Episode 40 – Investing in ATM Machines. Really. What Does That Mean?
In today’s show, Pancham interviews Dave Zook, Investment Strategist and Founder, The Real Asset Investor.
Have you wondered how the ATM investing business works? Contrary to the popular notion, ATM’s are not owned by banks. Rather, it is private equity that owns and deploy these ATM’s. So, what is the business model for this ATM investing business? Is this a particularly attractive investment opportunity for high-earning W-2 employees who wish to save on their tax dollars?
We hope you enjoy this show!
- 00:44 – Agenda for today’s show
- 02:34 – Dave’s background information
- 03:42 – Did Dave always possess an entrepreneurial streak?
- 04:55 – Dave shares how he got into real estate investing to save his tax dollars
- 06:22 – Dave’s first syndication deal
- 07:12 – Can you invest in ATM machines? What is the business model? What sort of returns can you earn by investing in ATM machines?
- 12:23 – How blended performance results in stable investor returns
- 13:56 – What are the different streams of revenues for an ATM machine?
- 17:10 – How investing in ATM machines can help you save your tax dollars
- 17:48 – Typically, what sort of return can a high-earning W-2 employee generate?
- 18:47 – Dave shares details about his two investment funds
- 20:46 – Is there any difference in the quality of the machine? Is the machine quality better in premium locations?
- 22:43 – What has been the impact of COVID-19 on this business?
- 24:20 – Is the store responsible for cleaning the ATM machine?
- 26:56 – Taking the Lead Round
- 27:14 – When was the first time Dave invested outside Wall Street?
- 27:46 – What fears did Dave have to overcome when he first invested outside Wall Street?
- 28:27 – Can you share one investment that did not go as expected?
- 31:01 – Dave shares his contact information
3 Key Points:
- Understanding the basics of the ATM investing business
- What sort of returns can you earn by investing in ATM’s?
- How investing in ATM machines can help you save your tax dollars
Get in Touch:
Welcome to the Gold Collar Investor podcast with your host, Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams.
Here’s your host, Pancham Gupta.
Hey, this is Dave Zook and I listen to Pancham at the Gold Collar Investor podcast and so should you.
Pancham: Welcome to the Gold Collar Investor podcast. This is your host, Pancham. Really appreciate you for tuning in today. Let’s get into today’s show. Have you ever used an ATM machine? Have you ever paid attention that every little grocery store and all the big stores like Walgreens have ATM machines in the corner? Banks have their own locations where ATM machines are located. Have you ever wondered who owns those ATM machines to banks on them? What about the machines in McDonald’s or 711? Have you ever been in a situation where you have to really buy something and you do not have cash with you and the store only accepts cash and you have to use those ATM machines located in the store. It has happened to me. It has happened many times. You go to the machine and you see that there is $3 in fees and you need only $20. In the interest of time you do it. If you back calculate, you just paid 15% in fees. How many of you have actually taken out more money out of the machine just to bring that percentage of fees down, even though you did not need to? I have. I once was in Orlando and I had to take out some cash. I needed only $10 to buy a water bottle or something. And I actually took out $100. I told myself that what if I needed more money later? But if I really think about it now, it was because I only wanted to pay 3% in fees. Crazy. I know. Anyway, the point is that that $3 in fees is going somewhere and there is a business model behind it. It’s not the banks who own those machines. Really? Yes, really. It’s private equities, hedge funds, and small players that own those machines. To learn about this asset class and its benefits I have invited Dave Zook to the show. Dave is a successful business owner syndicator and tax and investment strategist. He has acquired more than $150 million of real estate since 2010, which includes several thousand multifamily apartment units, multiple large institutional grade self-storage facilities. And cleaner energy coal distillation units. That sounds interesting, by the way, which produces pharmaceutical grade oil and liquids. His team is also one of the top five ATM operators in the country. Dave, welcome to the show.
Dave: Hey, thanks for having me on your show. Happy to be here.
Pancham: No, it’s great to have you on the show. Are you ready to fire up my listeners break out of Wall Street investments?
Dave:I can’t wait. I’m over it.
Pancham: Great. Great. Thank you for your time today, Dave. So before we get into today’s show, can you tell my listeners a bit about your background and how you got into this business?
Dave:I think I was born an entrepreneur. I was when I was…oh man, single digits. Probably five, six years old. I remember going to my dad…my dad’s a very successful entrepreneur, business owner. And I would go out and make a little trinkets at our family business. When customers would come in, I would go along with my dad on Saturdays and I would, I would build little stuff out of the shop out in the manufacturing facility and bring it out and sell it to customers for, you know, a quarter or something like that. But I was sort of raised in that environment. And we got a family business that my brothers and I run now and we build modular buildings, ship them all over the country. So I grew up in that setting. I grew up kind of in all facets of the business. I was in most of them as I was growing up, when I got into my teens, started my own business, got into the trucking space, started delivering our modular buildings, work my way into the office, working my way into ownership. And I worked in the family business and at the same time, I was starting some other businesses as well. I got myself in a position where almost a decade ago, some of these businesses were doing really well and get myself in position where I had to pay around a half million dollars in tax. You know, at the time I was having so much fun, it didn’t even feel like work. I was working a lot. And I was working hard all hours of the day. But it was so much fun. It wasn’t like I was doing it because it was a burden. I wasn’t really doing it just for the money. I was having so much fun. I was building businesses, building stuff. But when I had to turn around and give half of my almost half my earnings back to the government, it became not so much fun. And I set out trying to figure out okay, how do I keep the money that I earned and I remember hearing Robert Kiyosaki. I read Rich Dad, Poor Dad. I remember hearing him make statements like make millions of dollars a year and not pay taxes legally. And I was like, this is crazy. That drove me nuts. And so I went down this path and I figured out that real estate specifically multifamily can be not only a good way to build wealth and cash flow and all that but it It can be a real tax protection vehicle. And so I went down that path. I bought several hundred units. Multifamily apartments on my own time and ran out my own cash. We had a good thing go on. We had good team on the ground and there were still opportunities in the marketplace. So I got introduced to the world of syndication. I didn’t even know how to spell it at the time, but it was I put a deal together and I funded it. I needed $850,000. I funded it with a couple local business guys and that’s sort of my entry into the space. You know, I had no intention of being a syndicator. I was buying multifamily apartments for myself because I had a need. And then when I figured there were other people in my community who had the same need. It sort of was a natural trend that I got on and here we are. 10 years later, we’re still not done.
Pancham: Thanks for the background. I mean, we can dive into so many of those things. But today I want to talk about a very unique asset class. It’s investing in ATM machines. Your team is tough. Five operators in the country. I would have never thought that you can invest In ATM machines, and there is a good business model behind it. Can you explain what it means to invest in ATM machines? And how does it really work?
Dave: Yeah, so most people don’t realize that you can invest in ATM. Most people actually believe that banks own ATM and I’m guessing exactly just simply because there’s cash involved and people are getting the cash and people think banks on them when they don’t. When somebody goes up the machine and swipes their ATM card and gets money out of the machine and there’s a $2 or $3 charge on their statement and that $2 or $3 goes somewhere. And where it goes is to a private equity firm, hedge fund, a large institution or small mom and pop operators. And so normally when you talk ATM, there’s two kinds of players. One there’s a mom and pop operator. They run around. They serve as up to 150 to 200 machines in about a 50-mile radius, and then you have the big institutional players card. Cartronics is one of them big publicly traded companies, large institutional players like private equity firms hedge funds, and there’s never been anyone in the middle. To my knowledge. There’s never been anyone who has access to these really good institutional grade locations. I mean, I’m talking, you know, high foot traffic deli chain, McDonald’s, Walgreens, you know. Some really good high traffic, institutional grade locations. So what we do, what our team does is we go out and we play in that institutional space. We’ll take down a portfolio 5, 10, 15 $20 million portfolio. We’ll put them under contract and it’s my job to go out and find the money. And I take that portfolio and I bring it down to regular investors who can invest $104,000 by seven machines. And we then turned those machines over to seven machines, $104,000 is considered one unit. So you’re breaking it down into you breaking a $10 million portfolio down into $104,000 pieces. Giving regular Main Street investors the opportunity to invest in an institutional grade location which they would never get the opportunity to do without that kind of a system. So we’ve done really well with that model. We take that portfolio, we chop it up into bite sized pieces investors come in, invest in then we roll your unit into our management company, and the management company has a contract with us. They say we’ll commit to you that your unit will make 3, 373 transactions per month and your portion of the surcharge revenue is 63 cents. So when you do the math, that comes out to $21, 25 a month distribution or $25,500 a year and that’s a 24 and a half percent cash on cash return.
Dave: The thing you have to remember is it is just very different from let’s say, a self-storage asset or a multifamily apartment asset. You can’t just make the comparison on that asset and the performance on the cash on cash return. Because when you get to the end of the seven-year lifecycle, or we get to the end of the seven-year contract, your equipment is pretty much worthless. It’s, you know, we sell at the end of the seven-year contract period, we sell for fair market value which is a fraction of what you really originally invested. So you really got it…when you do a comparison. You really got to go with the IRR. And that is we deliver an 18.6% IRR.
Pancham: Wait, no. So, let me summarize what you just said. In merely the numbers. So you get seven machines for $104,000. And then you said that each machine, on average does 3, 373 transactions per month per unit. Got it?
Pancham: Okay. Wow. So really like that’s the average. I mean, I would expect, like, people are not using this…where they’re paying $2, $3 every transaction they are paying like…wow, that’s quite a bit of usage.
Dave: It sounds like a lot.
Dave:And so when you go out in the street and you see an ATM sitting there and nobody’s You know, there’s not a long line of people standing there waiting to swipe cards. That’s okay. When you break it down. 30 days in a month, seven machines in a unit. There’s only 16 transactions per machine per day, less than one per hour. So it sounds like a lot you know, in your mind, you would think, oh, I am going to expect to go out to the deli the next day and see a line of people sitting there waiting to swipe a card. It’s not like that. To get that 3, 373 transactions per month per unit. You only need 16 transactions per day to get to that number.
Pancham: Got it. And in your portfolio. You see that as a typical number right across the board, or is it like more in certain locations and less than the others. And overall, that comes out to be the average.
Dave: So the way we do it is we pay out a blended performance of the fund. So let’s say you were to buy to invest in one unit and your brother was then invest in another unit, you’re not making a 30% return, and he’s making a 20% return. So the way to keep that fair to everybody in the fund all of our investors, we take a blended performance in the fun. The other thing is, you know, I mean, I’ll bring this right back home. I mean, you think about COVID-19, or you think about, you know, a few years ago, when Houston was underwater, well think about what if all of your units were in Houston? Or what if all of your units were in right now we’re in New Orleans or Manhattan or, you know, somewhere where some area that was there extremely hard hit, you know, it would not be fair to have, you know, one investor making 30% returns on another and making 15 just on the fact that, well, your locations aren’t as good as mine. So we do a blended return in the portfolio. And it’s worked out very well it gives the investors some stability, they know what to expect, every month on the 25th of the month, you get your a cheque, and it’s just a reliable source of income.
Pancham: So I’m going to break it down into two separate pieces. This business model with one is the revenue side and the other is the expense side on the revenue side, what are the two, like in my mind, I probably can think of two major sources of revenue. One is the fees that are being charged. And second is the rent that you charge, or potentially charge the businesses like Walgreens or any of these seven elevens. And all that are those two, the main revenue sources.
Dave: So there’s a couple things one, the main source of revenue right Now is search word revenue. When you know the revenue you get when somebody actually comes up and swipes your card. There is a marketing piece where you mentioned that you thought that banks own ATMs, right? So some of the reasons for that are some of the reasons that many people think that banks own ATMs, a lot of times an ATM is wrapped with a bank advertisement. So that’s a source of revenue for us. So when we wrap an ATM machine with, let’s say, Citibank, you know, you can get some revenue for them, you get a little billboard there for them. So that’s some revenue, we do not charge the store location, actually some that revenue goes to pay for that store location. When you’re talking about institutional grade location, this is a location that, you know, this is a real estate play. Right? This is a highly coveted high traffic, piece of real estate that’s three foot by three foot and you’re monetizing that real estate. So while people think that ATM investment…it’s really a real estate play, we’re monetizing a highly sought after highly trafficked piece of real estate.
Pancham: Do you have to pay the store owners in that case? The ones which have this highly, like visited locations,
part of that revenue goes to secure that location? Yes.
Dave: Got it. Got it. Okay. So that’s the revenue side and on the expense side, like what kind of expenses do you see?
So out of us, you know, $2. $5, $3 surcharge…investor is getting a smaller portion of that revenue. And the reason for that is all of the costs get passed on to the management company. So you can think about insurance. You can think about maintenance or contracts with Brinks. trucks come out and supply the cash, all those things, they flow up to the management team. That’s the reason that they get 40%, 50% of the revenue. You know, most of the revenue goes the management company covers those costs, covers, admin covers, you know, the front office to manage the asset. A, your portion of the surcharge revenue is smaller, but then you’re also passive, you’ve got no expenses beyond your first investment into the space, it’s the last time you get to feed it, you’re done. Right? It’s passive at that point. The expense ratio for the business model is about like 50%. Like a 40%, 30 or something like that. It’s generally you’re about an at 40% range for the management company and maybe 45, and then around 30% for the location and 30% for the investor.
Pancham: Got it. Got it. Cool. You know, that’s sounds great. And you mentioned like, you know, 24% or 18% IRR, right.
Dave: Yeah. So that’s when you consider the cash flow, the tax impact and the loss of value of your equipment over seven years. Great.
Pancham: Okay. So let’s talk about the tax impact, right. Like I would imagine since you’re depreciating it hundred percent over seven years, or, you know, I don’t know how you allocate it, but what are some of the tax benefits,
Dave: So you’d appreciate it over five years. And most of your cash flow in those five years are tax free. So because you’re taking 100% of the value of the asset, and you’re depreciating that asset against the cash flow that’s coming from that asset, you’re getting most of your cash flow tax free.
Pancham: I see. No, that’s great. So let me ask you this. So let’s say if I’m a W-2 high paid professional, and I have a high paying job, and I invest hundred $4,000 into this investment, the very first year how much of the return is allocated towards tax benefit.
Dave: So what we do is we take it over five years. So if you take five years and your annual cash flow is 25,500, and you break down $104,000 Investment against, you know, into five years, you get about $20,800 per year on average rate of depreciation that offset your cash flow, offset the tax liability on your cash flow. So you really only have about less than $5,000 of that annual income is taxable.
Pancham: Right. Okay, great. So basically we are getting a tax benefit of almost $21,000 every year. Yes, that’s great for the first five years, right? So, as far as you know, just like in some of the other investments like oil and gas and all that where you can depreciate majority in the very first year even in real estate, we can do something called bonus depreciation where, you know, we get a lot of benefit in the year one, do you have something like this?
Dave: in this we do. We run two funds simultaneously. One is called Prestige fund D. That’s our five-year depreciation schedule fund. We also have a bonus depreciation fund. Which you can come in and you can take 100% of your investment, take your entire $104,000 investment, and depreciate it all in one year. So 100% of the investment, depreciate it in the first year. And you can take all that appreciation in year one.
Pancham: Wow, if I’m a high paid professional and I invest $104,000, I can take that as a loss on my active income…so you cannot offset your W-2 income, okay?
Dave: But you can offset capital gains, you can offset depreciation recapture. You can offset passive income. Got it? You know, and again, it takes some strategy, you got to get strategic with this stuff, but it’s pretty simple. It’s pretty clear cut in order for you to take 100% bonus depreciation against your income. There’s some rules that apply. And if you were to want to take it against, say W-2 income, you would then have to be active in the business. We’re trying and this in our business model, it doesn’t work your passive investor.
Pancham: Right, right. Got it. Got it.
Dave: Okay. All right. So let’s move on to the classification of these machines. Are these all machines, like just the same type? Or, you know, just like in different kinds of multifamily building, we have class A, Class B, Class C are different mobile home parks, we have classification for them. Do you have that kind of classification for ATM machines and ones are more expensive than the other? You know, I definitely see the difference than I used between seven and seven verses I go to a Bank of America brands, you know, they’re definitely very different and more sophisticated, feels more sophisticated.
Dave: Yeah. So there’s, there’s locations that are, you know, definitely higher volume than others. Take for example, the ATM that’s in the McDonald’s at Times Square. McDonald’s sells more than sells almost a quarter million dollars worth of hamburgers and milkshakes in a day. So, you know, the transaction volume and that one is through the roof. Right? There’s different locations, some are much better than others. And, you know, that’s the value though of having that diversification in the portfolio. You throw that within the portfolio, and we’re paying out a blended return. So you got some diversification here, but but definitely some of those locations are a lot better than others.
Pancham: Yeah, no. So that’s for the location I’m talking with actual machines do like do you have like similar machines or like in your portfolio or they have different classifications as far as the machine goes, you know, the BOFA machines are like, for example, very, feels very, you know, more clean and sophisticated and versus someone using a 711 location.
Dave: So in a location like that, I forgot where I was going with that in a location like that. You would Most likely have a machine that’s got dual monitors, you can have multiple transactions going on at the same time. There’s definitely more cost to the machine like that. But then it’s offset by the volume of transaction that that machine does. So absolutely, there’s different styles models, different transaction volumes, they’re different machines go in different location, your management teams got to be smart about how to deploy those. Right, right.
Pancham: Okay, so my question that I have to ask, given where you actually alluded to this before, so in the wake of COVID-19, right, do you think that this business model is going to get impacted in the long term, like some expenses going higher and what changes do you see?
Dave: So whenever I look at an investment, one of my first questions used to be how does this look how did this asset class or industry perform coming through? 2007, 2008, 2009 and 2010? All right, well, now we can look back at COVID-19 and we got a new sort of benchmark like how did this thing perform going through COVID-19? The answer is, unlike many of the mom and pop operators who have most of their business have most of their machines set up in restaurants and bars, for the most part, our assets. Our ATM machines are in essential locations. They’re in institutional grade locations, they are largely on affected and I won’t say all of them are on affected because there are some that are that are closed, we have exposure in airports. I mean, you know, obviously, those machines aren’t doing so well. But they’re offset by the fact that you got more people congregating in fewer places fewer places to go spend money. So some of our machine many of our machines are noticeably up, oh really in transaction volume. And that makes up for some of the ones that are totally offline. So it’s been performing very well. We have not had to defer or reduce that. Monthly distributions at all.
Pancham: Wow, that’s very interesting to know. So I’m sure in terms of the expenses that’s probably the store owners or location owners responsibility to kind of clean I don’t know if there are any protocols associated with cleaning up the machines because people are using them and all of that.
Dave: So there are like as part of the store’s guideline, you know, I’m sure they there’s different guidelines and different methods but as part of those guidelines, they’re wiping stuff down. Yeah, I mean, you know, if that store is open, they’re most likely taking those guidelines and making sure that you know, their shelves are clean, the counters are clean the ATM machines clean. That has been our experience.
Pancham: Great. And also it’s too early to say like you said, you know. We will have to see how all of this pans out and how long it continues. Great. No, thank you, Dave, for your all that knowledge and anything you would like to add before we move on to the next section.
Dave: We covered a lot. Yeah, I think we’re good. They’re good.
Pancham: That’s great. So we’ll be back after this message. Do you ever feel overwhelmed by the thought that you have no time after work and family time to learn about investing? Do you feel left behind that you are not putting your money to work for you? Do you want to create passive income but you do not know where to start? If so, I have good news for you. I have created an investor club which I call the gold color investor club for accredited investors. I will be putting together investing opportunities exclusively for this group. These are the opportunities where I have done my part of the due diligence for you and will be investing my own money alongside you. If you are interested, please sign up on thegoldcollarinvestor.com/club. I repeat thegoldcollarinvestor.com/club, I will reach out to schedule a 30-minute phone conversation to discuss your investing goals. Once you sign up, this can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some cash flow. And in case you are wondering what is an accredited investor, accredited investor is someone who has earned more than 200,000 as filing single or more than 300,000 filing jointly for the last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401, K’s, IRAs, cars, etc. Just not the equity in your personal home. If this is you, I would highly encourage you to sign up. So David, let’s move on to the next section of the show which I call taking the leap from These are the four questions I asked every guest on my show. My first question for you is, when was the first time you invested outside of Wall Street? Is that when you were five years or six years old?
Dave: I was in my teens and I bought my own truck to start doing jobs and deliveries for our family business. So I invested in a truck and some equipment and I started my own little business doing that. So I started pretty young. I was in my teens.
Pancham: Wow. Wow, That’s great. Probably the longest answer so far. All right. Alright, so what fears I don’t know if you had any at the time did you have to overcome when you invested or bought that equipment?
Dave: Back then I didn’t even know there was a Wall Street. I mean, it was a pretty secure investment. I mean, number one, I had a free determine. I mean, I knew there was a need for it. So all I had to do was buy the truck and buy the equipment and get started. So it was pretty low risk. And then as a high rate of return investment, part of that reason was because I was working day and night and I loved what I did and, and I was very aggressive with it. So it was, it was pretty low risk investment. I knew what I could do with it. And you know, if I worked hard, there was no way that I could fail if I really put a lot of effort into it and work hard at it.
Pancham: Right. Cool. So my third question for you is, can you share with us one investment that did not go as expected?
Dave: I wish there was only one. We saw my very first large apartment building, I teamed up with a syndicator who sold me on the deal and I ended up being so sold on the deal that I was the only investor in the deal. I was. Yeah, so we had a syndicator I was his only investor in the deal. Turned out that syndicator he was a better salesperson than he was at operated multifamily apartments and I think it was less than three years later. I got a less than half of my investment back. So it was painful experience.
Pancham: Yeah, no these seminars, real world seminars, real world university lessons.
Dave: Oh, yeah. I didn’t go to Harvard. But I tell you, I could have paid for several Harvard education with my street knowledge and street education.
Pancham: I can totally attest to that myself. And I totally feel that. That’s great. So my final question for you is, what is one piece of advice would you give to people who are thinking of investing in the Main Street? That is outside of Wall Street,
Dave: Probably if you’re going to be investing in the Main Street. Probably the most important…well, the most important thing would be to find a really good team, find an asset that you’re interested in, and make sure it does what you want it to do for your personal situation. If you want to build cash flow streams, fun and asset that’ll give you the cash flow. Do you want if you have tax problems like I had get something, I’ll give you 100% bonus depreciation in year one or something like that, make sure it fits you. And then once you nail down the asset class, go find the team, go find the best team that you can find in that space. And if you’re doing it on your own, go find them and learn from those guys and watch them maybe invest in one of their deals first and really watch the team if you’re invested in like I do I invest. You know, I partner with a lot of great team grow a couple great teams, I really am kind of invested in three core asset classes right now. But really find a great team and invest with them, mate.
Pancham: No, thank you.
Dave: Thank you for that advice, and I would hundred percent agree with that. And, you know, you mentioned that you’re invested in three main asset classes. I assume one of them is the coal distillation, you know, equipment or facilities, right? So, probably we will have you back once again to discuss about that. I’m really curious myself to learn about it. Thank you for your time and how can listeners reach you if they want to connect with you, they can reach out to our website, therealassetinvestor.com. Or they can send an email to email@example.com. And if your folks would like to reach out, I’ll make sure and send them an ATM report that talks all about ATM investing and really educate them so they reach out to the email address. I’ll make sure and send it send your folks a report I’d be happy to.
Pancham: All right. Great. Thank you. Thank you, Dave, for your time today.
Dave: Thanks for having me on your show.
Pancham: I hope that gives you information on who really owns the ATM machines and what the business model is. I hope that you learn something. If you have questions, you can leave me a voicemail on the website thegoldcollarinvestor.com I can play it directly for my Ask Pancham episodes. Or you can email me at firstname.lastname@example.org. This is Pancham signing off. Until next time, take care.
Thank you for listening to the gold color investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at thegold collarinvestor. The information on this podcast are opinions as always, please consult your own financial team before investing