can become more expensive, leading them to fire-sell the asset. You want to know they will do right by investors, no matter what.
I want to point something out because it’s interesting: I have not invested in any floating-rate deals recently. The only exception I can think of was an industrial deal with a 20% loan-to-value ratio, which was a unique situation. Generally speaking, I’ve avoided those types of deals for the last few years.
I recently learned that a “rate cap” doesn’t work the way I assumed. I thought it meant you bought the cap upfront for a term—say, five years—but that’s not the case. I mention this because it’s crucial for understanding the balance sheet of sponsors. The rate cap is typically purchased for only two or three years, often just two years. With interest rates shooting up and expected to remain high, I’ve heard stories of sponsors paying $50,000 for the first two years of a rate cap and then $4 million for the third year. I spoke with someone this week who is experiencing this situation. I didn’t realize it worked like that, and it poses a significant risk to their balance sheets.
So, if you’re considering starting with a sponsor and trying to understand them, look closely at how they’ve managed their shorter-term deals. Have they refinanced all of them? If not, what are the risks? This came to mind as something important to share. Unfortunately, I think we’ll see more of this issue arise in the next two to three years.
I think you’re right. That’s a good segue, Jeremy. Why don’t we discuss the market and your perspective on what you’re seeing? There’s so much going on right now, and everything is moving so fast that it can be hard for investors to make sense of it all. So, what’s your take on the current landscape?
What I always try to do is look at what has happened in the past and apply those lessons to what’s coming up in the future. History often provides insights into what may happen again. I’m mostly on the sidelines right now. As interest rates start to rise, prices begin to adjust, and that process is currently underway.
Real estate tends to move slowly during these shifts. It often takes a while for sellers to capitulate to the true market value when conditions change. Historically, in situations like this, it can take 18 to 24 months to reach proper bottom pricing, and sometimes even longer. I’m not in a rush because I’d rather be late than early in this scenario. That said, I wouldn’t shy away from investing in a unique deal today; there are always unique opportunities out there.
Right now, I’m watching and waiting to see what unfolds. What I’m noticing is that there have been price adjustments, and they may continue to decline. For example, in the multifamily sector, most sponsors I speak with report seeing price adjustments of 10 to 15%.
As an investor, what’s crucial for me is understanding the historical spread needed between the interest rate and the cap rate. If I’m assessing pricing and wondering whether it will go lower, this spread is one of the key metrics I’m following to see when things may stabilize. I’ve still seen negative leverage deals, which I don’t believe most investors will be comfortable with.
In my opinion—though I could be wrong—even some of the non-negative leverage deals I’ve encountered have cap rates that are the same as the interest rates, or maybe only 50 basis points higher. Historically, however, there has been a 100 to 150 basis point spread that investors would earn for the associated risk. Ideally, we should see that spread return to those levels.
Until I start to see that spread re-emerge—which isn’t happening yet—I don’t believe it’s time to jump into the market or consider investments unless they’re truly unique. That spread is a very important metric I’m keeping an eye on.
I’m also trying to stay adaptable, knowing that we might face an economic downturn next year, which many people expect. The adjustments we’ve seen in cap rates so far have largely reacted to interest rate changes, but that process is still unfolding. I think the next significant event we might face is a recession.
During a recession, two common occurrences are rising vacancies and declining rents. If that happens, we’ll see a shift in net operating income (NOI) and overall profitability. I don’t think this potential shift has been fully priced into people’s minds yet, though it’s starting to be considered. I’ve been discussing it since March, back when people couldn’t fathom rents ever going down, and now we’re finally getting there.
These are some key factors I’m considering to guide my strategy at the moment. However, it’s complicated because we don’t know where interest rates are headed, how that will impact cap rates, or whether we’ll experience an economic downturn and how severe it might be.
To simplify things, I’m assuming we’ll have a moderate recession since we can’t predict the scale of the downturn. It’s a peculiar time, especially with the job market. I recently read an article stating that 4 million people are currently unemployed due to long COVID. That’s a significant number of people out of the workforce who would otherwise be employed, and that could worsen the unemployment figures.
There are many complicated factors at play right now, so I focus on using the regular recessionary playbook. Keeping it high level helps me simplify my approach during these complicated times.
I would agree. It’s essential to focus on the fundamentals, right? Let’s talk about the broader economic picture for next year. We have an ongoing energy crisis, and I think fiat currency is really on its last leg. The potential impacts of this are significant, especially with runaway inflation. If we enter a recession while still experiencing inflation, that can be quite alarming. We haven’t faced such a situation in a long time.
As a sophisticated investor, how are you positioning yourself during this time?
First of all, I think it’s crucial to acknowledge the potential for inflation during a recession, which essentially leads to stagflation. That’s a challenging situation because inflation can impact profitability, and at the same time, rents may decrease, which complicates things further. This issue may become more pronounced next year, perhaps even more important than what people are currently discussing.
There are many factors at play that could alter the landscape. For instance, the situation with Russian oil exports might create challenges, affecting oil prices and increasing inflation. Some people speculate this could happen next year, but we’ll have to see how it unfolds. However, supply could potentially come from the U.S. and other countries, so it’s hard to predict the outcomes.
Currently, I’m positioned heavily in cash. I’m looking for unique opportunities that still make sense—particularly those where I don’t have to worry about asset prices decreasing, which is my primary concern at the moment. This morning, for instance, I bought some more short-term treasuries.
I’ve been purchasing a lot lately to bridge the gap, though I’m not thrilled about it. They aren’t keeping pace with what I believe to be the true inflation rate, which I think is much higher than what’s published for various reasons. I’m doing my best to stay ahead. I’ve been buying short-term treasuries, typically 3-4 months, and I got one this morning at 4.45%.
Wow, that’s impressive!
I started this a couple of months ago, and I’ve been laddering them in. The rates have ranged between 4.1% and 4.4%. However, I’m starting to get concerned because Powell mentioned this morning that they might decrease the rate of increase for interest rates. I worry that the 4.4% to 4.5% range could be short-lived, but we’ll have to see if it eventually comes down.
For now, I’m taking advantage of the situation. I’m mostly waiting, being patient, and careful. I’d rather wait longer than jump in too soon and risk buying at the wrong time. I know that can be tough, but that’s how real estate works—it moves slowly.
Can you give an example of what you’re currently investing in? What does that profile look like right now?
Sure! It might sound random, but here are some of the things I’ve invested in this year. We’re going to set the startups aside for now. I’ve made a couple of random startup investments, but let’s focus on other areas. This year, I’ve invested in several tax-abated apartment buildings. These typically offer a spread of a couple of hundred basis points between the purchase price and the closing price based on the tax structure negotiated with the local housing authority. This arrangement provides a cushion against potential market adjustments that I anticipate, which makes me comfortable with these investments.
These buildings usually have income restrictions for about half of the units, which tends to work well in a recession. Since the rents are already low, there’s less pressure to reduce them further. I’ve also invested in ATMs; I’ve been in this space since January 2008 and navigated through the previous recession. Based on their revenue performance during that time, I’m confident they will hold up well during a recession given their margins. I made another investment in ATMs about a month ago.
One key point about ATMs is that they are assets that we know will depreciate to zero eventually. An ATM consists of a screen, a computer, a bill filter, a bill feeder, and a keyboard—essentially all computer components that will lose value over time. However, I continue to invest because I believe they will perform well during a recession, and I’m not overly concerned about the asset value depreciating, which is a significant worry for many hard assets right now. I expect the cash flow from ATMs to remain steady, even in a downturn.
I’m also about to invest in a laundromat, which presents a unique opportunity. The owner is quite old and there’s potential for value-added improvements. This laundromat has heavy cash flow and a low multiple, targeting lower-income customers rather than higher-end ones. Upper-end laundromats may suffer during a recession as people might cut back on services. However, lower-end laundromats often thrive because they serve communities without access to in-unit washers. Surveys indicate that keeping clothes clean remains a priority for people even during tough economic times, which bodes well for this investment.
Additionally, I’m investing in a cannabis industrial facility with a long-term tenant. I don’t typically invest in that space, but I have a successful track record with this particular company, and I’m making one more investment because I believe it will perform well during the downturn.
People generally continue to buy alcohol and similar items, which is an interesting situation since rents for these properties are much higher than for typical industrial buildings. These investments are cross-collateralized, making the structure unique. There are always opportunities out there.
What people need to understand is that being open-minded is essential. No matter where we are in the economic cycle, opportunities exist, but sometimes more unique approaches to make sense of them. In a couple of years, presumably, you’ll be able to invest in almost anything, and it will likely be easier to find market-rate deals that make sense. Right now, however, caution is necessary.
I completely agree. There’s so much to consider. If you think about it, fear sells. The media constantly talks about recession, and we have to remember that history provides the best lessons. With all the volatility and uncertainty also come significant opportunities. If you’re positioned well and savvy about understanding the fundamentals—your investor DNA, as you mentioned—there will be massive opportunities in the next 12 to 24 months.
This is the classic Warren Buffett quote: “Be fearful when others are greedy, and be greedy when others are fearful.” That fear has already started, but I think it’s going to intensify due to the recession and likely another downturn in the stock market based on reduced corporate earnings. It’s interesting to note that Warren Buffett has around $130 to $150 billion in cash, yet he isn’t acquiring much at the moment. While he has made a couple of acquisitions recently, the pace has been slow. It seems he’s also expecting people to become more fearful before he deploys his cash, which is fascinating to watch.
Where do you think some of those opportunities might lie?
For real estate investors, one of the most obvious places is with those who bought buildings in the last year or two and had value-add business plans they can’t execute. Whether due to a lack of execution skills or market conditions, these investors are beginning to struggle with their loans, particularly because they can’t afford the $4 million rate cap I mentioned. These opportunities will likely arise and continue for the next two to three years, unless interest rates drop significantly, which would alleviate some of their issues. But those opportunities are already surfacing.
In addition, the general concept that asset values will adjust—and are already starting to adjust—creates numerous opportunities across various sectors, as nothing is immune to this. If interest rates rise, people will pay lower multiples for assets because their cost of capital increases. I believe we will see opportunities across the board; it’s going to be a very interesting time.
Even in stocks, though I haven’t invested in them since selling my stocks between 2002 and 2007, there are opportunities. For example, Amazon is down around 50% and may go down further, along with some other bellwether companies like Tesla. I don’t believe in Tesla’s current valuation, but many do. It’s worth noting that Tesla is down over 60% this year alone. There will be interesting opportunities on the public equity side, especially for solid, well-performing companies.
It’s interesting. Part of our investment thesis, Jeremy, involves looking at assets from a three-dimensional perspective. We focus on tax-efficient assets, generate predictable passive income, and have some appreciation component.
What’s intriguing is that you can flip that around to consider risk mitigation. Certain assets you invest in may provide bonus depreciation or active depreciation right from the start. Even if you achieve a lower multiple upon exit, you still benefit from tax savings, and then you start receiving some passive income. I prefer investments that allow you to leverage your capital in multiple ways. Not only does this serve as a multiplier effect, but it also mitigates your risk in several ways.
I couldn’t agree more. I don’t invest solely for tax savings; I know some investors who focus specifically on that, but I tend to get involved heavily when there are tax savings available. For instance, the ATMs I mentioned investing in this year offer 100% bonus depreciation. This can be significant depending on how much you invest and your expected income. There are many ways to invest that can be beneficial beyond just cash flow, which supports your point.
Are you classified as a professional real estate investor?
I’ve held a real estate broker’s license in California since 2008. I originally got it for hard money lending, but when the SAFE Act came out in 2012, I couldn’t use it for that purpose anymore, so I didn’t bother getting a second license. The license just sits there; I do the education every four years to renew it and pass the tests. I don’t need it because I’m a full-time investor. When you’re a full-time investor, having that license becomes unnecessary since I don’t have W-2 income outside of my S-Corp. I maintain the W-2 income just for technical reasons.
Got it. That makes sense. Jeremy, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?
Giving just one piece of advice is tough. The easy answer, which feels almost like a cop-out, is to start as early as possible. Everyone wishes they had started earlier once they found a good path. The sooner you can identify that path, the better, as it allows for compounding over the years.
That said, let me share how I started, as I think it will be interesting for people to hear. When I began investing in 2002, the simple equation was that you could achieve about 10% cash flow from a typical stabilized property. However, I didn’t have a million dollars to generate $100,000 in cash flow and exit the corporate world—that just wasn’t my situation. So, what I did, which isn’t often discussed, was implement a two-pronged strategy. I invested in some stabilized cash flow opportunities alongside what I refer to as fully amortized investments.
For example, with ATMs, you’re investing in an asset that depreciates to about 5% of its residual value—let’s say that’s projected. You’re essentially losing 95% of the asset’s value over time, which means your payments need to be quite high to achieve a solid total return. This differs from property investments, where you might get back more than you initially invested upon selling.
However, this strategy accelerates your cash flow. I call it “supercharging” your cash flow. By combining amortized and non-amortized opportunities, I was able to significantly boost my average cash flow each year, which in turn helped compound my long-term wealth.
The danger, though, is that if you’re living off the cash flow without an underlying asset holding its value, you could be left with nothing if you rely solely on that 5% payout at the end. If you live off all of it, you risk having no value remaining. But if you aim to compound and not necessarily live off that income, you’ll be able to compound more quickly with a diversified portfolio.
There are other examples of this strategy, but consider the bank’s perspective: when a bank gives you a 30-year fixed-rate loan for your house, what do they get at the end? Essentially nothing. They receive monthly payments over 30 years, but they have nothing left at the end. The bank benefits from a combination of interest and principal, providing them with a higher level of cash flow compared to an interest-only loan that has a large balloon payment at the end. They are effectively compounding their returns as well.
I believe this approach can be highly effective for building long-term wealth. That’s a great strategy.
I’d like to add that this ties back to your investor DNA and personal risk tolerance. It requires a lot of discipline to take that cash flow, put it back to work, and recycle it to start compounding. Some folks struggle with this. Having liquidity can be dangerous, and I want to stress that after I transitioned out of the corporate world—I didn’t initially intend to leave—I specifically rotated out of some of the amortized investments.
I still hold some, but I shifted to a much healthier balance of more amortized and non-amortized assets. This change ensured I wouldn’t just deplete my cash flow living off it, which was a crucial strategy I implemented over the next few years to reduce my exposure to fully amortized investments. You have to be very careful with this.
Absolutely. I also want to draw attention to another point you made, which I think people often underestimate. Albert Einstein famously said something about the power of compound interest.
Yes, that’s right. We’ve even created calculators for people to see how withdrawing from a 401(k), paying the taxes and penalties, and then comparing that to investing in multifamily properties or other real assets can impact their wealth over 20 years. It’s compelling to see it laid out on paper.
I can tell you that understanding this concept can really enhance your effectiveness as an investor. If you’ve never looked at a spreadsheet that outlines these projections, you would be shocked by the differences, especially depending on the interest rates you assume.
This knowledge impacts many of my decisions, not just investment choices. For example, if I’m considering buying my wife a car, I think about how every dollar not allocated to that car could instead be compounded into an investment, yielding substantial returns over 10, 20, 30, or even 40 years. So, understanding what a spreadsheet can reveal is incredibly powerful.
Great advice! Jeremy, it’s been a pleasure connecting with you today. You’ve provided a wealth of valuable information for our listeners. If folks want to reach out to you or learn more, what’s the best way to do that?
Absolutely! The best way to reach me is through email. Everyone is welcome to contact me at [email protected]. I want to thank everyone for staying with us until the end, and I hope this was helpful for all your listeners.
We’ll make sure to include that in the show notes as well, Jeremy.
Thanks for having me!
Thank you all for joining us today and for spending your most precious asset with us—your time. We appreciate it!