122: Cash Talk with the Cash Flow Ninja

A few conversations I had with investors over the last week got me thinking that we need to talk about some basics again. First of all, let's start with why I generally prefer to own an asset (either in entirety or a fraction) as opposed to simply holding a note. What is a note or promissory note? It's basically a promise to pay the lender a certain amount of interest over a period of time with return of capital. So, let's say you loaned money to someone flipping some houses and they issued you a promissory note for 8 percent. The borrower is then allowed to keep any profits above and beyond payments to you as a lender. Regardless of how well that property does, you get 8 percent at best. I say at best here because understand that a promissory note, while legally binding DOES NOT guarantee that you will make 8 percent. Your promissory note is nothing more than a lien. Hopefully it's a first position lien and hopefully the asset value will cover the amount of debt you as the issuer lent in the first place. After all, if you lend $100K to someone and they default, you better hope that the asset is worth at least $100K so you can sell it off and recover your initial capital. Is that a guarantee? For anyone who thinks it is a guarantee, I refer you to all of the notes that were defaulted on in 2008. A lot of broken promises right? If you think that all those people who made loans got their capital back, you're sorely mistaken. There is no such thing as a guaranteed investment. Even the Securities and Exchange Commission will tell you that. Just google it. The only asset that is considered "guaranteed" is the US Treasury and that's another story entirely. If anyone tells you otherwise, it's a big red flag and you really ought to run the other way. So, if you are not "guaranteed" money and your upside is limited, why invest in debt rather then equity on any given project? I can tell you that I will always invest in equity over debt. You have way more upside, you hedge inflation, and you get tax advantages. Notes have none of these qualities nor are they guaranteed. Now, I'm not against investing in notes. I've done it myself with people I trust. However, I never do it thinking that it is safer than investing for equity. In fact, if I am investing in debt, I sure as hell better be getting more than 8 percent because the potential upside needs to justify the risk. Anyway, hopefully that makes sense. I don't do the weekly wealth widget anymore but I need to make sure I clarify things that I don't think people are quite understanding. We all want cash flow but be smart about your investments and look at them holistically. And, for heavens sake, if someone uses the word "guaranteed" in their offering, short of being the United States government, run the other way. My guest on Wealth Formula Podcast today will attest to everything I've said. And you should take his word for it. After all, they call him the Cash Flow Ninja! Shownotes: [00:07] Introduction [08:53] Buck introduced MC Laubscher [11:22] How does MC balance his workload [12:37] What's new? [20:21] E-commerce [23:27] How to get started? [36:12] Guaranteed money? [52:07] Outro