Zach Winner can’t make the school system teach financial literacy, but he can at least make a difference in his own home — starting with his daughter’s allowance.
“When I gave her the allowance,” Winner, founder of Prosperity CRE and Cornerstone Investments, told Ricci Truong of the CamaPlan Podcast, “I said, ‘Here’s your weekly allowance. You could spend it however you want, but if you put it in the bank and say that at the end of each month, we’ll call it the Bank of Dad. I’ll give you 10% interest every month on whatever the balance.”
10% a month. Think of that. Much better than the fraction of a point of interest most of us got with our first bank accounts. If only we all could have saved into the Bank of Dad, we’d all be rich.
The lesson Winner wanted to impart to his now-grown daughter is the same he wants to impart to the grown-ups who eventually become capital partners in his real estate investments — live within your means, invest the surplus to create cash flow, and gradually replace your W2 income to achieve financial freedom.
Time is Still Time, Even at $200/Hour
Winner intimately knows the power of passive cash flow. He started his career as an attorney, where he learned that even at a high wage, there were still considerable downsides to trading time for money.
“One of the first things they teach you is how to fill out an hourly time sheet,” Winner said. “And I billed my clients for my time in ten-minute increments. And so, the longer I worked. The more I billed, the more money I made for my law firm, and that creates an incentive to work as many hours as possible to maximize your profits. So as a young attorney, I was spending long hours at nights and on weekends in the law office.”
Winner began investing in real estate with his surplus income to break the cycle and achieve financial freedom himself. Like many investors, he started with single-family homes, but today Winner’s weapon of choice is Class B commercial property.
Money In the Math
These apartment complexes, office buildings, hotels, and industrial flex buildings are slightly outdated, but still in good condition. With some capital investment, he can attract high-quality tenants and create an asset that is minimally management-intensive and dramatically higher in value.
He does a quick math equation — a 100-unit apartment with outdated units. Nearby updated units are renting for $250 more per month. Bringing the units up-to-date will cost $5,000. $5,000 times 100 units is $500,000 to bring it up to par. An extra $250 per month times 100 units times 12 months is an extra $300,000 in cash flow per year.
“That’s a really good return on your investment, right?” Winner said. “You invest $500,000 … In less than two years you’ve gotten your initial investment back. And the rest is gravy. But what’s really powerful is the additional value you’ve created in that investment.”
See, unlike residential real estate (houses, condos, and duplexes), commercial property is primarily valued based on the income it can produce. The primary way to do this is to use the capitalization rate, a percentage rate used to compare the net operating income (NOI) to the value:
Value = NOI ÷ Cap Rate
“So, you have created $300,000 in additional revenue or net operating income,” Winner said. “You divide it by a 5% cap rate. That means you’ve created $6 million in additional value in that property off of an initial $500,000 investment. That’s really powerful. And that’s really how you can exponentially increase your long-term wealth.”
Deep Pockets Not Required
The best part — you don’t need to be a multimillionaire to profit from Winner’s math. Winner’s deals are syndications — cooperative partnerships where multiple investors pool their money to buy a large piece of real estate.
“The big benefit of investing alongside a company like ours,” Winner said, “is you can invest in a multimillion-dollar, high-quality commercial real estate asset without having to have millions of dollars. Typically, the minimum investment for us is $50,000.”
That money can come from personal funds, company funds, or funds in a self-directed IRA or solo 401(k). Cash investments in syndications are passive investments with built-in debt leverage, making them ideal homes for self-directed retirement funds.
Real estate isn’t the only tool in Winner’s toolbelt — he’s also passionate about bitcoin. He has a lucrative side hustle as a bitcoin miner and is currently in the process of structuring his mining operation as syndication so he can offer his passive investing partners bitcoin returns.
Listen to the full podcast with Zach Winner, where he talks more about why he believes in the future of bitcoin, as well as the two categories of real estate income.
