Asset Rich but Cash Flow Poor? How Real Estate Investors Build True Financial Freedom

Taylor Sohns (00:00)
Real estate right now is the only, singular, the only sector trading at a discount to its average 20-year valuation. So I really think that investors got their hands burnt. And what you’ve seen over the past, from 2022 until today,

is you’ve seen new construction in a lot of spaces just completely dry up. And the demand is still there, right?

Scott Bursey (01:55)
Welcome back to the Real Estate Pros podcast. The podcast dedicated to giving you the cutting edge insights you need to dominate your market. I’m your host, Scott Bursey. And today we are diving deep into how to translate real estate hustle into lasting, life-changing financial freedom and long-term wealth alignment.

Joining us as a visionary in the financial investment space, Taylor Sohns of Life Goal Investments. Taylor’s work centers on aligning investment strategies with long-term financial milestones, offering a clear roadmap of real estate professionals looking to build generational wealth. Taylor, thank you for being here.

Taylor Sohns (02:36)
my gosh, thank you for having me. This is super exciting. Let’s do it, Scott.

Scott Bursey (02:39)
Yes it is,

yes it is. ⁓ Before we dive into the how, I wanna know about the who. For those just meeting you, tell us about the path that led you to founding Life Goal Investments and the core mission that drives your work today.

Taylor Sohns (02:55)
Yeah, so it’s funny, I grew up in this little one red light town in upstate New York. It was definitely a redneck town. ⁓ I had culture shock when I went to college. I went just outside of Manhattan at university called Iona University and played football there. And then from there, directly to Wall Street. So there’s a real business side of that university. And so after doing undergrad and grad work, went to work on Wall Street, which was the coolest opportunity in the world. ⁓ And the role I had was this role called an advisor consultant.

And it’s half ninja that no one even knows exists, right? So you work at the large money managers. My business partner is my brother. He worked at BlackRock, which everyone knows. ⁓ I worked at a company called Legg Mason, which at the time managed a trillion and a half or something like that with a T trillion, right? And so just a spoiled upbringing. So that advisor consultant role, what it meant was basically kind of dual split where half your day is

You’re sitting on the desk with the portfolio managers that are managing this trillion and a half dollars where they’re building out the mutual funds, the ETFs, the hedge funds that get sold down to the end public. So you’re watching hands on for a decade plus for me every other day watching them move around billions of dollars, which was just incredibly exciting to get an idea of what the best investors in the world are doing. And then the other half the day is the ninja side of things. So effectively,

We were financial advisors to financial advisors, which is kind of a really foreign thought. Why the hell does a doctor need a doctor kind of thing, right? But the reality is a lot of financial advisors graduate college with a marketing degree or God forbid a biology degree and they go to work at one of these big banks. They’ll hire anybody and they tell them, Scott, your job is to bring in $10 million this year or you are fired. And that creates this incredible, incredible salesperson.

that has little to no background in finance, in tax planning, in investment, and overall financial planning, which is just this crazy ingredient to then drop tens of thousands, millions of dollars on. But that’s the reality. So a lot of times when they had a client that comes in and they would go, hey, I’m way over my skis. And they would fly in a nerd on the back end. And we were those nerds to come and design the financial plan, the investment portfolio, et cetera. And then

they would plug it to the client.

Scott Bursey (06:06)
Awesome.

Awesome. And Taylor, we’re honored to have you here. Let’s get right into the questions real estate pros need answered. Taylor, given the current economic volatility, what is the single most critical adjustment real estate investors need to make right now to protect their capital and still achieve life goal aligned returns?

Taylor Sohns (06:30)
Yeah, I think the biggest thing happened three years ago and you had a lot of these syndication deals literally go to zero. so obviously what happened there was there was this just big re-racking of cap rates based on financing costs. So in 2022, coming into it, we had been in a low rate environment for the better part of 15 years and everyone just thought, okay, rates are low forever. so financing costs are basically free. And then we have this whole

play out of the 2022 environment where we’re coming out of COVID, there’s stimulus checks flying around, every business is getting a PPP loan and Russia invades Ukraine and inflation just absolutely bottle cork erupts. And so the Fed tracks it down by raising interest rates. And what that did was just beat up people’s cash flows and it flipped cap rates from a compressionary environment to an expansionary environment. And a lot of these syndication deals went from, you and all of your 50 buddies that are investors in this.

all have a piece of it to now the only person left with a piece of it is the bank. And so I think that real estate got taught a pretty nasty lesson, specifically on the commercial side. The commercial side has been a dog with fleas for the past five years, three to five years. And I actually think, and we have no vested interest, we are in the space where we manage folks’ finances, we can go outside of the real estate spaces where the bulk of our assets land, but we have more recently,

picked up our exposure in the commercial real estate front because we think that there is real value and that’s one of the few areas in the market where there’s real true discipline value in this market.

Scott Bursey (08:09)
That’s truly eye-opening advice for our listeners. And Taylor, if you could walk us through this, life goal investments emphasizes specific financial milestones. How can a real estate professional practically structure their portfolio to transition from simply generating cash flow to funding major life goals like early retirement or legacy planning?

Taylor Sohns (08:38)
Yeah, I think the real estate folks often create a relatively complex investment picture. ⁓ I was just on the phone with someone last week and they’ve done an incredible job of generating income or, let me rephrase, generating wealth from their real estate exposure. ⁓ They own 20 homes in the Charlotte area, ⁓ but they were very asset heavy and cashflow light. And I think that’s very indicative of

folks in the real estate business as they build their portfolio. And he was saying, hey, I want to step away from the real estate space. Or I’m sorry, I want to step away from my job. He had a regular W-2 9-5 job. I want to step away and have real estate cashflow this thing. And I’m like, well, what’s the net cashflow off these 20 properties? And I was surprised to hear him say that after expenses, it was only roughly $2,000 a month. And so I stepped back and I said, okay, that’s not possible then, right?

And so I think that there’s always this game in the real estate space of, hey, I want to have a hundred doors. Well, maybe you do, maybe you don’t, because at the end of the day, if you have to leverage one property into the next and the next and the next and the next, right, if everything remains good, OK, that’s fine. But oftentimes, even if everything remains good, the cash flow just really isn’t there. And so it does create a more of a complex financial picture for someone that we work with.

relative to a business owner that just has constant cash flow coming or even someone that’s a high income W-2 earner that has constant income coming in. They’re typically more cash flow heavy, whereas the real estate folks are more asset heavy, cash flow light, and you have to get a little bit more creative on our side how to structure a financial plan around that picture.

Scott Bursey (11:03)
Understanding structure is clearly not something to gloss over. So thank you for that. And curious Taylor, what is one overlooked asset class or market niche within real estate that you can feel that you feel, you know, presently is maybe the biggest opportunity for investors looking long-term, let’s say, low volatility returns ⁓ right now as you see it.

Taylor Sohns (11:31)
Yeah, so I don’t know that I claim to be an expert in, hey, real estate, broadly speaking, and then let’s break out every subsector, but I can speak to what the big institutions are seeing right now. And so we invest in real estate through big institutional players that manage hundreds of billions of dollars that are buying real estate exposure on behalf of our clients in a fund. So what they’re seeing the biggest opportunity in right now is in the warehousing space.

Right, and that’s where they see the best ROI going forward. And I think their view, and granted, they also think that their ability to buy realist warehousing is better than other folks’ industrial warehousing. But they’re forecasting a lot of these firms in that kind of 12 % return ballpark. And they think that that will be a relatively low volatility 12 that comes from that. ⁓ I think the opportunity is broad in the real estate space right now.

Real estate, when you look at it, there’s 11 sectors when you break down the S &P 500, the broad global equity, or I’m sorry, US equity index. There’s 11 underlying sectors.

Real estate right now is the only, singular, the only sector trading at a discount to its average 20-year valuation. So I really think that investors got their hands burnt. And what you’ve seen over the past, from 2022 until today,

is you’ve seen new construction in a lot of spaces just completely dry up. And the demand is still there, right?

Our population is still growing. Now, immigration has cut into that a little bit, but there’s still population growth. And you’ve had multifamily housing constructions. New construction has been cut by 65%. Industrial warehousing has been cut by 62%. So if you have the demand still there and the supply dynamics have been completely shaken because of higher cost of capital,

Right. know rates are just interest rates are just higher than they were three years ago. Now they’re coming in a little bit now. So you have higher cost of capital. You’ve got higher cost of labor. You’ve got higher cost of materials. So all of these are an impediment to new builds. And so therefore if you’re an existing landlord of one of these real estate properties I think you’re in a probably a pretty fair spot going forward after just having taken it on the chin over the past three years.

Scott Bursey (13:53)
And Taylor, from an investment firm’s perspective, what operational metric or practice, if followed religiously, can be the most effective catalyst for scaling a real estate business past the typical individual limit?

Taylor Sohns (14:10)
Yeah, I don’t know that I’m necessarily the foremost expert in that underlying equation, but I will say that one of the things that we view from kind of a financial planning perspective is that oftentimes it’s seemingly a sprint with real estate investors. It’s again, I think they get the bug. They understand that some of the greatest wealth in this country that’s ever been accumulated has been accumulated from real estate entrepreneurs. And so they look at it and they say, hey,

They ran a 50 unit operation to a 500 unit operation to a 5,000 unit operation, et cetera, and they just scaled it. And so the intention there is to run as fast as you can at that. But I think that often comes with no margin of safety.

And so it’s throwing caution to the wind and it’s buying, buying, buying, buying. And I think it’s often indiscriminate buying from a value perspective. And I think that was recognized in 2022.

when you had interest rates pop and then cap rates flip. ⁓ But I also think it’s indiscriminate from a financial planning perspective. And I think that you always need, as an individual, as an entrepreneur, at a business owner, you need to have a margin of safety. So you can’t deploy every dollar worth of capital, right? And there are, you can diversify in real estate. Like, don’t get me wrong, you can diversify. But you’re still involved in one subsector.

of the overall economy, right? And it’s been a tough one. We’ve had a rolling recession and real estate has been in the crosshairs of that rolling recession. So I guess my point in saying that is I think that real estate should not be the only thing that anybody should invest in. And I think that, you know, even when it comes to building out that real estate portfolio, I think a lot of people think locally. Well, locally comes with idiosyncratic risk. Hey, I’m a buyer in Indianapolis. I’m a buyer in St. Louis. I’m a buyer in San Francisco. I’m a buyer in

Detroit, well, hopefully you weren’t a buyer in Detroit in 2007, right? So that’s kind of something you have to think about. So not only do you have to diversify with your real estate exposure, but you also, all real estate has taken it on the chin, right, in the last few years here because of that movement in interest rates. So I think you have to think about diversification to create a margin of safety for you and your family at large.

Scott Bursey (17:13)
For not being an expert in that arena, that was well breaking down. Thank you so much. Yeah, that was well explained. I’ll say this consistency in documentation is always key yet so often overlooked Taylor for a real estate pro looking to double down on long-term wealth, let’s say, you know, building.

Taylor Sohns (17:19)
I’ll take all the lies, Scott. I’ll take all your lies. Thank you.

Scott Bursey (17:39)
What new technology or financial tools should they focus on, perhaps, into their investment decision-making process?

Taylor Sohns (17:50)
Yeah. So it’s interesting that you talk about documentation and having true financials scripted out and very organized. I just went through the process called the SIPA, which is Certified Exit Planning Advisor. And it’s a curriculum that helps you effectively work with a business owner to increase the value of their enterprise before they exit. And then once they exit, helping, obviously, mitigate taxes and manage the wealth in the back end as well.

But one of the core value drivers, which seems so, so, so simple as to how much someone’s going to pay, willing to pay for your business, is how your documentation is, how organized it is. They often want to hire, you know, to hire an internal CFO in order to make that documentation as crystal clean as you possibly could a year, two years prior to an exiting of a business. So my point of all this is just doubling down on your statement that your business’s value

is a multitude higher when you have organized books. And so it’s incredibly important to understand what it is you’re using and how to improve upon that because it can take your business from a $10 million business to a $15 million business on that very simple underlying. Because when someone comes in to analyze your books and analyze your business at large, they don’t know where else to go besides for the numbers that you produce for them. So they need to be clean, they need to be reputable.

And that really can drive a lot of value to the underlying organization.

Scott Bursey (19:23)
Excellent point. We covered a lot of ground here today. Is there anything that you’d to share with our listeners? Any takeaways or golden nuggets?

Taylor Sohns (19:34)
Yeah, I think that, ⁓ you know, as real estate investors, again, I’ll just reiterate kind of a couple points. I think that they create a little bit more of a complex financial picture for someone in our shoes. Our shoes, you know, our business is built around working with wealthy folks that have additional capital that they need to put to work and invest and create a financial plan, mitigate taxes. All of those things are what we work, you know, every day hand in hand.

with the underlying clients that we work with. The real estate industry is an interesting one because again, it’s just that sprint that we often see, hey, I just want more and more and more real estate. When I think that taking a breath in the real estate space after you’ve got a foothold and starting to open your eyes to broader opportunities is something that’s really, really important because at end of the day, like you can have a 2022 event and 2022 affected real estate.

with the absolute bull’s eye on it and I think you want to be prepared for that, but there’s really no way to do that with idiosyncratic focused risk on real estate. And then I think on the back end of real estate, something that folks need to be thinking about is, okay, once I’ve got past the scaling stage and I don’t want to continue to move from one opportunity to the next in this leverage cycle that people play, now all of a sudden your leverage starts to come down.

and all of sudden your cash flow starts to go up. And oftentimes there’s that point of inflection where you go from asset rich cash flow light to asset rich cash flow rich. And that’s where we’ve been able to step in and help real estate folks really dramatically reduce the underlying tax burden that they’re paying on that underlying cash flow that then is being produced. That when most folks look at an underlying, hey, this is similar to someone

generating a W2 type income as an employee. As a business owner, you take a distribution from the business. That taxation wise is the highest taxable burden that you can possibly face in this country. And most folks think, hey, if I can’t write it off via the real estate properties or via my mortgage interest, et cetera, there’s nothing I can do about it. Well, that’s just not the case. And that’s where we’ve become really, powerful in helping some folks. We have some folks in the Sun Belt that have

five, six, $700 million in real estate exposure each. And they are spewing cash flow and we’ve been able to really materially drop their ordinary income taxable burden on an annualized basis. And then when they sell it on the back end, my gosh, can we be helpful in that stance where, hey, you you are going to get absolutely obliterated with capital gains tax after you’ve depreciated these assets. There are ways to, if not fully alleviate that capital gains tax burden, darn near it.

And it’s something, you know, it’s stuff that’s out there that people just are unfamiliar with, which is kind of shocking, but true.

Scott Bursey (22:34)
That is some million dollar advice right there. Thank you so much, Taylor. for the… Concur, absolutely. Thank you for enlightening us and this has been awesome. For the listeners who want to build with you or just follow the play by play of your journey, what’s the best way they can reach out to you?

Taylor Sohns (22:38)
For a lot of people, it’s a lot more than singular million dollar advice for the record.

Yeah. So I think the best way to just get an idea of how it is we think about things is it’s tracking us on our social media. So we put out a daily video of 60 seconds ish and we’re on every platform from Instagram to TikTok to LinkedIn to Facebook to YouTube. We’re at Life Goal Investments. And then we also have just launched a podcast within the last six months that’s grown really rapidly as well. And that’s called the Life Goal Playbook.

and you’ll get a pretty good flavor. You’ll see my ugly mug on there every day doing those videos. You’ll get a pretty good flavor as to what we’re all about. Even if it’s 60 seconds, it’s 60 seconds every single day. Like it or not, here I come. ⁓

Scott Bursey (23:38)
Thank you for joining us today, Taylor, and for sharing your vital insights. This has been totally awesome.

Taylor Sohns (23:45)
Thanks, Scott. Appreciate you having me.

Scott Bursey (23:47)
And for our listeners, we appreciate you. If you got value out of today’s episode, please subscribe. We have more conversations coming up with operators just like Taylor. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.