CASH FLOW DOES NOT MAKE YOU RICH!!!

SPEAKER_1 (0:00)

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Michael Zuber (0:32)

Does cash flow make you rich?

Folks, Dion is going to bring the heat today. He says that cash flow doesn't make you rich. What Dionism is this? Is there something behind this or is he just yanking Matt and ice chain to get a reaction out of us? All right, Dion, this is certainly your topic. Why don't you kind of set it on the table and let, some raw meat out there for Matt to pounce on.

Dion (1:00)

I am not trying to get a reaction out of you. I am trying to absolutely save your viewers.

Michael Zuber (1:05)

Okay.

Dion (1:07)

How many times have you had somebody send you a deal to analyze and say, can you take a look at this? Is this a good deal? Should I buy it? And what do they give you? The purchase price, possible interest rate, possible rents. From that, please calculate my return because I'm chasing cash flow. Right. Is it a good deal? So cash flow doesn't make you rich. And I think it's ironic to say this to you guys who have 10x my cash flow, or definitely richer than me.

But if we were all, if cash flow made you rich, we would buy all cash every time. The most cash flow comes from the least amount of debt. It might be the worst yield or a worse yield, but cash flow comes from cash, buying cash. We would also buy in the cheapest market, where the highest return is.

So, Matt, you bought for cash flow. Would you invest in the markets that you're in, or is there one around you that is a war zone, where the cash flow looks better?

Matt (2:14)

So I learned this from a good friend of mine, follicly challenged.

But he said that price and this sort of thing isn't even in my top five. And so for me, it's not even in my top five, really, honestly. Like the way that I evaluate deals is, sure, I want to see cash flow, sure, I want to see return, sure, I would love to see appreciation over time. But quite frankly, real estate appreciates no matter where it is over time. You know, unless there's a nuclear event, Chernobyl real estate is not going up. Yeah.

But the challenge to that is, and so that's the way I look at it. So when I look at it is, I want it holistically kind of fitting into what we're doing. So for me, I know that cash flow doesn't make me rich years one through five, or maybe even five through ten. But let me give you a view into the future, Dion. At 20 years, it sure as hell makes you rich. It really, really does. And your numbers will continue to go down because you do that pay down, you don't lever the debt. But I'd say the best way that I can say it is that levered assets create wealth. That's where almost everybody either blows up in a good way or blows up in a bad way. But if you don't lever and if you don't use the multiplier that real estate gives you, there's no such thing as a Grant Cardone, there's no such thing as a Ken McElroy, there's no such thing as any of these companies existing, because the only way they could ever get there is not pure cash flow but levered debt and getting the multiplier.

Michael Zuber (3:50)

It's funny when I hear the phrase, cash flow doesn't make you rich, I kind of had two initial reactions. The first one is like no duh, right? Because when I step back after nearly 30 years of doing this, cash flow is probably responsible.

I don't know, let's say aggressive, 10 percent of the wealth that's been accumulated could be tracked back to cash flow. So again, it's a small portion, maybe as small as 5 percent. But the other thing, the other kind of wise ass I am is like, yeah, you're right, cash flow doesn't make me rich, but, right, there's a big but, capital letters underlined, it's everything. Because what most people get wrong, and I think Matt, you hinted at this, is it is so easy to blow up when you have levered debt. And if you're an idiot and a moron with levered debt, short-term and variable, i.e. syndicators, you're going to blow up, right? The only reason you don't blow up is you got lucky.