“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
Over the years, I’ve invested in an ATM machine fund as a passive investor.
I’ve liked it so much that I decided to bring it to my own multifamily investors.
Today I want to talk to you about my process.
We’ll go through understanding how this investment works and why I love it.
ATM investing has some super unique characteristics.
I think it’s a great addition for every accredited investor.
The investment offers a 24.7% preferred return.
That fund is not open currently, but we offer it a couple times a year to investors we work with.
Typically you get about half your money back within just a couple of years.
You can’t always say that about multifamily deals.
Pretty predictably at about three or four months, the ATM starts paying out.
All of your funds are back in just over four years.
There’s no interest rate risk.
There’s no leverage.
I was skeptical at first!
But when I learned how it worked and actually invested, I absolutely fell in love with this investment.
Here’s a scandalous secret: I don’t actually love real estate investing.
I don’t love doing any kind of investing.
What I love is what investing does for me.
Investing has allowed me to quit my great corporate job and cover my living expenses.
It’s allowed me to 15x my net worth.
You need to take the time to educate yourself.
That’s what we do on our Mailbox Money Show!
We also do that here in these blogs.
So what are we waiting for?!
Let’s go over this amazing investment in three easy steps!
1. The Unusual and Shocking Benefits of ATM Investing
ATM investing is very different from other types of investments.
Like I mentioned, it has a 24.7% preferred return.
Typically, you start seeing payments in month three or four.
It’s not a guaranteed payment.
But in over 10 years of doing this with the fifth largest operator of ATMs in the country, I’ve never seen them miss a payment.
If somebody invests $100,000 they can be getting about a $2,100 monthly payment.
This is paid out as a preferred return every month for the next seven years.
According to this plan, investors generally get half their invested funds back in two years and all their initial investment back in four years.
And it’s a seven year investment!
The other thing is the tax benefits.
This has some amazing tax benefits.
It has a 100% depreciation, which is similar to multifamily deals.
The difference with multifamily is you have a recapture event when you sell in five years because they’re accelerating the depreciation to year one.
If you don’t use the remaining 15 or 25 years on that depreciation schedule, you must have a recapture event.
That can be pretty inconvenient.
With ATMs, what we’re actually buying is equipment.
100% of the depreciation goes to the value of the equipment.
With the seven-year depreciation schedule, that makes this investment a real winner!
We accelerate the appreciation and then, when it’s time, you get to use the 100% with no recapture ever.
That’s an incredible tax benefit!
I see a lot of people looking for predictable cash flow.
This is really the most predictable cash flow investment that I can see.
There are always risks in every investment that you do.
Theoretically, let’s say I had $10,000 in living expenses I wanted to cover.
If I invested $500,000 in ATMs, the returns would equal $123,000 per year.
That would totally cover the $10,000 a month!
While it’s not a guaranteed return, it’s a pretty unique high type of return.
2. How is This Different from Multifamily Deals?
This is a question that comes up a lot.
There are some differences between the structure of multifamily deals and ATM investments.
Typically we hold multifamily deals for five to six years.
The equity multiple is usually around 2.0, though sometimes it’s less or more.
If we have $100,000, we’ll try to turn that into $200,000 over the next five to six years.
The ATM investment is approximately a 1.75 equity multiple over seven years.
The total returns of ATMs are actually lower than multifamily.
But before you write it off, think about this:
If I had a 2.0 equity multiple at a five-year hold and I gave you $90,000 of the $100,000 you invested at the end of year one, would that be a good thing?
What could you do with the $90,000 you got back at the end of year one?
You’d have to wait four years for the remaining $10,000, but you’d get 90% back in year one.
That’s pretty amazing!
It’s almost like you just closed a deal.
Then the deal keeps going and you’re able to reinvest in other things.
The internal rate of return (IRR) of this deal is generally around 19%.
That rate is higher than some of the rates we project for our multifamily deals.
We usually are very conservative on those.
We don’t know what the IRR will be with multifamily.
We’ve had some IRRs that have gone as high as 100%.
We’ve had some IRRs with 14% or 15%.
ATM investments are a more predictable rate of 19% with cash flow.
There’s also less risk in this deal.
It’s not leveraged.
There’s no interest rate.
The question I get from some investors is: Why is this available?
This is such a high return.
It sounds too good to be true!
The ATM business itself is a cash business.
With that comes a lot of anti-money laundering regulations.
The group I work with has challenges finding financing through larger banks and finance groups because of the regulations that come with working in cash.
We also see this in the cannabis industry.
I don’t invest personally in cannabis but I have some good friends who do.
The challenge with the cannabis industry is they’re also a cash business.
There are a lot of banks that won’t even take their money or they have to pay higher rent than normal.
There’s a reason why investment groups are not investing in this en masse.
They’re unable to due to regulations.
The question then becomes: Are we going cashless?
Is this whole ATM thing going away?
The answer is no!
3. The ATM Business is Surprisingly Strong
You may think that nobody uses ATMs anymore.
Maybe you haven’t used an ATM in years.
When I travel, I hardly ever use ATMs myself and I especially never pay a fee.
The people that invest in the ATM business are typically not the ones using ATMs.
About 5% to 10% of the population is in a category we call the unbanked or underbanked.
To them, the ATM machine becomes their bank.
How is that possible?
Why would someone do that?
If you have a cash business where you’re operating in cash, you’re getting paid under the table.
Maybe you don’t have the traditional means to go through a bank.
Instead, they’ll use the ATM.
You can send money overseas.
You can pay in cash.
A decent percentage of the US population is on government benefits and they receive a debit card with those benefits on there.
They’ll pay the $2 to $3 fee every transaction and are fine with it.
They’re going in and getting the service.
How does this work really during a recession?
During COVID, we had a pretty severe short-term recession.
ATM usage went down by about 10%.
But shortly after, it went back up to 100% normal usage or hugher.
The number of cash transactions is currently and continually going up.
Credit card transactions also add to this.
In general, we think a lot of people will continue to use ATM machines.
I have some good friends that think physical cash will go away.
I completely disagree!
I think there are political issues, mostly relating to privacy.
If you can’t operate in cash anymore, then you lose some kind of privacy.
A lot of people do operate electronically, but having the right to operate in cash is a privacy issue.
Some will also argue that immigrants need cash to have cash businesses.
This is why I love this investment:
- High cash flow – 24.7% preferred return paid monthly
- Starts paying quickly
- 100% depreciation
- Consistent Performance
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.