The Alternative Investor

Today’s an exciting show — we’re talking about business quality. Who doesn’t want to buy a quality business?

Business quality is a little bit of an amorphous term, but today we focus on thoroughly explaining what it is and why you should care about it as investor. We also put together a framework of categories for high quality businesses, such as: the organic grower, the mergers and acquisition machine, and the ATM machine (yes, we know that the M in ATM is machine.) And of course, since we talk about the businesses that are the most high quality, we also had to talk about what we call “the valley of death” — the category of businesses that we would never touch.

At the end of the day, any investment you make in a business, you want to get that investment back in the form of cold, hard cash. But to do that, you have to think not just about the price, but about the quality of the business.

Key Takeaways:

[:27] About today’s topic: business quality.

[:41] Why, as an investor, should we care about business quality?

[1:59] Our first category of a high quality business: an organic grower.

[4:52] An example of an organic grower.

[6:48] The second category: a mergers and acquisition machine (“an inorganic grower.”)

[8:57] Some examples of a M&A machine.

[11:01] Our third category: an ATM machine.

[12:38] Examples of an ATM machine.

[14:18] The category of businesses that are (usually) not high quality: “the valley of death”.

[17:49] Wrapping up today’s show with our key point: “quality, quality, quality!”

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Today we’re talking about debt! It’s an investor’s best friend … or enemy. 

We answer all the questions you may have about debt, such as: what is debt? When do you get debt? How much debt do you put on an investment? We also address the various restrictions that come with debt, why you should get debt (and some of the great — and not so great — reasons that can come with it), how much debt to put on your deals, and some examples of how debt can change the return on a deal.

Debt can reduce the amount of cash you have to come up with to buy a deal — but it comes with some promises you have to make to the bank (and other people) that might end up coming after you one day. But, done thoughtfully, it has its place in alternative investments — so tune in to hear more of our take!

Key Takeaways:

[:11] About today’s topic: debt!

[:35] What is debt?

[1:42] Restrictions that come with debt.

[3:10] Some great reasons to get debt.

[4:58] How Brad thinks about how much debt to put on his deals.

[9:42] Brad gives an example of how debt can change the return on a deal.

[13:10] An example in real estate, with the same numbers.

[15:22] Summarizing our key points about debt.

Mentioned in this Episode:

Paul Getty Quote

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In today’s episode, we address a recent listener’s question on how to identify or pick out an investment theme. We think of investment themes as something that can help you narrow down (what seems like) an infinite list of opportunities into something more manageable and actionable.

Not only does a theme help narrow down your own list of investment opportunities — it helps differentiate you in the minds of brokers and bankers when they see deals. A theme can be an asset class, a business model, a trend, or macro trend that’s occurring in the economy.

Today we go through just some of those ways you can pick a theme to help you stand out in a sea of investors.

Key Takeaways:

[:11] Today we answer a listener question from someone who asks, “How do I identify an investment theme?”

[:52] How we think of an investment theme and why they can be so beneficial.

[5:29] Why you won’t be taken seriously if you don’t narrow your criteria.

[7:31] How to pick a theme that resonates with you.

[11:33] When you think about a theme, think about the macro trends in the world.

[13:00] How to do multiple deals within real estate while having an overarching theme to your investments.

[18:19] Summarizing our key points.

Mentioned in this Episode:

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Risk is an often misunderstood and poorly communicated concept. Even professional investors can be afraid of risk. 

However, risk is going to be a part of every single investment decision that is ever made and there’s no such thing as a risk-free investment. So hopefully, in this episode, we can provide some tools and a framework to help you think about risk and overcome any hesitance you may have. Brad and I discuss risk from the academics’ perspective, real estate, and private equity side; as well as risk deal killers, and general risks that factor into any investment.

Key Takeaways:

[:10] About our topic of discussion today.

[1:51] How the academics think about and talk about risk.

[9:43] How we think about risk (in real estate and private equity.)

[12:26] How Brad looks at to evaluate real estate risk.

[14:42] More factors that go into risk analysis in real estate.

[17:28] Are there any risk deal killers? What risks would kill the deal?

[20:51] How I think about risk in private equity.

Mentioned in this Episode:

The University of Chicago

Modern Portfolio Theory (by Harry Markowitz)

University of California San Diego

Standard Deviation 

Volatility

Due Diligence

Base Case

Downside Risk

Market Risk

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Today we’re going to talk about how to figure out how much to pay for an asset. When you’re buying an asset, price is the most important variable you’ll be looking at — probably not the only variable — but definitely the most important!

Arguably, you should be spending 90% of your time answering the question: what is this asset worth? So today Brad and I cover — from real estate to private equity — how to know how much to pay and which factors you should consider.

Listen in to learn how to appropriately price assets!

Key Takeaways:

[:13] Our topic of discussion today: how much to pay for an asset.

[1:52] Brad walks us through how much to pay for an asset in the real estate world.

[4:58] A real estate example for figuring out how much to pay for an office property.

[9:03] How the exit price factors in to how much you’ll pay.

[11:17] How much to pay for an asset in the private equity world.

[15:04] Summarizing our key takeaways.

Mentioned in this Episode:

IRR

Cap rate

Unlevered vs levered

Warren Buffett

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Today we’re talking about accredited investors. To become an accredited investor you have to meet the SCC’s income and net worth requirements (such as needing to have $200k of income in the last 2 years if you’re single, $300k if you’re married, or $1 million in net worth not including your home.)

So why would you want to become an accredited investor? Or how? And if you became an accredited investor, what opportunities open up to you? How do you verify that you’re accredited? Brad and I answer all these questions this episode — as well as giving you an update on the latest changes the government has made in regards to accredited investors!

Key Takeaways:

[:12] About our topic today: accredited investors.

[:26] Brad’s experience dealing with accredited investors.

[4:02] What is an accredited investor?

[8:15] Why does it matter that you’re an accredited investor? What opens up to you?

[10:42] How to become an accredited investor.

[12:20] All the ways to verify that you’re accredited.

[14:57] The latest update on what the government thinks about accredited investors.

Mentioned in this Episode:

Blackstone

The Carlyle Group

SCC

Jor Law at Verify Investor (Linkedin)

Verify Investor

Financial Industry Regulatory Authority (FINRA)

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Today’s episode is all about preferred equity — so we’re going to try and keep it light and fun. 

Firstly, we talk about what equity is and how preferred equity differs from it — then, we get into common reasons for using preferred equity in a real estate or private equity deal. We also give some examples of the differences between it and common equity and explain why, more and more, we’re seeing preferred equity in deals.

Preferred equity may not be sexy — but it can be sexy when the payments are coming to you.

Key Takeaways:

[:13] About our topic today: preferred equity.

[:55] What is equity?

[1:40] The two types of capital: debt and equity.

[2:29] An example of common equity in a real estate project.

[3:49] What is preferred equity?

[4:30] An example of preferred equity in a real estate project.

[6:42] Why do we typically see preferred equity in deals?

[8:00] Another reason for preferred equity.

[9:16] Expect to see preferred equity in your future deals and do more research on the topic!

Mentioned in this Episode:

Capital Stack

Preferred Equity

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It’s finally here — the day we talk about blockchain. Blockchain is a new technology — providing a global marketplace, allowing you to transact with a click of a button. Blockchain is a highly evolving area and not a day goes by without some new, interesting developments.

So don’t worry if you don’t understand what the blockchain is — we’re here to give you a basic understanding so you can go forth and use the technology!

Key Takeaways:

[:13] About our topic for today: blockchain!

[2:27] What is the blockchain?

[5:20] An example of the practicality of blockchain in real estate.

[7:27] What is a security token? 

[11:30] What is a utility token?

[12:16] Definition of a token.

[13:18] How tokens relate to alternative investment.

[14:48] What are the advantages of using the blockchain and tokens to represent ownership in an asset? Why is the world going in this direction?

[16:10] The difficulties of liquidating assets and how the blockchain helps.

[18:37] A huge advantage of the blockchain: increased transparency.

[19:25] All the great advantages to blockchain.

[21:35] Recapping all of our info on the blockchain.

Mentioned in this Episode:

Blockchain

ICO

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Broker deals and off-market deals are night and day. Everybody thinks that an off-market deal is the holy grail and that you’ll score a way better price. At least that’s what most people think — but it’s not necessarily true. So today, we’re going to go through the key differences between broker deals and off-market deals and break everything down so that you can make an informed decision as a buyer or investor.

Key Takeaways:

[:14] The difference between broker deals and off-market deals.

[1:02] What is a broker deal?

[1:44] What is an off-market deal?

[2:24] The difference between the processes on a broker deal vs. an off-market deal.

[5:05] The difference between a broker and banker.

[6:00] How many sellers go to brokers? And why?

[7:40] The process of narrowing down the buyers.

[9:18] Are buyer interviews held?

[9:47] The process for an off-market deal.

[10:50] Likelihood of closing between an off-market deal and broker deal.

[12:34] The quality of the deals on an off-market deal vs. a broker deal.

[13:40] How long it takes to close an off-market deal vs. a broker deal.

[15:42] The valuable role of a broker.

[20:48] The range of prices in an off-market deal vs. a broker deal.

[25:44] Wrapping up our thoughts on off-market deals and broker deals.

Mentioned in this Episode:

Freakonomics Podcast

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You find a real estate property you like, you sign it, you wrap up the deal under LOI, sign the purchase agreement, and then you get into diligence — which is what we’re going to be talking about on today’s show.

Diligence is that 30-60 day period after you sign the purchase agreement and before you get into the official closing documents. In this episode, we highlight everything that happens during that period, such as; the title, zoning analysis, building permits, surveying the property, environmental analysis, the appraisal, deeper market research, property condition report, financial due diligence, and the lease review.

This is real estate due diligence 101!

Key Takeaways:

[:13] About today’s episode.

[:48] How long it takes to go through the entire diligence process.

[1:34] Issues that can arise, starting with the title and title insurance.

[5:50] What is zoning analysis? Why is it important?

[6:50] Where are you completing the title, title insurance, zoning analysis, and building permits?

[9:18] About the survey portion of the property and its purpose.

[12:00] What information does the surveyor give you on the property?

[13:53] What is involved in the environmental analysis?

[19:22] All about the appraisal; how much it is, who requires it, and how it can kill deals.

[22:40] Some of the deeper market research that is done to make sure that you’re getting a reasonable value for the property.

[23:45] Can this deeper market research also lead to killing deals?

[24:34] What happens during the property condition report.

[28:04] The process of financial due diligence.

[32:25] All about the lease review.

For More on The Alternative Investor, Check Out:

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Hosted on Acast. See acast.com/privacy for more information.