What Are Good Cash Flow Investments?

Kevin Bupp didn’t personally complete over $150 million in real estate transactions by accident; he knows the ins and outs of generating cash flow and legacy wealth. In his new book, he’ll show you exactly how to get into the real estate business for yourself to achieve the financial life of your dreams. In this exclusive interview with Kevin, Charlotte Tweed delves into Kevin’s real estate career and how it inspired his new book. 

Charlotte: Today, Kevin Bupp is with me to chat about creating wealth through real estate. Kevin is a Florida-based real estate investor, top iTunes podcast host, and serial entrepreneur with over $150 million of real estate transactions. His extensive investment experience spans the gamut of apartment buildings, single-family portfolios, office buildings, self-storage, build-to-rent communities, and his two favorites—and by far the most profitable—mobile home parks and parking lots. Thank you for joining me today, Kevin. It’s great to connect with you to share your insight in real estate investing as a proven path the generational wealth. 

Kevin: Yes, thanks for having me, Charlotte. 

Charlotte: Kevin, you have a book launching on April 26, 2022, called The Cashflow InvestorHow to create financial freedom investing in commercial real estate. What inspired you to write this book? 

Kevin: That’s a great question. The main reason behind the book is to inspire readers by sharing my story and sharing the lessons learned over the past 20 years of being an investor. More specifically, being a cash investor who invests in real estate seeking reoccurring monthly income month in, month out. In addition to my story, I’ve had mentors along the way, but also, I’ve been hosting a podcast called Real Estate Investing for Cash Flow for about eight years now. I’ve had the honor of interviewing hundreds of the most successful commercial investors and developers throughout the country and even internationally. 

Many of the lessons and strategies I’ve learned from mentors are in this book so readers can benefit from them. They do not just learn from my single perspective, but also from the 500 plus successful investors I’ve had on my show. I want to positively impact as many lives as possible with the book, through the show, and every bit of content I create. This book extends what I’ve been doing now for over eight years with the podcast. We’ve been able to impact thousands of lives and are looking to touch tens of millions of lives as we continue on this journey. 

Charlotte: Excellent. Why commercial real estate versus residential? 

Kevin: It’s a long-lived battle. Folks who invest in residential real estate have their arguments about why they prefer that asset class over commercial real estate. Those in commercial have their arguments as to why commercial is better than residential. There’s not a right or wrong here. It’s what is the most efficient way to generate passive income for yourself and build legacy wealth while doing it. I’ve invested in both. I spent about 10 years as a residential real estate investor, owning roughly 130 single-family properties for quite a few years. There are a couple of downsides to investing in residential real estate. 

Number one depends on how much passive income or cash you’re looking to generate. You’ve got to have a fairly large scale of single-family properties to make a lifestyle change or be able to become dependent on the cash flow your real estate produces. One single-family home might generate $200 to $300 a month of passive income. Whereas with the same efforts one would place into a single-family home, they could buy a 24-unit apartment complex. They could buy a retail shopping center. They could buy a mobile home park with the same strategy. The same efforts go into a single-family home to find and close on a property and operate the property. One could gain efficiencies of scale by having multiple units versus just the one thus compounding their monthly cash flow and passive income. 

That’s one of the huge benefits with commercial real estate. In addition, there’s much more attractive debt available with commercial real estate, providing you’re placing debt or leverage on your properties. There’s quite a lot of nonrecourse debt available for commercial real estate, meaning you are not guaranteeing your personal balance sheet and your personal assets on behalf of the loan. Whereas with residential real estate, that is a certainty, you will always have to guarantee your personal net worth liquidity and personal assets to obtain a loan for a piece of residential property. And last, one of the big ones with commercial real estate versus residential real estate is most of us find ourselves looking to get into real estate investments to produce income and to help either offset a full-time job or to completely replace the income from a job. 

To scale a business, a real estate business, and to have several investments underneath your umbrella, one must manage those investments. I’ve found the property management companies in the commercial space tend to be more professional and sophisticated than property management companies who predominantly deal with residential rentals and residential real estate property management. Those are the three big ones that stick out over the years. 

Charlotte: You had mentioned cash and passive income, and we often hear cash flow is king. What is the definition of a cash flow investor? 

Kevin: One who looks at a real estate investment to generate a reoccurring income each month. Some investors invest for cash flow, and then some investors will buy a piece of property hoping for appreciation. As far as speculation and appreciation are concerned, the last 12 year run-up or recovery in this economy has been the longest in history. A rising tide lifts all boats, and anyone in real estate as a more speculative investor has done quite well over the last 12 years. Even if you were buying property at retail pricing, we have found there’s been a significant amount of appreciation across the globe for the most part in real estate. 

If you bought and held for several months or years over the last couple of years or even the last few months, you’ve come out ahead—that’s a tricky game. That’s a dangerous game to play as we find ourselves in this environment today. We have a wide range of folks reading this article and listening to your material. As we find ourselves in the U.S., we’ve got a very volatile debt market occurring right now. We’ve got a Fed pushing hard to increase interest rates, which has not had a drastic impact yet on property valuations. 

But one would say over the coming months, by the end of the year, rates hit five and a half, six percent. It’s more than likely going to slow down the demand for home buying. It’s going to kick some people out of the market of being able to purchase a piece of real estate. Typically, valuations would be impacted. It’s a dangerous game to play when you’re looking to speculate on the appreciation, hoping to buy into a piece of real estate. It’s not going to cash flow. You might even have negative debt service each month, hoping the property is simply going to appreciate and you’re going to walk away with a big check thereafter. Whereas investing for cash flow, you’re looking at an investment, and potential appreciation is icing on the cake. You’re looking at what can do in good times and bad times from a monthly income perspective. Aside from being in the best markets and markets where we look at in the U.S., we look at California, we look at Florida—those markets are always a roller coaster. 

In the good times, they’re really high. In the low times, they drop really low. Those speculative investors find themselves in a dangerous zone. Whereas if you’re buying for cash flow and you’re putting that piece of property through a stress test when you’re purchasing it and running through the stress of seeing what it will do. Not only in good times, but if rates do increase, if you lose a portion of your renter base, will the property still produce revenue day in, day out, month in, month out and put money in your pocket, whether it goes up in value, or it stays the same where you’ve lost value? That’s the definition of a cash investor. You’re not a speculator at all. You’re simply investing in a good, solid asset producing reoccurring monthly and annual income into your pocket. 

Charlotte: Many people invest based on speculation wanting the big payout at the end, and it may not happen. 

Kevin: Yes. Over the last 12 years, there has been a lot of wealth made in speculation. At some point in time, that ship will sink. It’s a game of musical chairs. No one ever knows when the music is going to stop. If you were playing the game of musical chairs and were a speculator leading up to the 2008 Great Recession, you made a lot of money. However, if you had a lot of money tied up in speculative investments when the music stopped, and you didn’t find your way out at the right time, you also probably lost a lot of money, if not more than what you had made in the run-up. 

We look at assets from a completely distinct perspective. We want to ensure they do well today in a great economy, but also to see if they can stand the test of time, even if they are introduced to a level of stress throughout the lows of the marketplace. To me, that is a cash flow investor. I’m investing for the cash flow. I’m not banking on if it’s going to go up in value over the next one, three, or five years. It doesn’t make a difference to me if it does. It’s just icing on the cake at the end of the day. 

Charlotte: Exactly. This question is for people who are new to real estate investing: what is a definition of commercial real estate and a definition of residential? What makes the difference? 

Kevin: I’ll give you the definition as banks look at it. That’s where the relevance comes into the picture and how a bank will define a piece of commercial real estate. Any residential dwelling five units or larger is commercial. If you’ve got a single-family home, a duplex, a triplex, or a quadplex, that’s all going to be classified as residential real estate. If the building is a five-unit apartment complex or larger, it’s going to be deemed commercial real estate. Anything outside those parameters falls outside of the residential realm. Office buildings, retail, self-storage, mobile home parks, medical, the list is almost endless. All those outside of the residential realm will be deemed commercial real estate. 

Charlotte: Great. So, your favorite niche asset classes are mobile home parks and parking lots. Why are these classes your favorite? 

Kevin: I’ve always found myself to be a contrarian investor, one who is going in the opposite direction of the herd. Surely the herd can make a lot of money, but it also means there is a lot more competition vowing for the same deals. Mobile home parks are more specific. We began investing in mobile home parks about ten years ago. It was not an asset class on the radar of larger institutional investors or private equity firms. It was under the radar. I’m a mom-and-pop business, but it made a lot of money. The returns were phenomenal, and one could generate a significant amount of cash in that asset class, and one still can today. 

I found myself in a non-competitive environment when we initiated buying mobile home parks ten years ago. We still purchase them today. The secret is out. Billions of private equity and institutional capital have poured into our industry over the last two years, which has made it quite lucrative to be on the selling side. Being we were contrarian ten years ago up until about two years ago, it was still a secret asset class, but the secret’s out. Being a seller, we had been able to capitalize on bigger money coming into our space. We were introduced to parking lots about two and a half years ago. There were a lot of similarities between parking lots and what mobile home parks were ten years ago. 

Mobile home parks historically have been a fragmented asset class, meaning the majority of the mobile home parks throughout the U.S. were owned by mom-and-pop operators. Either the original developer or maybe it was inherited by one of the children in the family. Basically, it’s a generational asset. We found many of these mobile home park owners were aging out of these investments and represented a terrific opportunity for a more professional operator like ourselves to step in and take over the operations and run it more like a business than a family hobby. Parking lots are the same way. Parking lots are a fragmented marketplace, a fragmented asset class. Most of the parking lots in the U.S. are owned by individual owners, mom-and-pop operators who have owned the land for many decades. 

There’s an opportunity for a professional investor like us to bring a level of sophistication and technology into the business. The result is an asset with greater cash flow and greater returns than where the herd is going. The herd typically goes towards asset classes that have already been fairly consolidated. There’s lots of technology, and the margins tend to be much thinner than that of an unconsolidated asset class, such as parking lots and mobile home parks. 

Charlotte: Parking lots would have minimal maintenance costs, too. 

Kevin: They do. There are two different categories of parking. You’ve got surface parking lots, which we love. That’s a piece of asphalt in a downtown area or a tourism area. There’s not much maintenance associated with it other than a pothole here and there, and maybe re-striping the parking lines. Insurance is exceptionally low. Taxes are extremely low. They are a phenomenal asset class. 

Parking garages are slightly different. Parking garages can represent a little bit higher level of risk, more associated with an older structure having capital expenditure requirements. Continued upkeep depends on the climate type of the location. Concrete doesn’t last forever. It breaks down over time with lots of wear and tear of cars driving up multiple levels, lots of weight-bearing aspects to the structure. 

Parking garages are a bit more complex but still represent a fantastic opportunity. The beautiful thing about surface lots, Charlotte, is the lowest value of a surface lot is what it is today. You can’t take a piece of land and make it worth less than what it is as a piece of land. Meaning if it’s an income-producing parking lot in a good location, it will only ever have a higher and better use than what it’s currently used for today. At some point, maybe when cars are flying in 20 years, and there’s maybe not as much of a need for surface parking spaces, more than likely there’s going to be a higher and better use for that piece of property, whether it be a high multifamily property, an office building, or shopping complex. It’s a beautiful way to create cash flow, utilizing a covered land place strategy in a desirable location. We can generate cash month in, month out as a parking lot, have incredibly minimal maintenance, and ultimately find a higher exit down the road, whether it be five, 10, 50, 20 years later when there’s a higher and better use of that piece of property. We like that business for that reason. 

Charlotte: Yes. Fantastic exit strategy. That wraps up part one of our interview. Stay tuned for part two, where Kevin covers going off-market to find sellers, the best way to launch your future as a cash flow investor, how his investing principles apply to international real estate, and more! Thank you for being generous with your time and resources, Kevin!

Kevin: Thanks for having me, Charlotte. This was fun to share my passion for real estate with like-minded folks.

You can create a legacy with generational wealth—all you need is a blueprint that works. Kevin Bupp has etched that blueprint in stone for anyone to follow with his new book, The Cash Flow Investor. He’ll give you the knowledge to build confidence and go all in to grow your wealth much faster and greater than you could imagine. Check it out today!

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