There is no question that in some areas, there’s been a tremendous loss in the typical investments, especially with the tax law changes. Unknown to many, there are great opportunities that exist in the form of alternative investments. Joining Patrick Donohoe on the show today is Dave Zook, the Founder, and CEO of The Real Asset Investor. Dave is a successful business owner and an experienced real estate investor active in multifamily apartments, self-storage, and ATM space. Together, they explore Dave’s investment philosophy as well as his strategies for making investments and structuring deals especially with the current state of the market.
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Exploring Alternative Investment Opportunities With Dave Zook
I hope you are doing well. I’m going to stay on topic and the course of our theme this season about alternative investments. First, I’ve had a lot of you reach out to me about the earthquake that happened in Salt Lake City. I was in my office sitting right in that chair over my shoulder. It was a 5.7 earthquake. I’ve never been in an earthquake before. What a rush of adrenaline. I didn’t know what to do. I felt like the whole building was going to come down on me. My wife called, I answered and I could hardly talk. I was wired with adrenaline and energy. Thanks for reaching out. I appreciate that. Everything’s good. The building is old but she survived. There’s no noticeable damage, the same thing with the house. I live in about 3 or 4 miles east of here. Everything is good as if the change in the chaos wasn’t enough with the Coronavirus and how the world changed and the earthquake on top of it.
We’ve had a bunch of aftershocks but all good. I hope that you are taking advantage of this opportunity. I don’t mean capitalizing on business or investment opportunity but I would say capitalizing on being a different standard than how the status quo responds to times like this. Shutting down, being afraid, hiding in a corner and sitting on the sidelines. Getting into the game when you’re winning or you’re playing a team weaker than you, I don’t think that’s winning and success. These are the times when it puts you in the position of very simple choices and it’s a choice of mindset. It’s not a one-time decision, it’s a decision that has to be made daily. It’s to choose to rise to the occasion, choosing to be the leader and the voice setting a new standard. A standard that doesn’t succumb to the status quo of what everybody else is doing and saying but it’s being a solution. It’s taking the lessons from the last five seasons of the show into an environment that you can thrive in. It’s almost perfectly designed for what we’ve been speaking to the last several years. I realize it’s hard.Any successful entrepreneur has got to have the grit and got to hustle and go out and add value to the community and the world. Click To Tweet
When you look at the instinctual unconscious reaction to certain things, it doesn’t always serve you. I believe nowadays, it doesn’t serve you at all. Being cautious is important. Beyond that, I would look at this as a tremendous opportunity to serve, to add value, to use what’s inside you to make a difference in somebody else’s life. It may be a good conversation. That’s what I’ve been encouraging my team to do. There are only so many things that we can control. You can control how you show up to a conversation and being the best conversation of a person’s day, and adding value wherever possible. There’s a tremendous opportunity for that. We’re seeing corporations all around the world rally to be the solution. Everybody looks to the government to be a solution. I think that’s a terrible solution. I’m not going to get into that but I believe that you look at the entrepreneurial companies that are finding ways in which they can make a hand sanitizer and ventilators. Figuring out ways to provide medicine, make the vaccine process accelerated.
There are many examples of this. You don’t have to be an example in that regard. You can be an example in a simple way whether it’s helping your boss or company to go virtual. Being able to provide value through Zoom, podcast, webinar, sending an email or using social media. There are many different opportunities to do good and I get it, it’s hard. I don’t think the challenges are going to stop just the virus. It’s going to be even more challenging business-wise. Those are things we can’t control. We can’t control our reaction to these circumstances. I believe that if you are a longtime reader, there’s so much opportunity to do good because there is so little of it. Be that voice, be that change. I know you can do it. We transitioned our YouTube channel. If you want to subscribe, that would be amazing. If you were subscribed to the Paradigm Life channel, this is a different channel. We’re trying to create some separation there to boost our audience as well as marketing efforts for the show and Paradigm.
If you can also get on social media, I’m trying to be way more active there. We’re going to be able to rally on this. A big thing about what I believe is that the asset that survives most crises is the community. It’s your community online, your business and your network. That is where strength is when it comes to being able to withstand difficult situations like this. I hope you are thriving. I hope you are out there with the mindset of serving that adding value. It’s going to pay dividends, I guarantee it. Be that voice, I love to hear from you, Hello@TheWealthStandard.com or on social media. Let’s keep this going. Let’s keep the optimism as high as possible and during these difficult circumstances being an asset to the community and the world. I know it’s in you. I’m trying to do my part as well and now let’s do it together.
My guest is a longtime friend of mine and a client. We met each other right after the 2008, 2009 market crash. Everybody was dealing with some difficult circumstances. His name is Dave Zook. He rallied and has built an amazing investment business. He also has some manufacturing businesses as well. He was born an entrepreneur. He’s in diapers trying to figure stuff out but you’ll learn a little bit about his story. He grew up in an Amish country, Lancaster County, Pennsylvania. He’s an incredible example of everything that we’ve been talking about the last several years about how to capitalize on opportunities to do things differently. Dave has a couple of investments that he’s done in the past and is still doing that are our alternative.
There’s been a tremendous loss in the typical investments that are out there. This is a great example of the opportunities that exist. They provide a good service but also a return on those that put forth the effort and the capital to make that service available. You can check him out at TheRealAssetInvestor.com. Welcome my good friend, Dave Zook. He’s an entrepreneur, a syndicator, financier. He’s raised more than $170 million in less than ten years. He is an amazing person. You are going to enjoy this episode.
I’m with my good friend, Dave. It’s hard to believe that we were ten years younger when we met each other. You haven’t aged a bit. I lost some hair. That’s pretty much the extent of it, plus I can grow some facial hair. Before, I wasn’t able to grow facial hair. How are you doing? How’s life?
I’m doing great. We’re going through some interesting times but we’re blessed. We’ve got a lot of good things going and I’m happy to be alive. This challenging time will pass. On the other side of challenges, there are always opportunities. I’m excited about what’s ahead.
We met each other during a very interesting time and it’s coincidental to what’s going on at the moment because we’re doing this the week of the big earthquake that happened in Salt Lake as well as the Coronavirus and the world being shut down. We met during a time when there was a lot of uncertainty. It was right in the wake of the financial crisis. It’s been inspiring to me to see you from a distance based on all the amazing business opportunities you’ve capitalized on. You’re already doing well with Horizon Structures and some of the stuff you were doing back home but how you’ve grown has been impressive. I’m stoked for the audience to learn from you because you have an amazing background, incredible philosophy and you walked the walk. You’ve done it. You don’t talk about it but you did it. Thanks for being a great role model for a lot of people. First, these are the questions I ask every guest that helps to have the audience gain perspective of your background, your life and what’s meaningful to you. Before you started working, and I think you’ve worked for a long time even before you’re legally able to work, who was a role model for you? Who did you look up to? Who most inspired you?
Before I started working, I’d have to say it was my dad. My dad was a very successful businessman, he still is. You talk about me working before it was legal to work, I started in our manufacturing business when I was six years old. I would paint hinges, put the little set screw in the door latches for our doors and those kinds of things. My dad allowed me in our family modular building business to spread my wings, take the helm early and make some mistakes. When I saw him investing in real estate, I decided early on that I was never going to be a real estate investor. I saw him self-manage with some single-family homes. I was like, “There’s got to be a better way to make money than that.” I started investing and working in, partnering and founding some businesses. When I got going down that road, I met my mentor, Bill Poole, who’s on my advisory team. His career is in banking, he’s founded and then sold a couple of banks. This is a Lancaster County success story. I would say in my late teens and from here forward, it’s been Bill Poole who’s been an inspiration to me.It’s amazing how a business owner can be so successful in running his business but knows so little about tax. Click To Tweet
What superhero or icon in history do you personally most resonate with?
I would say, King David. I love reading stories. We came back from Israel and one of the reasons we went over is I got connected with this author who wrote the Lion of a War series books. It talked about King David, his mighty men, the struggles that they fought through and finally came to rule the land. You can’t read that series of books and then go back and read in the Bible first and second Samuel without being able to live it. You can imagine what it might’ve been like. Being able to go to Israel and see what those and being inside Jerusalem, the City Walls and tour the whole country.
What charitable causes do you support?
There are a couple. One is our local Christian private school where my children go to. We purchased an eleven-acre piece of property with $4.3 million value. There are buildings on it. We were able to purchase that from a family who believed in what we were doing for $1.2 million. That’s a great real estate story. A replacement cost on that building is $7-something million. That was exciting. Have you ever heard of Alliance Defending Freedom? What they do is they will defend your right of free speech and Christian values in this country. If you’re holding a prayer meeting in a college and you’re getting penalized for that, ADF will step in and defend you with their pro-life group.
We got to go down to DC with this group. My wife and I went down and there were six couples. We stayed at the Trump Plaza right down in DC right next to the White House. We had dinner with the attorneys for ADF. They were very influential in this upcoming case. We got to sit in front of the Supreme Court and watch them go through the whole session. You’ve got the nine justices that you see in the paper or on the news all the time. We got to experience sitting right in the courtroom. That was a high-profile case. People were standing in line from Monday morning until Wednesday morning. We had paid some college kids to stand in line for us and hold our spots. Wednesday morning we’d go in and get in front to get into the courtroom. We did a whole tour of the Supreme Court and the White House got private towards backend stuff. It was cool. I love that group.
I have a trust fund of my own. I know some people aren’t, there’s nothing that matters with it. It’s a personal preference. Some people will support causes and feed kids in Africa and Haiti. I was never as in those kinds of things because I am here locally. I liked to do stuff a little bit more local. I set up a fund that cares for widows. Every year, I buy assets. I put those assets in the fund and the cash flow from those assets support then I can cut a check out of the fund and support local widows. What I do is I have those widows set up on a monthly where they can get a check. It’s not like, “Your husband died, you get one check and pretty soon somebody forgets.” This is a monthly ongoing check until they either have some liquidity event or they get remarried. I’d love to do that. Hopefully, that’s a fund that my kids will be able to administer 10, 20, 50, 100 years from now.
Last question, gaining a perspective of the life of Dave. If there was one attribute that you could impress on your kids, your grandkids or the world, what would that attribute be?
I don’t care if my kids aren’t involved in a family business. I would like them to be but at the end of the day, what I care about is go out and make a difference, impact the world around you, hustle and build something to add value to people. Whether you’re doing that on your own, totally separate from what I’m doing or the family business, as any successful entrepreneur, you’ve got to have grit, you’ve got to hustle, you’ve got to go out and add value to the community and the world. I’m hopeful that I can instill that and pass that on to my kids. One thing that we’ll discuss an entrepreneur is when you have somebody that’s a drag on society and it doesn’t add value to society. I hope that I’m able to pass that on to my kids.
That’s the influence that we love most in life growing up is who we tend to emulate in our adult life. It seems like you’ve had an incredible experience with your family, but guaranteed that all your kids will hopefully share that attribute even though they have a uniqueness to them. Let’s get into an investment. You and I have had many discussions over the years and I gave you a ton of kudos with regards to what you’ve done. What I thought would be appropriate is for the audience to know about your investment philosophy. How would you briefly describe your philosophy about investment in general?
I’m an investment and tax strategist. It’s my official self-proclaimed title. We talked about 2008, we talked about when you learn the most is when you go through some pain. What happened to me was, almost a decade ago, I got in a position where I had several good businesses. I got in a position where I had to pay $500,000 in tax. I was out there hustling, doing my thing and having so much fun. It didn’t even feel like work because it was so much fun, I loved it. I remember where I was standing when I got the call saying, “In two days, you’ve got to cut a check for almost $400,000.” That year, when you consider the quarterly payments that I had already made, I spent $500,000 in tax. That was the turning point for me. It was like, “I was in pain and I went down this rabbit hole.” That’s why I ended up on the Summit at Sea that you and I first met. I showed up because Robert Kiyosaki was there. He’s was talking about, “You can make millions of dollars a year and not pay a tax legally.” I was like, “I’ve got to hunt this guy down.”
All my life I’ve been taught if you make a lot of money, you’ve got to pay a lot of tax. I’ve got my mind around tax and I went from paying a $500,000 a year to paying zero federal tax. My income tripled and quadrupled and more, and I’m paying a fraction of the amount of tax. My federal tax is somewhere between 0% and 3% every year since then. This has to do with figuring out where the need is in the marketplace. I realize that a lot of people have that same need. I’m always amazed at how successfully run a business can be and a business owner can be successful in running his business but he knows so little about tax. One of my strengths as a syndicator has been putting deals together, not only telling someone, “If you invest $100,000, you get $180,000 or $200,000 back in five years and you double your money in whatever amount of years.” It has been being very strategic, helping investors to navigate through the tax walls and trying to figure out how to be most tax-efficient in what they’re doing.
I was part of a tax team that came together where a dentist sold his practice for almost $11 million. He ended up coming out of that transaction with all but zero bases. He owned the practice for a long time. He would’ve owed $4.3 million in tax. His tax bill was $700. It was a combination of a couple of different strategies. One was a 453(a) and then I helped him invested money into some assets that had a bonus depreciation component. It was a multifaceted approach to not only putting them in a good position from an asset appreciation and a cashflow position. A lot of times your biggest return of investment in your first year when you deploy capital is tax savings. If you take somebody that’s paying 37% tax and you wait, that’s a 37% return the first year. That’s not even considering what that asset produced or the cash-on-cash return from that asset. It’s my thing. I love integrating tax strategy into an investment philosophy.
I’m looking at what the future entails given the situation with government liabilities, there are only a couple of ways they can pay that. The big one is taxes. Relatively speaking, tax rates are low like what they’ve been in the past. I look at a very interesting dynamic that is going to be how tax law changes. At the same time, that thing is a monstrosity. It’s big and there are many different ways in which you can deploy money so you don’t have to pay tax. Their accountants don’t ever end up reading it or thinking that there’s anything beyond the status quo tax deduction that’s possible.
Our mutual friend, Tom Wheelwright, taught me that if you want to change your tax, you’ve got to change your facts. That was a slap in the face. That was the jolt like, “What are you talking about? It’s up to me?” I thought this is tax law and legislation. If you make a lot of money, you’ve got to pay a lot of tax. When I discovered that it was up to me and that I was in control of my destiny, that’s when everything changed. The thing to remember too is it’s not being super smart, trying to outwit the government and trying to evade taxes and all that. It’s figuring out what the government wants you to do and then going and doing it. There’s a whole bunch of ways that the government comes to you and says, “Here’s a list of things you can do. Here’s what we want you to do.”
If you invest in those things and do business in the way they want you to do business, they’ll pay you to do it. They’ll give you those tax rates. That’s important to remember. You’re doing what the government wants you to do. If you’re going out there and adding a ton of value to people and you’re giving people jobs, you’re building stuff and creating stuff, they’ll pay big dollars to go out there and do it. If you’re out there with a W-2 job, working for the man, putting your time in and you’re not creating those things that the government wants you to do, all they’re doing is giving you a fine for not taking their suggestions on what they want you to do. You’re not listening to them. That’s your penalty. Your tax bill is a penalty for not doing what the government wants you to do.
That’s a very blunt way of saying it but true. Hopefully, people realize especially the newer investors that in the end, it’s not about the return you get. It’s about getting your money back first off but then also getting your money back after tax. There are tons of ways in which you can make investments and structure deals in which the tax is low if anything. One thing I wanted to get into and this is what you’re doing as a big part of your businesses, which is syndicating. Syndicating means you go out and you have investors all get their money together and make a big investment. What I was curious about is you have some very unique types of investments. Before we get into those, what’s your philosophy about when you decide to move forward on one of these investments that you syndicate? What are the necessary components or criteria that have to be in place for you to move forward? Would you speak to that?
I’ll back up that I never started as an investor thinking that I was going to be a syndicator. I was out there doing what I wanted to do for myself. When I saw how it was working and realized that, “What I’m doing for myself, there’s a lot of need out there for other people.” It came in the opportunity when I started running out of my cash, I bought a couple of hundred units of my own, and a couple of hundred apartment units of my own and I ran out of cash. At that point, I had a great team, we had a lot of opportunities back then in the apartment space. I put a deal together and raised $850,000, went out, raised and funded an apartment building. That’s the start of my syndication career. I wasn’t even meant to go out and syndicate. For me, it’s not as much about the deal on the front side as it is about the team.
If I see a team out there, I have some rules around mind busting. Number one, it’s got to cashflow. Number two, it’s got to have some tax. The strategy to it or tax incentive. When we got late into the apartment, what I felt was getting late into the multifamily apartment investing arena. We started getting closer to what I felt was closer to the top than the bottom or even midway. I started looking for an asset class that does well in a downturn or a recession. I specifically wanted self-storage but I didn’t have a team at that time. It’s when you start thinking about things then they appear. I kept hearing about this group. A number of my investors in my network had invested in this group over the last decade. I couldn’t say enough good things about this group and that’s when my ears perk up and I start thinking, “I like this thing.” If they don’t pass that test, they don’t even make it in the door.
It’s about the team first and then if it fits my rules for cashflow and some tax advantage and those three things combined, I start going down the path about, “Let’s do due diligence. I liked the asset class and the timing that we’re in. Let’s look at the team.” I went down this path down this team, I brought him up to my neighborhood. I’ve got a good friend who was the chairman of the board of the National Self Storage Association. I brought them up to his office and he interrogated them and put his stamp of approval. They went through this whole process. I like to do a whole bunch of deals with that team. I shared with you how we wrapped up a $44 million fund. There is eleven self-storage of assets in the fund. Once I have the team nailed down, then we’d go out and do a bunch of stuff together.
Most people can get their minds around what self-storage means and put together why it’s an asset that does well during a recessionary time. To my knowledge, I haven’t come across anybody else that’s done it as big as you have. It’s ATMs. Talk to a very interesting asset class and what most would assume is a dying industry. Talk about the ATM investments that you’ve made over the last several years.
One thing to remember or think about when you were thinking of ATM operators, there are two kinds of operators. It’s a mom and pop operator and there are the institutional operators. Mom and pop operators run around. They can serve us between 150 to 200 ATMs themselves in a 50-mile radius. You can make a lot of money in that situation. There are institutional players. There’s the Cardtronics of the world, publicly traded companies, $1.5 billion revenue companies. To my knowledge, there has never been anybody in between. Let’s say you have an investor who wants to get into this space passively, but you can’t do it on the mom and pop operator side. If you have a relationship with an operator and you want to loan him $50,000 or $100,000. I’m not going to say there’s not an opportunity like that but you’ve got to know somebody and it’s not widely available. The other option is to go trade a publicly-traded stock.
What we do is we play in the institutional space. We take down large portfolios of institutional-grade locations, $5 million, $10 million, and $15 million portfolios at a time. To give you an example of what an institutional-grade location. We own all of the McDonalds in all five boroughs of New York City. That’s considered an institutional-grade location. We’ve been able to take those portfolios. We’ll put a big $5 million, $10 million, $15 million portfolios under contract, and then we’ll bring it back to Main Street and we’ll break it up in bite-size pieces. $104,000 chunks and investors come in and make $104,000 investment. They get seven ATMs which then get rolled over into our fund and we manage it for them. That’s the business model. We’ve systemized it and figured out ways that we, as a fund, can bear the brunt to the volatility. We have a committed return like you, as the investor, have seven machines, we’re going to commit to you that you’re going to make 3,373 transactions per month. Your portion of the surcharge revenue is $0.63. Surcharge revenue can be anywhere between $2 and $3. You, as an investor, you get $0.63. That’s a 24.5% cash-on-cash return, 18.6% IRR.If you invest in the things and do business in the way the government wants you to do, they'll give you those tax breaks. Click To Tweet
It’s a good way for an investor to get into an ATM play passively while getting into some of the best institutional-grade locations you can find anywhere. It’s been a good business model. We’re one of the top five operators in the country and we’ve been doing it for a long time. It’s my most repeat investor asset class that I have. More people come back for more ATM. They love this space and I love this space. I invest in ATM four years before I brought it to my investor group.
Given the circumstances, during a crisis when people value cash than ever before, they would rather have cash than eat.
This is one of the things that brings me great joy when I think about what Wall Street investors went through. I think how much money we moved out of Wall Street into a safe, solid asset. This is for guys that think that ATMs are going by the wayside and people aren’t using them, year-over-year and the fund was up to 2% but in the past few weeks, we’ve also seen nice spike inactivity. While Wall Street investors are losing their shirts, we’re like, “The ATM demand and ATM use is way up.” Here’s what I would like to remind people that think that ATM use and cash use are going away. Most people who can afford to invest in an ATM, that’s exactly right. You and I converted to plastic a long time ago. There was a whole subset of the demographic in this country who have not.
The people in this country who are regular users of ATMs, they’re the fastest-growing demographic in the country. It’s the lower-income people. These people use ATM for their banks. Years ago, at the end of the workweek, you used to get a check. You don’t get a check anymore, you get an ACH and it gets taken right to your account. They walk out of their C-Class apartment building, go down to the corner deli and get their $20, $100, $50 out of the machine. Times change but it’s been an asset class that has done well. There’s more cash in circulation than ever before. That demographic of people who use ATMs are growing at a faster pace than any other demographic in the country.
David, this has been awesome. Thank you for taking the time. How can readers connect, learn more about your philosophy, opportunities and follow and learn from you?
Our website is TheRealAssetInvestor.com. To send us an email, send it to Info@TheRealAssetInvestor.com or ATM@TheRealAssetInvestor.com. Patrick for your audience, there’s an easy to read which is an eight or nine-page report on ATM investing and gives you the whole rundown of what that’s all about.
Thank you for sharing that. One last thing before we sign off. I look at how crazy this set of circumstances we’re living in and there are many different reasons to be pessimistic. What are the top couple of reasons why you’re optimistic? There are always reasons to be pessimistic. It’s easier for us to find those because we’re creatures that are designed to survive. We’re always looking out for something wanting to attack us. What are you optimistic about during a time when 99% of people are running for the hills or hiding in their basement?
The big opportunities come in times like this like 2008, 2009 and they don’t come around real often. I feel there may be some pressure coming in the multifamily space. If people don’t have jobs, people aren’t getting paid, how are they going to pay their rent? That could be a challenge. What’s on the flip side of the challenge? It doesn’t matter. If there’s a challenge, there’s an opportunity. What happened to interest rates? What if it’s sitting on a $5 million mortgage and you’re paying 5.5% interest? Now you can refinance into a 3% mortgage. There you have it. One big challenge and opportunity. These kinds of times are going to create once in a decade of opportunities. I’m always looking to exploit even in our manufacturing business, we were looking for times of weakness and ways we can take advantage of what’s going on in the marketplace.
In the commodity space, there are ups and downs and there are times where you’ll get an opportunity to buy something less than the cost to produce that commodity. Every ten years or so, we get an opportunity to buy roof sheeting at below cost to produce it. We built a warehouse to store OSB roof sheeting. We’ve got 50 tractor-trailer loads of the stuff and below the cost to produce your stuff. It’s almost double already a year later, not quite double what we paid for this stuff. The price had to go up from $550 to $675 a sheet to pay for the whole building that we built. We’ve got that building for the next 50 years. Those opportunities come along when there’s stuff like this going on in the marketplace. If you’re ready, you’re not scared, and you’re confident, you got cash, you can jump on opportunities like that.Your tax bill is a penalty for not doing what the government wants you to do. Click To Tweet
The saying I keep repeating over and over to my kids, my wife and the team is, “When there is a challenge, there is an opportunity and solution.” You can complain about the challenge or you can be the solution. That’s where I look at. A lot of stuff is unwinding but it’s one of the greatest times in history for human beings to step up, use their ingenuity, make a difference and make some money too. Dave, thanks again. I appreciate it. Thank you for sharing that. For those reading, head over to TheWealthStandard.com to connect with Dave as well as download that free report. We’ll see you next time.
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About Dave Zook
Dave Zook is Founder & CEO of The Real Asset Investor. He is a successful business owner and an experienced real estate investor active in multifamily apartments, self-storage, and ATM space.
Dave has acquired more than $100 million worth of real estate since 2010. At the time of this writing, he and his investors own approximately 3000 Multi-family Apartment units.
Together with his business partner, Dave is a renowned and trusted professional resource in the Automatic Teller Machine (ATM) investment market where they have deployed more than $90 million of investor capital and they are heavily invested personally in the ATM space.
As a #1 Best Selling Author and popular guest speaker Dave has shared his knowledge at the International Business conference, The Jason Hartman Real Estate Mastermind, The Wealth Formula Podcast and the Real Estate Guys Radio show, the #1 most downloaded podcast on Real Estate Investing on iTunes.
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