Look at our current environment. The S&P is at the top of the market. We’re seeing trillion-dollar IPOs at 100 times revenue. And yet we are dealing with unpredictable global conflicts, persistent inflation, and interest rates that show no sign of dropping.
Where do you invest in a market like that?
You invest where your returns will start materializing today, and keep materializing regardless of your crystal ball. We are talking about durable cashflow.
We don’t want our whole portfolio riding on an even higher high. We don’t want the promise that we’ll make a 20% return five years from now when somebody eventually sells the asset. That’s hope. Hope isn’t a strategy to build wealth on.
We want to make investing predictable again. Not by throwing appreciation out the window. By choosing the structures that provide a steady inflow of robust returns as the baseline. If we end up selling at a gain, that’s a bonus.
Here are the vehicles we are using to produce cashflow we can count on.
1. Real Estate: Buy the Yield on Day One
Real estate offers four potential benefits: depreciation, hedging against inflation, yield today, and appreciation tomorrow. Depreciation is stronger than ever, thanks to OBBBA. But the others shouldn’t be taken for granted in the current market.
The last five years tell us that appreciation has to be underwritten very conservatively. The inflation hedge is weaker than people assume, because rents do not automatically rise with inflation. And if you want yield in an often oversupplied market, you have to look hard for it.
The opportunity is in true secondary and tertiary markets. Institutional capital hasn’t compressed cap rates down to primary-market levels there. You can still find seven caps in markets where comparable product in major cities trades at four or five caps.
But don’t higher cap rates mean higher risk? Sometimes. Many markets are cheap because they should be; demand is thin and unstable. But there are just as many mispriced markets where the macro story checks out. We look for population growth, employment diversity across three or more sectors that are permanently established, and a basic quality of life that keeps people there. When you find a seven cap in a market with those fundamentals, you are getting paid for the market’s lack of prestige, not its lack of viability.
A seven or eight cap gives us a margin of safety. We don’t need rent growth or appreciation to make the deal work. Stress-test the property at 70% occupancy with low leverage. If it still cash-flows, we have something we can hold through a bad market instead of being forced to sell into one.
Until recently, maximizing cashflow meant major value-add investments to push up the rent. But new supply has narrowed that spread. We would rather buy dependable yield and add simple operating revenue on top of it.
Bulk internet is one example. Contract it at roughly $30 per unit. Offer it to residents at $70. You save the resident money relative to retail service and create $40 of monthly net revenue per unit. In lower-rent markets, that’s a disproportionate return on investment.
2. High-Yield Notes: Double Digits From a Debt Instrument
There is an entire universe of high-yield paper that tends to fly under the radar. Seller-financed real estate notes. Hard-money loans on home flips. Loans backed by hard assets.
These are often good borrowers. Their transactions simply do not fit the conventional lending box. Traditional capital cannot move quickly enough.
Right now, we look for notes paying roughly 8–11% unlevered. You get equity-type returns from a debt instrument, with collateral underneath.
But the yield exists because the credit risk is real. Defaults of 2–3% are part of the strategy. The important question is not whether borrowers will default. Some will. The question is what happens after they default.
A 3% default rate is manageable when the lender originated conservatively, holds an equity cushion, and knows how to take back and sell the collateral. That same default rate will destroy the portfolio if the lender has to fire-sale every recovered asset. One bad recovery wipes out a year of interest income.
If the collateral is a restaurant, we want somebody who knows how to own and sell restaurants. Find a fund that specializes in originating, buying, and servicing a defined class of notes. Look at their loss-adjusted yield and recovery history, not just the headline coupon.
Durable high yield comes from making sure the risk is managed by someone who knows what they are doing.
3. Mineral Rights: Passive Royalties With Tax Advantages
The third place we look for durable income is oil and gas mineral rights, where we are seeing opportunities in the 10–12% range.
Mineral rights trade appreciation for low-maintenance income. They can be genuinely passive.
You own the deeded interest in the land. Somebody else drills and operates the wells. You collect royalties. No tenants. No maintenance. No capital calls. The royalty is generally a percentage of gross revenue, not profit, and can run 10–25% of the production revenue.
There is also a tax advantage built into the income. Mineral owners generally receive a 15% depletion deduction. If the minerals produce $100,000 of royalty income, only $85,000 is taxable before considering other deductions.
That’s purely a paper loss. You collect the full cash amount while reporting less taxable income.
What About Appreciation?
Most people are not getting out of equities or investments with significant appreciation potential. There is always room in a portfolio for those bets.
The point of cashflow is simply to build the margins that allow you to take them. And in this environment, you need a lot of margin. Don’t buy a promise of appreciation. Buy cashflow that works today. Maybe you sell at a gain, maybe you don’t. Either case pencils. That’s a good upside.