Russell Gray: The Main Street Investing Strategy for Cash Flow and Resiliency

Russell Gray (00:00)
We are literally watching the most aggressive administration in history dismantle the status quo worldwide. Breaking up NATO, breaking up OPEC, breaking up the attempt to de-dollarize with BRICS, talking about auditing Fort Knox, changing

the US from a financialized economy to a manufacturing economy. I think most of these things are actually good things to aim at. But, you know, anytime you are tearing everything apart, there’s, and trying to put it back together, well, while you’re driving down the road, there’s a chance you’re going to break something. And in that breakdown, the people who are resilient are going to end up being a lot safer than the people who are trying to maximize profit. If you think that you can play the game the same way you did the last

10 or 15 years since the GFC going forward. If it works, you’re going to look like a hero. But if it doesn’t, you’re going to get your rear end handed to you on a silver platter. I know because that’s what happened to me in 2008. So I play the game very differently today. And it’s about being able to weather the storm. know, when I was a kid, we had this game called shoots and ladders. And when you get very close to the top, there was this one shoot that if you hit it, you went all the way back to the beginning.

Scott Bursey (02:45)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey and Pros today we are strapping in for an economic deep dive that will recalibrate your entire investing strategy. Our guest, Russell Gray of Main Street Financial is the pro who is bringing the high octane clarity fuel needed to navigate this extreme economic makeover. He’s got the vision for why Main Street is the place to be.

And he’s here to pour that confidence right into your tank. Get ready to accelerate your understanding of the market. Russell, welcome to the show.

Russell Gray (03:18)
Scott, thanks for having me. Excited.

Scott Bursey (03:20)
It’s just wonderful having you here. We’re absolutely fired up. To help our listeners get ⁓ up to speed, please give us the front row seat and how your career ignited and where you’re pouring your fuel now.

Russell Gray (03:31)
Yeah, for me, where I’m at in this season of my life, a little bit older, I got kids and grandkids. I’m thinking a bit like a founding father. I am really focused on the next generation. I think that we have a demographic shift going on that has real world ramifications. I think we’ve seen that in the elections that occurred in New York and in Seattle. And there’s ⁓ a growing belief on young people that

Capitalism is something that is bad and socialism is something that is good and anybody that cares about business and profit private property and the ability to grow wealth and And and enjoy your constitutional rights has to be concerned about that So where I’m spending my time investing if you will I call it Main Street investing in Main Street is sharing ideas forming collaborations ⁓ helping take people who are experienced investors and

entrepreneurs and getting them into a mentoring relationship with young people and with parents of young people to help them start businesses. really do think Main Street capitalism is the cure and it’s not rhetoric, it’s not talk, it’s actually helping people start businesses, make investments, develop streams of passive income, not be threatened by AI and robotics, but put them to work to help them actually grow profits. So that’s

That’s really where I’m living right now. I spend all my time thinking about how to do that bigger, better and faster.

Scott Bursey (04:58)
Thank you for that, Russell. You know, that’s powerful. What really caught my attention about you was the way you’ve been able to look past the noise of Wall Street and consistently articulate a compelling, well-researched argument for how the economic current extreme makeover is creating massive, accessible opportunities for real estate pros right on Main Street. You know, that kind of future-proofing vision is pure investor fuel.

Russell Gray (05:25)
Yeah, you know, I’ve never been more bullish, actually. I got a chance to sit on a panel. My buddy Ken McElroy and his friend Tarle Yarbrough put together a conference every year called Limitless Expo. And I think it was either last year or the year before I was on a panel. And Tarle asked all the panelists what we were looking at that maybe other people weren’t looking at. And one of my comments had to do with the idea that

we have been so trained to look for an injection of capital flows coming either from the Federal Reserve through monetary policy, lower interest rates, quantitative easing, or through the government with the Treasury fiscal policy, government spending, government jobs. And that what I feel like a lot of people are ignoring right now is this shift towards monetizing Main Street through trade policy. And so not everybody really

and enjoys Donald Trump’s style. But I think if you do a little bit of a deep dive, and I did a presentation on this at the Best Ever Conference year before last when Trump was only six weeks into his presidency, and I was trying to figure out where I thought he was going to take us and what he was going to do. And I’m actually pretty proud of that presentation because I think with only six weeks into his administration, the things that I thought that he would do, he’s done.

And that is to lower the cost of energy. And I know notwithstanding what’s going on in Iran right now, which I think is a temporary situation, go after taxes, go after regulation, go after interest rates, try to lower the cost just the way you would if you were remodeling a building and you want to create room in your budget to spend more in some areas, you value engineer other areas. And I think the areas that he wants to work on are velocity, which without inflation,

and wages without inflation. And so I don’t know that he’s going to be successful, but that’s what I think he’s aiming at. I think that the policies that we’re trying to put in place are going to be very pro Main Street. And some of these trade deals and some of the commitments of capital coming into Main Street, I think are going to create a real boom. You marry that to the opportunity zones and the idea that these governors are going to be able to tell you geographically where they want that money to flow.

and the incentive for investors who’ve experienced capital gains and say, for example, the stock market or even in precious metals and have an opportunity to defer those gains in opportunity zones. And then you look at where some of these big military spending is going to be, because that’s a big part that is is fiscal stimulus for sure. But then also all of these trade deals, like, for example, in Arizona, you got ⁓

Taiwan’s semiconductor putting $100 billion in. I you don’t have to be a rocket scientist to know that that’s going to have an impact. And I think there’s a little bit of a lag right now. And I think people can get lost in that lag and not understand what I think is coming. So I think there’s a lot of opportunity coming that we need to paddle quickly into position to take advantage of. But the flow of capital is not going to be from the sources that we’re used to seeing it.

And I think we’re not trained as investors to look at this other aspect of where capital can come from and where it can land. And I think real estate investors in particular have a real advantage right now because these are geographic spends are easy to see where the money’s going to flow.

Scott Bursey (09:28)
I appreciate you highlighting that Russell. Now let’s transition. What’s the biggest advantage of investing in tangible Main Street assets during an extreme economic makeover?

Russell Gray (09:39)
You know, if you look at the wisdom of classic money managers on Wall Street, and I’m no fan of Wall Street, but there are things to be learned from people who spend time looking at the macro and what’s going on. And, you know, what they look at is where do you flee for safety? And if you’re going to stay invested in the market and not flee into something like gold or treasuries or cash, you’re going to stay invested in the market. What professional money managers do in difficult times is they focus on what they call

Consumer staples things that are real and essential right you’re gonna invest in food. They’re gonna invest in energy They’re gonna invest in health care and I think that that wisdom is true So to me whenever you’re going through any type of economic circumstance if you and I don’t think really it’s timing I think it’s a matter of just always having a portion of your portfolio Allocated towards things that are real and essential obviously housing is right near the top of the list health care food energy ⁓

you know, are all right on that list. And then, you know, of course, inside real estate is housing. There’s different levels of housing. There’s different types of housing. And so you can take a look at that. And again, going back to the geographic ⁓ aspect, you know, lot of the guys that are talking on TV, the financial pundits who are used to looking at commodity assets that are really all the same everywhere, same price everywhere, and they trade in near perfect markets. That logic doesn’t apply to real estate.

Real estate is very inefficient. It’s very localized. There’s a lot of ⁓ opportunity to find deals and bargains and negotiate based on seller motivation and local circumstances and changes of use. So real estate is its own particular animal. And so I think there’s ways to find value, to create value with respect to real estate. And I think the other aspect that makes the big, big difference between the way Wall Street ⁓ approaches investing and the way I Main Street approaches investing

And I think this is the future. think people are going to really want to be focused on investing in productivity versus capital gains. In other words, the buy low, sell high gambling type mentality, always trying to figure out where the injection of capital is going to come, where the wave is going to come. You you look at right now, the valuations in Wall Street stocks from a price to earnings ratio are very high, from a dividends payout ratio, very high. In other words, there’s not much yield.

And so for people who are actually wanting to invest in yield, there’s more opportunities, I believe, on Main Street. And the closer to Main Street, the more involved you can get in understanding your niche market, your niche ⁓ product, and the local economic circumstances. It gives you real opportunity, both on the debt and the equity side, to produce above-average yields, backed by something that’s real and essential and much more tangible.

versus things like ETFs, derivatives, these things that they’re not really real and their valuations are based on comparative samples instead of actual productive income. If you judge these investments based on income, you’d never buy them because the yields are so slow. Everybody’s just betting the greater fool is gonna come along and pay more. And I think that’s a dangerous thing to do in today’s environment.

Scott Bursey (12:50)
Curious Russell, what’s the most common financial blind spot you see in investors who are currently bullish on Main Street?

Russell Gray (12:58)
I think just assuming that inflation is gonna be a thing, assuming that interest rates will stay stable or maybe come down to think that rents will stay stable and maybe move up to not take into consideration the impact on the shenanigans on Wall Street that impact hard costs. I’ll give you an example. We had interest rates rise by the Fed.

And when that happened, it created a lot of trouble on balance sheets for people that are heavily loaded up with bonds. And these are things like insurance companies and banks. And we saw Silicon Valley go bankrupt right away. Signature Bank went under. So there’s a lot of damage in those balance sheets. And you think, well, that doesn’t matter to me. Well, it kind of does. Because when an insurance company balance sheet is not able to feed their

cash flow needs and a lot of people use their assets to make their cash flow. I a lot of people on Main Street do that. They do cash out equity, they trade stocks. I mean, they’re always trying to cash out equity to create cash flow. Well, if an insurance company can’t get enough money off their balance sheet, then it’s going to have to come from their cash flow. What does that mean? Rising premiums. You talk to people, especially in conventional real estate, are trying to manage their P &L. And even though the interest rate and the

the rents might be steady, they’ve got these rising expenses. And one of the big components of that expense is the insurance. And that had direct ties back to Fed policy. And so when you don’t have an economic understanding, you don’t see that coming until it hits you. And by then it’s too late to respond.

Scott Bursey (14:35)
We don’t want to be blindsided by that. Help us, you know, walk us through this. What sector of Main Street real estate, be it small, commercial, multifamily, is poised for the most growth in like the next 12 months?

Russell Gray (15:23)
So I don’t know about the next 12 months, because again, I don’t necessarily think things are super short term. If I were to say that, I would say focus on where the cash is flowing based on military spend and the Opportunity Zone programs and where this capital, as I alluded to earlier, is going to be injected as factories open. think that if you’re looking for what can happen in the next 12 months.

You might look at that, but if you want to really ride a long-term wave, and I believe real estate investing is investing for the long term, you want to look at demographics. And the baby boomer demographic has been the driving demographic for a long, long time in all aspects of the economy. That demographic isn’t done driving yet. And sadly, for those of us that are boomers, and I’m at the tail end of the boomer generation, we’re at the front end of moving into the season of life where we’re being a mass consumers of healthcare.

And specifically, we’re going to need help living. And so I’m bullish on senior housing and specifically residential assisted living, because I do think that there’s a quality of life component that is going to be ⁓ important to people. They’re not going to want to go live in these institutions. And I think that as more money discovers the space, the big money is going to go into the big box outfits. And as that happens.

They’re going to be driven by typical Wall Street return on equity optimization, which means not as good a service ⁓ and it’s going to be more cold and impersonal. And I think that gives a Main Street operator, somebody who wants to be in a sweet spot of a three to $5 million capital deployment, to have a chance to create some superior cash flows, ride a demographic that’s got some real legs underneath it. We haven’t even hit the wave yet.

We’re still just dealing with the tail end of the silent generation. know, the boomers are paying for their parents, but the boomers are going to become those people. And that’s happening and that’s going to continue to happen probably over the next 10 to 15 to 20 years. And so that’s my favorite area right now. I feel like that has the most potential and it’s the easiest place for a main street investor or small syndicator to play and not get rolled by the big guys.

Scott Bursey (17:37)
Thank you for highlighting the long-term vision. What external market factor outside of interest rates poses the greatest threat to mainstream investors right now?

Russell Gray (17:47)
Well, energy is the economy. don’t think anybody that’s looking at what’s going on in the world, ⁓ you know, is not a little bit concerned about energy. I happen to feel like it’s going to resolve quickly. I think the long-term prognosis for energy is going to be a lot cheaper as an investor. You got to be careful because I think ⁓ the price of oil is going to fall. I think the OPEC cartel is being broken up. And I think that

that with now control of the Venezuelan oil fields and eventually getting the Strait of Hormuz open in that area of the Middle East stabilized UAE has already broken from OPEC and wants to produce more. Venezuela just shipped more oil than they ever have. So I’m bullish. However, could go the other way. Right. And if it does go the other way and we end up with high energy costs, that is a major drag on the economy.

And it will create a degree of demand destruction because you can’t have Main Street impacted by the cost of doing business. Energy touches everything. so to me, think just paying attention to the outcome on energy, I’m positioning for it to probably go lower before, I mean, it might go a little higher before it goes lower, but I think this thing is going to resolve. think there’s a lot of

political pressure to get it resolved by the midterms. And so I think it’s going to somehow, some way, and then on the back end of that is going to be an aggressive drive down of energy costs. But if it doesn’t go that way, then I think you need to be prepared for things to be slow.

Scott Bursey (19:25)
Thank you for breaking that down, Russell. And if you’d be so kind to break this down in simple terms, how does a successful Main Street investor approach capital deployment differently than a Wall Street investor?

Russell Gray (20:17)
I think yield. mean, I think you want to be aware of counterparty risk. Wall Street is full of it. They never talk about it. Most people don’t even know what it is, but I think you need to manage counterparty risk. So I think you want to have a foundation of liquidity that has some sound money in it, not just cash in the bank, right? You’ve got cash in the bank, you’ve got counterparty risk and currency risk. You’ve got cash in it. know, liquidity in an insurance policy is very popular right now. I’m not saying that’s bad, but it, you…

are exposed to the currency and you’re again exposed to counterparty risk when your asset is somebody else’s liability, you’ve got some counterparty risk. So I think you want to have ⁓ some sound money, some gold, some silver in your portfolio as a basis for the long term. There’s a long history of ⁓ the dollar losing its relative value to real money, gold and silver. And so I think that’s a foundation. think the other thing is to invest for yield.

and not count on inflation, think potentially the days of buying a home and just knowing it’s going to double in 10 years because inflation. think we went through a 40 year bond bubble that reset in the early 80s and it went all the way down to the zero bound. It bounced around down there for a little while, but that built in, baked in the cake, a growth of debt which fuels equity ⁓ with.

the amount of debt service in the federal budget right now with the just already how damaging rising interest rates have been. I just think that, you you want to invest for cash flow. And so I think that’s Main Street’s strength is to invest in small businesses that are producing real goods, real services, real profits, whether that’s a combination of a real estate play and a business like a residential assisted living is or self storage or something like that, or whether it’s just. ⁓

rental houses or apartments or whatever it is, I think that when you focus on yield and you don’t bake into the cake assumed inflation, except for maybe assuming that your costs might inflate a little bit, I think that that’s what you want to focus on. Wall Street doesn’t play that game. Wall Street is always betting on ⁓ more and more stimulus, the ⁓ constant inflow of

passive investment, is people’s 4K is automatically feeding. Right now, you’ve got an S &P 500 that’s got seven or eight stocks that are driving the whole thing. And you the indexes are high. Well, yeah, they are. But the vast majority of those stocks are not winners. You’ve got a handful that are carrying the day. And if you don’t understand how fragile these high stock market highs are, and you think that the net worth on your balance sheet is real, I think you’re going to be mistaken. I think you focus on developing streams of passive income.

you ⁓ measure the resiliency of your portfolio based on that, the resiliency, that passive income. And I don’t even care what my net worth is. I just care what the passive income is.

Again, I’m just going to say focus on resiliency ⁓ and being prepared to weather the changes. We don’t know how everything’s going to break. We are literally watching the most aggressive administration in history dismantle the status quo worldwide. Breaking up NATO, breaking up OPEC, breaking up the attempt to de-dollarize with BRICS, talking about auditing Fort Knox, changing

the US from a financialized economy to a manufacturing economy. I think most of these things are actually good things to aim at. But, you know, anytime you are tearing everything apart, there’s, and trying to put it back together, well, while you’re driving down the road, there’s a chance you’re going to break something. And in that breakdown, the people who are resilient are going to end up being a lot safer than the people who are trying to maximize profit. If you think that you can play the game the same way you did the last

10 or 15 years since the GFC going forward. If it works, you’re going to look like a hero. But if it doesn’t, you’re going to get your rear end handed to you on a silver platter. I know because that’s what happened to me in 2008. So I play the game very differently today. And it’s about being able to weather the storm. know, when I was a kid, we had this game called shoots and ladders. And when you get very close to the top, there was this one shoot that if you hit it, you went all the way back to the beginning.

And I’ve been reset not once, but twice in my life, in my business career and investing career. And I can tell you it’s tough to claw back. you know, in professional stock trading, you set a stop loss so that you ratchet up. But then if something happens, you know, have an exit that triggers real quick to help you protect some of the profit. You’re going to lose a little bit, but you get out. I think the same thing is true for a Main Street investor, right? Be prepared to just weather the storm.

And if you do that, then and you’re building up a capital base, if the storm comes and you have liquidity, then you’re going to be able to more than make up for whatever you didn’t get. Well, everybody else seems like they’re doing so much better than you until they get completely wiped out and you’re still standing there with cash to pick up all the assets they just lost.

Scott Bursey (25:25)
Anchor yourself in is what I’m hearing from you.

Russell Gray (25:28)
Yeah.

Scott Bursey (25:29)
Absolutely. Russell, this has been a pure clinic, but we can’t let you go yet. What additional advice can you leave with our pros today?

Russell Gray (25:38)
Well, I think invest in your mind. mean, it’s age old education going all the way back to Benjamin Franklin. The greatest investment is in knowledge. And I think it’s not just knowledge today because knowledge is ubiquitous. We got all the knowledge of the world in our back pocket. And now with AI, can ask anything. We can research anything. And so I think that context, your network, very important becoming a part of a group, a mastermind where you’re

talking with other people that are really pushing themselves and striving to understand. And I think understanding that it’s, you you can’t see the whole picture. It’s too big. You’re not going to comprehend. And so when you’re, when you’re with an eclectic group of people that are looking at things and looking at the world and different areas of the world a little bit differently than you are focusing on an area that you’re not necessarily focused on, I think that that’s why it’s, you know, we created the collective inner circle with my four partners and I, we’re all very different.

We all focus on different things and we’re not about real estate. We’re not even about business. We’re just about how do you go next level in life? And we want to be around people that are doing a lot of different things. I think that that is going to be very important. We’ve gone from the, you know, where content used to be what brought people into a room. Today content is everywhere. Content’s not that big of a deal. I think we went from the age of information to the age of wisdom and wisdom came from experience and context. I think we’re still there.

And I think now that how do you really process that? Well, everybody’s leaning into AI, which is the recycling of human thought leadership. I think you definitely want to be in a room full of thought leaders and strive to become a thought leader in your area of expertise, rub your brain against other people’s brains and have the right people on speed dial because the pace of change and how quickly you need to be able to read and react, even as in some of these more boring main street investments.

I mean, you know, look at what people are saying AI is going to do and how it’s going to rewrite the rules of business and that a year from now you won’t even recognize this economy. It’s going to be, you know, maybe a hundred times faster and more impactful than the internet could be good, could be bad. We don’t know. And it could be good for somebody, but bad for you if you don’t read and react well. So I can’t think of a better investment of your time and money than being in the right room with the right people or in the right networks.

really ⁓ digging in and trying to see outside of the box you’re in. Stay out of echo chambers. That’s dangerous. Don’t be the smartest person in the room. That’s dangerous, right? Really stretch yourself. And I think that that’ll end up becoming the most valuable investment anybody makes at this particular season in economic history.

Scott Bursey (28:21)
Russell, that was pure gold. And for those of our listeners that want to keep this conversation moving, stay in your lane or, or collaborate with you. You know, what is the best way for them to plug into your pipeline and reach you directly?

Russell Gray (28:34)
I think the easiest thing is just to email me, follow at russellgray.com and that way you’ll, anything I’m doing, I’ll tell you about wherever I’m speaking, whatever shows I’m producing. I’ve got all kinds of irons in the fire. I’m dreaming big right now, bigger than I ever have in my career, but follow at russellgray.com and I don’t blow you up. And if you don’t like it, you can always unsubscribe.

Scott Bursey (28:53)
Russell, thank you for joining us today.

Russell Gray (28:55)
Thanks, Scott.

Scott Bursey (28:56)
And to our listeners, we appreciate you. you got value from today’s episode, please subscribe. We’ll be filling your tanks with the lineup of elite guests, just like Russell Gray, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.