“The first rule of Fight Club is: You do not talk about Fight Club.”
I thought I had a good idea by crowdsourcing knowledge to make better investment decisions. After all, Financial Samurai has a large, financially savvy readership from all over the country and the world. Why not write about a potential investment as part of my due diligence, let thousands of folks scrutinize the investment, and then make an informed decision after further analysis. No brainer right? Wrong.
Apparently, private deals are not to be discussed publicly due to Regulation D, or Reg D, for short. After publishing my post, Crowdsourcing Knowledge For A Commercial Real Estate Investment in Conshohoken, I was asked to take it down and republish the post after the deal was closed. Not wanting to get myself or anybody else in trouble, I obliged. Sorry believers in the 1st amendment!
So why can’t we publicly analyze a private investment? As far as I can tell, the logic is that even though we all can gain access to the RealtyShares platform by signing up and checking out the various real estate offerings, because we aren’t all accredited investors ($200K+ annual income, $1M+ net worth excluding primary residence), the government doesn’t believe it’s fair to let “poorer” people learn or participate in such offerings!
Education is one of the keys to financial freedom. Here I was trying to get smart and help others get smart about a commercial property in Pennsylvania, a state I’m not familiar with, and here the government was in all its wisdom denying us the freedom to learn. I get that people who only make $180,000 a year might not have the wisdom to spend less than they earn compared to those making $201,000 a year. But what I don’t get is why financial education classes aren’t mandatory if the government is so worried about less wealthy people blowing themselves up? Could it be because the government can’t balance its own budget?
Based on government regulation, I can only talk to myself about private investments, A Beautiful Mind style, or to other people who make over $200K or have a net worth of over $1M. Or maybe I can create a private forum where readers have to self-accredit in order to gain access and then charge a high price for entry!
Ah, so THIS is how class warfare starts! Thanks big government.
Commercial Investment Property Decision
I really don’t want to get punished by the omnipotent government; therefore, I will obey their rules. But what I can do is share with you the reasons why I decided to invest $10,000 into a 5-year term, Conshy commercial property investment now that the deal is closed.
1) A slight majority voted “Yes.” After writing out my pros and cons for the deal, 54% of you voted “Yes.” I’m always afraid of polls that are aggressively positive i.e. if 70% or more of you said “Yes,” I would wonder what was wrong. The sweet spot is really around 55% – 60% because I believe at that range there is sufficient doubt to create enough future upside to make this deal work. If everybody was bullish then who is left to buy?
2) I like to lock my money up for a very long time. Investments take time to play out. Just like how too many people quit their entrepreneurial endeavors too soon, too many investors have a tendency to sell too soon. I was one of those people all throughout my 20s and early 30s because I was impatient. Many of the investments I sold ended up being home runs years later. All of my best investments are 3+ years long. This Conshy commercial property has a 5-year term.
3) Bullish on income generating assets in this low interest rate environment. At the same time, I have very little desire to own more than five physical properties due to maintenance, property taxes, liability, and PITA tenants. Instead, I want to surgically invest my money around the country with higher capitalization rates for diversification and hopefully better returns. San Francisco, New York City, and Honolulu have topped out. There’s so much better value around the country.
In suburban Atlanta, for example, the average single-family home generates a 25.8% gross annual yield, not including other potential costs, according to real estate data firm RealtyTrac. That compares with just a ~3% – 4% yield in the San Francisco Bay Area, according to data provider CoreLogic.
4) Have to start somewhere. By the end of 1Q2017, I will have over $700,000 in cash based on my current savings rate, an expiring CD, and the final tranche of my severance from 2012. I have a goal to get as smart as possible about real estate crowdsourcing investments before then in order to invest the cash with more confidence. A $10,000 investment is a good start. My hope is that I’ll have the confidence to invest $25,000 – $50,000 in particular deals I feel strongly about. If not, then I will be more aggressive in paying down a bad mortgage with the proceeds.
5) Hot tub party. As fate would have it, I met a couple from Conshy in the hot tub at my place in Lake Tahoe before the deal closed! They were at The Resort At Squaw Creek for a Digital Media conference. They gave me the scoop on Conshy traffic, the competing neighborhood, the reputation of the area and so forth. They actually made me want to invest $50,000 in the deal, but I held back since it’s always good to start small and work your way up.
Slowly Deploy Your Money
For those of you who have excess cash or strong monthly cash flow, I highly advise you to slowly invest your money. There is no hurry to part with your valuable savings in this environment. Shoot for a cash hoard goal and then invest the excess judiciously in various tranches.
As for me, I’ll be analyzing three currently open RealtyShares investments in Mobile, Alabama, SE Michigan, and Smyrna, Tennessee in my own head and with other accredited investors only. If I decide to invest, I’ll publish a post sharing why.