I have another dispatch from the frontier for you before we dive into the world of cash flow investments. Check this out…
I snapped this picture just as the sun began its ascent over the mountains overlooking our property the other morning. I’ve never seen the sky light up orange like this before.
To me, this gravel road leads to the end of the world. It winds its way across our property to the very last utility pole in the area. Then the road ends. It stops at the foot of the mountains. There’s not even room enough to turn around.
There’s something grounding about places like this.
Out here, the rat race feels like a world away. And you’re reminded of what truly matters—family, freedom, and building a solid foundation that lasts.
That brings us to our discussion on cash flow investments today. Building cash flow is not just about making money… it’s about creating a life where you call the shots.
But let’s step back for a minute.
We’ve been exploring how to build a robust asset portfolio – one that makes your money bulletproof and generates monthly income to fuel your freedom. As a reminder, a bulletproof asset portfolio includes:
- Reserve Assets
- Strategically Warehoused Cash
- Capital-efficient Stocks
- Cash flow Investments
- Alternative Investments
Today, let’s dive into cash flow investments – the engines that pay you month after month, year after year. The two assets we’ll cover are rental real estate and mortgage notes.
Rental Real Estate: The Timeless Hard Asset
Famed industrialist Andrew Carnegie once said that 90% of all millionaires become so through owning real estate. I’m not sure if that’s the case today, but this speaks to the timeless nature of this asset class.
The key to investing in real estate is to focus on quality and cash flow. Cash flow is king.
I know there are plenty of people who speculate on real estate hoping the price goes up. Others are always looking for an old dilapidated property that they can buy for a song, fix up, and then flip. I don’t care much for either of those games.
To me, the best approach to real estate is to buy nice new construction properties and rent them out to tenants on a long-term lease. Having owned both new construction and older rehabs, I can say from experience that new properties usually make for better rentals.
It all comes down to a principle we discussed last time – investing is about ownership. When it comes to my real estate portfolio, I focus on homes that I wouldn’t mind living in myself. They are properties that I’m happy to own.
But remember, cash flow is king. I would never buy a property if it couldn’t produce cash flow from day one. That is to say, the rent must be able to cover the mortgage, taxes, insurance, and property management costs.
Speaking of, we should always use a professional property management firm to manage our properties. I know people who self-manage… they are constantly stressed to the max.
Self-managing your properties is like having a second job. I’d rather hire a company to do that work for me. They’ll be able to do it better anyway.
So if we buy nice properties that are professionally managed and generate cash flow, real estate provides us with:
Steady Passive Income: Our property manager collects the rent and deposits it into our bank account every month.
Inflation Hedge: Fixed-rate mortgages become easier to pay as inflation rises and rents increase – offering a shield against inflation.
Tax Advantages: Depreciation can offset our rental income entirely, wiping away our tax liability. This makes the cash flow we receive purely net income. We can also run real estate through an LLC to open the door to a myriad of other tax deductions.
Now, getting into real estate is a slow game at first. But imagine owning a portfolio of 10 single-family homes, each generating $600 a month in cash flow. That’s $6,000 a month coming in like clockwork… not bad for passive income.
Juicing Our Cash Flow With Mortgage Notes
When we talk about investing in mortgage notes, we’re talking about buying somebody’s mortgage. So when they make their monthly payment, it comes to you. Their payment is your cash flow.
I don’t think this is well known – but anybody can buy mortgages like this. There are no restrictions or accreditation requirements.
And there’s an active secondary market where people buy and sell mortgage notes routinely… if you know where to find it. It’s a relatively small marketplace, however. Because most investors just don’t know that this asset class exists.
Now, we use professional loan servicers to manage our notes portfolio. They send out monthly statements, collect payments, and provide customer service to the property owner—we aren’t involved in any of that. The homeowner has no idea we exist.
Then, just like a property manager, the loan servicer deposits the principal and interest (P&I) portion of the mortgage payment into our bank account each month – keeping a very small portion of it as their fee.
This makes owning mortgage notes about as hands-off as possible. Especially because we don’t have to worry about repairs and maintenance, as we do with real estate.
In a sense, mortgage notes are the other side of the coin. If purchased correctly, mortgage notes come with considerably less risk as compared to physical properties.
Mortgage notes are also capable of producing stronger cash flow in the current climate. And I’m consistently seeing attractive notes selling in the $10,000 to $40,000 range – making the barrier to entry low.
To give you a feel for it, I’ve seen quite a few notes in this price range recently that produce between $500 and $600 a month in income for the investor.
There are some trade-offs, however. Mortgage notes are not a hard asset with the potential to appreciate in value. Instead, the value of each note diminishes with each monthly payment made.
Along the same lines, mortgage notes come with a fixed term. Once the note is paid off, the cash flow disappears. Thus, we need to be mindful about reinvesting the cash flow we receive.
Tax Synergy: The Secret Sauce
Now, the real magic happens when you are mindful about building a portfolio of both real estate and mortgage notes. If we structure it right, we can accelerate depreciation on our real estate and use it as a phantom loss that offsets the income we receive from mortgage notes as well.
And it can get even more advanced than this. If we run our operations through a management company, we can potentially shift a chunk of our personal expenses to the business… making them tax-deductible.
That’s a big secret America’s wealthiest families have used for generations now. It’s all about being as tax-efficient as possible.
So if we go about building a portfolio of cash flow investments in this way, it doesn’t take long to have thousands of dollars in tax-free cash flow coming to us every single month.
And unlike retirement accounts, there are no restrictions on that money. We can use it for whatever we want.
That’s why I see this approach as the ticket to financial independence. The moment your monthly passive income exceeds your expenses – you’re free. You become work-optional. You can choose to work or not to work… because your investments pay the bills for you.
And here’s the kicker – building up your finances this way doesn’t require you to sell off your assets in retirement. Instead, you can build a legacy that lasts.
That’s something I get excited about. If we’re smart about it, maybe we can eradicate the rat race once and for all…
-Joe Withrow
P.S. Would you like to learn more about this approach to investing… and maybe walk through some specific real-world examples to see how it actually works?
If so, I’d like to invite you to join us for our next webinar: The Strategic Investor’s Playbook: Bulletproof Money, Consistent Cash Flow.
We’re going live at 3:00 pm Eastern on Wednesday, May 14th. Space is limited, so please register in advance. You can do so at: The Strategic Investor’s Playbook Webinar Registration