Street Smart Success

Wealth Management professionals typically recommend clients invest 70-80% of their portfolios in traditional vehicles such as stocks, bonds and commodities. Although traditional investments are great long-term wealth-building vehicles, alternatives assets also perform well and serve different purposes. They can generate consistent cash flow as high as 10%, with attractive tax advantages and achieve strong appreciation, all with less volatility than public equities. Jim Pfeifer, one of the founders of Left Field Investors, an alternative investment education platform, recently merged with Bigger Pockets. The merged companies relaunched as Passive Pockets. 

There are no shortcuts to succeeding in business, there’s no way to avoid doing the hard work and putting the time in. The key is to persevere and stay in the game long enough to succeed. The longer you persist, the easier things become as you improve your skills and refine your focus, direction, and niche.  A.J. Lawrence, entrepreneur, investor, and founder of businesses, advises companies across industries on how to grow. A.J. is a digital marketing and sales expert with several seven figure exits on companies he founded. 

There are different strategies for scaling a Real Estate portfolio. You can raise money from friends and family, you can syndicate deals from accredited investors, or you can create funds with multiple assets. Instead of these options, Nate Reichard, Chairman, CEO, and Founder of Reichard Capital, is starting a private REIT. A REIT provides more efficient access to capital and therefore an enhanced ability to acquire more properties. Unlike funds, REIT operators don’t have mandates on when to dispose of assets, so they can benefit from longer-term execution of business plans and strategies.  Nate Reichard’s initial fund is in the multifamily space and will be seeded by his existing portfolio. 

Industrial properties were at 80% occupancy and selling at 5 cap rates pre-pandemic. Now they’re over 90% occupancy and selling at 8.5% cap rates. With interest rates most likely coming down, this represents a great opportunity to invest in industrial. Warren Buffet says never bet against America, now is a great time to invest in industrial properties. Judd Dunning, President of DWG Capital Partners, is raising a fund to acquire single tenant Sale Lease Backs from profitable companies with strong balance sheets and excellent credit. Conservative asset level underwriting, plus the diversification of a fund make this a safe investment with long-term leases and predictable returns. 

David Saxe is Co-founder and Managing Principal at Calvera Partners.  His company started out by buying small value-add multifamily properties in the San Francisco Bay Area and has grown to acquiring larger properties in Austin, Dallas-Fort Worth and Raleigh-Durham. Calvera invests in markets with strong health care and technology industries, often in places to which Californians are relocating. His company has recently launched an evergreen fund where they are creating a diversified multifamily portfolio focused on tax efficient cash at a highly opportune time, starting with their first acquisition in high-growth Dallas.

With so many multifamily syndicators having executed value-add business plans over the past several years, there are fewer of these properties available for acquisition.  Additionally, older properties have more deferred maintenance, and therefore are more difficult to underwrite. Most of the time, even with lower prices, the risk is not worth the reward with older properties, and newer properties appreciate more over time. Over the past year, more Class A properties have traded hands.  Neal Bertrand, Chief Investment Officer at 180 properties, has operated assets with different vintages, but is currently acquiring newer assets in Dallas and San Antonio. 

Over the past several years, it’s been difficult to generate cash flow investing in commercial Real Estate equity. There’s been too much investor demand driving the prices up and the returns down. Investing in debt, however, presents opportunities for strong cash flow with lower risk. As bank lending has gotten less accessible over the past couple years, borrowers have been forced to seek out other sources of capital, which has presented great opportunities for private lenders. Paul Shannon, co-founder of Investwise Collective, has recognized the opportunity of investing on the debt side, and has raised debt funds where investors are generating 13-16% returns. 

Acquiring quality multifamily assets has gotten increasingly competitive over the last several years. This is one of the reasons it’s become more profitable to build communities from the ground up. Whereas the economics are enticing, however, there’s commensurate risk. There’s interest rate risk with floating construction loans, there’s construction cost risks with the move in material prices and labor costs, and there’s lease-up risk. Andrew Brewer, Founder of Iron Gall Investments, is building a 360-unit multifamily property between San Antonio and Austin.

The commercial real estate market has seen more activity over the past few months as a result of pent-up demand and optimism that interest rates will decline. Many institutions, Private Equity firms, and other investors have lots of dry powder and are eager to deploy capital. As large Retail and Office have fallen out of favor over the past five years, an insatiable demand for stable industrial and multifamily assets has exploded. Cliff Booth, Founder of Westmount Realty Capital, has been a large investor in value-add warehouses and multifamily for over 35 years and has over $300 million assets under management. Cliff is currently developing Cold Storage facilities to fill the booming demand for this asset class. 

Investing into smaller, consistently profitable, old economy businesses is a great way to generate cash flow and diversify risk. Business-to-business companies with reliable, steady client bases can generate consistent returns. Compared to most other asset classes, including commercial real estate, you can buy these companies at very low multiples of free cash flow with much higher debt service coverage ratios. Jason Ehrlich, managing partner of Fruition Capital, has raise a fund that invests in companies with between $1-3 million on EBITDA. Jason finds experienced individuals searching for companies to acquire, and provides equity for them to take the deals down.