I haven't posted in a while, but have actually been quite busy with both financial and personal activities. I have hooked up with an investment group that has access to a lot of projects and development deals, and have begun to actively participate.
While I think I have some unique experiences to bring to a financial blogging community, I am struggling with the issue of privacy. I want to provide enough details about deals to be meaningful but providing these details would make me easily identifiable by my investment group members should they stumble across this blog, since my investments are focussed and specific and not just a matter of buying some stock, mutual fund, commodity, etc.
These deals are interesting because they give me access to the internal balance sheets , income statements, bank appraisals, and comp analysis of a wide range of projects. With increasing exposure to this information, over time I will get better and better at evaluating what is a good, safe investment, and what is not.
I'll have to think about an appropriate presentation of those ideas. But I do want to suggest that looking outside of traditional investment arenas can provide access to higher rates of return compared to the 5-10% you can make on CDs or stocks. I am currently involved in projects expected to yield 12% - 25% annually, and have seen projects that have returned as much as 200-300% annually to other investors. 15% seems safe and easy, and since I am just starting out, I've opted to just dip my toes in the water.
I have also come to realize that the largest roadblock to building great wealth is time, and nothing else if you don't depend on pure luck (for example, a lottery ticket or stock option valuation). How many investing years do I have left before I'll want to stop or am distracted by other more important life events, and how many great deals will I come across in that time?
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What type of investments are these and what is typically the minimum amount they are asking you to invest? Thanks.
Hi,
The group looks into anything that generates good cash flow or returns, but most of the deals are real estate development projects (both residential and commercial). The project sizes are small, usually between 10 million and 30 million (much of it financed by the bank), and the lowest investment amount I have seen from an individual so far is $30K (usually ranges from $50K - $200K).
Interesting. I think even I could afford one project like that. How does one track down opportunities like that? And how does the investment work - do you get a portion of the rent each quarter or does your money just sit in the investment until someone comes along and buys the project from the group? Thanks!
Hi,
I was introduced into this investment group by someone I've worked with for over 10 yrs. He knows others in the group for over 20 years. I think there are many such groups around, and once you get connected with one, you can meet a lot of people quickly if you choose to. At my corporate job, I was so focussed on job performance that I never bothered to look for opportunities outside of work until now.
The problem is finding people whom you can trust. I would have been reluctant to get into these deals if I did not know the character of my co-worker so well, and the friends he surrounds himself with are of the same character. And all of the people involved made a bundle from their corporate jobs.
You asked some good questions, and I think a proper answer requires a full blog entry. But since I am short on time, I want to give you a brief answer first. Not sure when I will be able to post another entry.
The investments are all set up through LLCs. The operating agreements in the LLCs detail percentage ownership of all the investors. There is a separate LLC set up for every project.
So far I have invested in a commercial office condo development, a hard money loan for residential townhome community development, and a land development deal which will sell lots w/ city infrastructure to individuals. They are each located in a different US state (diversification). We have group members who live in each of those states (that's how we found the projects).
The returns payment varies by project and is detailed by the operating agreement. The hard money loan returns interest payments to investors on a monthly basis from the developer. The land development deal pays out annually, with return of principal within 2 yrs, project completion in 4 yrs. The office condo will take 3 yrs to complete and we will decide at that time whether to sell the entire property or to retain part of it for leasing.
The money is not just sitting there. It is being used to fund land acquisition, architectural plans, permits, development, sales, etc (along with the bank loans).
To be clear, the money we are making is coming from the end customer, and each project has a different target customer. The returns on the hard money loan are coming from a developer who is borrowing money from us (rather than the bank). The returns on the office condo dev are coming from businesses that will buy or lease an office condo. And the returns on the land development deal will come from builders who buy the lots, or a homeowner who wants to purchase an empty lot to build their dream home.
Thanks for the lengthy reply. You also answered a question I had in my mind about trusting people.
If you know of a group in dc let me know unless of course you need to be a multi-millionaire. Right now my wife and I have a net worth of $750k; but's that's been going down as we're taking a beating in this market.
Thanks again!
I have not seen any projects come through yet that were East of the Mississippi, and I've also been avoiding deals (rightly or wrongly) that are in "hot" areas, and I'd consider DC to be a "hot" area. The people I met were all from west coast, south west, and northwest states.
Hmmm, I believe companies who wish to raise capital from individuals without issuing registered securities are forced to limit their search to "qualified" or "accredited" investors. An "accredited" investor is one who has net worth over $1 million or over $200k in annual salary. But, I never looked into the legal details of this issue (google "accredited investor" and a lot of info will pop up).
BTW not that it really matters to be an accredited investor. You can claim you are even if you are not. It probably just voids your right to sue the company if you lose your investment money.
One question regarding one of your comment below on the ways to make money - on the loan, actual end-user or land appreciation.
Why is the developer borrowing money from you versus the bank?
Aren't you skeptical?
I'm also at the early stages of evaluating a condo development here in the Bay area - condos that are more affordable returning approx 35-40% annually.
On the hard money loan, the developer is borrowing money from both me and the bank. Yes, I am very skeptical, that's why I'm putting money in so slowly. The pro forma, documentation, history, etc of the developer all look good, but you never know until the money is back in your pocket.
The developer has other projects that they are committed to, so their investment money is spread out. Rather than put up all of their own money to get the best loan term from the bank, they elected to get some of it from private loans (i.e. me). They pay a higher rate to me than the bank, but it allows them to work on more projects simultaneously with their money.
The hard money loan represents less than 1% of my investable assets, that's why I would even consider it.
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