If Cash Is King, Cash Flow Is Queen

“Cash is King” is a cliché for good reason. When all else fails, cash prevails.

During times of uncertainty, when markets are in full swing and investors are too bearish to execute a trade, cash is the most valuable asset to have on hand. If you’ve ever lost a job, you feel the importance of an emergency fund that covers 10 months’ salary for you to get back on your feet and start a new adventure without stress. If you are a parent putting your kids through college, the sticker shock of tuition and the pile-on of student debt can significantly be averted if cash is handy to wire money to the school’s bursar.

Warren Buffet, the grandfather of value investing, starts his investments by asking the simple question: “How much can I lose?” His fundamental winning strategy is to reduce risk with cash.

Cash Flow

And if “Cash is King” is a general cliché, we believe “Cash Flow is Queen” in order to thrive in today’s uncertain times. When we refer to cash flow, we are talking about when an investment is able to generate actual money (revenue) from selling product or service and then distribute excess profits to investors. Examples of publicly traded companies that fit this mold that Warren Buffet holds include stocks like American Express, Coca-Cola, Procter & Gamble, and Visa – all of these can charge customers for their products and return dividends to shareholders. Because these companies can constantly pay off their investors, these stocks are generally less volatile because there is always underlying cash backing up their price.

On the other hand, some types of investments do not return investor money regularly, and instead have a business strategy of holding funds for long periods and paying off at the end of a longer time period. When making these types of investments, an investor is inherently betting on the idea that there should be a larger payout in the future. Because these investments do not pay out investors regularly, these investments are also considered riskier, because if something goes wrong with the initial projections (like COVID, supply chain shocks, or inflation), then the return to the investor can be significantly hurt. And of course, because the future is uncertain, the longer the assumed holding period, the more chances there are for something to go wrong and values to drop heavily. Stocks that fit this mold are called growth stocks (since they need to grow to become more valuable), and many of these are typified by Cathie Wood’s ARK funds, including Tesla, Zoom, and Robinhood.

This same dichotomy also exists in real estate, in slightly different ways. Most real estate companies you will hear about offer investments that fit into the “growth stock” category. They generally require an investor to wait years for the property or fund to achieve its business plan, and then the investor has to hope that things go according to plan and that projected outcomes are hit. On top of that, in most of these cases, the investor is charged a management fee while waiting to find out if the deal goes well, and that effectively decrease an investor’s capital that goes towards the deal, and then is charged other fees on top of that. Check out our blog “Choose Your Investment Wisely” to learn more about other types of fees this structure offers.

Kopa: The Royal Family

KOPA is different, and we created the dual fractionalization business model to resolve that very challenge. We think the base of a business offering should allow people to invest in assets that are finished and already collecting rents and making profit today. That way, an investor can get access distributions periodically for however long they wish to hold them. They can take their dividends and decide to reinvest them to take advantage of compounding returns to make or take them out to live their lives. And, since the shares they own actually have a basis in real cash flow (as opposed to non-cash-flowing), it should increase the likelihood that an investor can sell their share to another investor who understands the rents they are buying.

On the other hand, KOPA’s dual fractionalization benefits owners of all types of cash-flowing properties that give them a pathway to finding cash: cash to pay bills, cash to upgrade their properties, cash to buy equipment and so on. This cash can also allow property owners to hold onto their properties during this historic dislocation, and even do some renovations that can lead to higher rents that are shared across KOPA’s investors. This is a huge difference from what currently happens in dislocations like this, when large private equity firms generally take advantage and force owners to sell their properties significantly below their value since there are no other buyers. By providing this option which KOPA investors are helping to preserve neighborhoods while participating in the property’s performance – truly a win-win-win for the investor, property owner, and community!

Join the KOPA Movement and own your world as King or Queen.  Refer a friend to join our Discord or Twitter and we will add you to the guest list of the next property tour in a city near you.