If you are part of our Wealth Formula Investor Club you know that we do a lot of multifamily real estate. In fact, 95 percent of what we do is working class, value-add multifamily real estate with the same two operators.
Some of you have invested literally millions of dollars into these deals. I’ve got my own money and my dad’s money in this stuff too so I’m not doing anything different.
I know it seems boring. The entrepreneur in me wants to bring you and me some brand new bright and shiny objects in which to invest. But I just can’t do that—at least not right now. Right now, boring is good.
For those of you who have been urging me to branch out, I promise you that I am looking at new stuff all the time. The problem is that the risk adjusted return just never seems on par with what we already have.
To make my point, let me give you a couple of examples. A very respected private equity shop approached me about a joint venture with them in which we would construct several well known burger franchises across the country and then roll them up to private equity for a big multiple and an exit.
Sounds good on the surface. The investor IRR was projected at 20 percent which was respectable and it certainly could be better if other things went just right.
However, there were no tax benefits, so even an 8 percent yearly dividend sounded less than attractive. Furthermore, there is no doubt in my mind that the risk to operating businesses in this economy is far greater than working class residential real estate.
So, bottom line—shiny object, cool business plan, great team…but for what? The return profile was similar to our real estate proformas with far greater exposure to a volatile economic climate and no tax advantages. I’ll take boring.
Another deal I passed up on was a really interesting commercial real estate play where the group was buying from pension plans that had to sell per mandate and was getting steep discounts on the properties they were buying.
But these properties were in tertiary markets like Louisville and Cincinnati. And when you did a deep dive, cap rates were still at 8 despite the big purchase price discounts. This is with vacancies at historical lows!
What does that tell me? It tells me that this is a great model but the timing sucks. Am I really going to load up on office space in tertiary markets in 11th year of the longest expansion of GDP in US history? In an election year???
Again, the answer is no but I promise I’m still looking! It’s just that right now, very little beats our boring little real estate deals on a risk-adjusted basis.
So, for now, I’m going to just keep investing the same way and you may find it prudent to do the same.
Now, if you are making a lot of your investments out of retirement accounts (SDIRA’s, Solo 401Ks) or thinking about doing so, I highly recommend you listen to this week’s podcast interview with Damion Lupo. If you’ve been on the fence about using your retirement funds for real estate, some recent legislation may just change your mind.
Find out why on this week’s episode of Wealth Formula Podcast!
P.S. Don’t forget to sign up for our LIVE meetup in Phoenix Arizona on April 24th and 25th! To sign up, click HERE!
American Sensei. Yokido Founder. 5th Degree Black Belt.
Financial Mentor to Transformation Nation.
Best selling author in personal finance. Rewriting the rules and plan for retirement.
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