The Latest and “Greatest” Real Estate Investment

I've seen up markets and down markets. The markets always cycle.

I’ve learned every time there's an upmarket, what follows is the reversion to the mean. It can only go so far up before it comes down.

In the last 12 years, after the 2008 financial crisis, stimulus money has been used to pump the value of every asset. Assets have gone to the moon—financial assets, real estate assets, crypto, tech, stocks, you name it. It’s a great time for everyone, but there’s always a reversion to the mean.

Beware of Inexperienced Operators

What bothers me at every end of a cycle are latecomers to the real estate investment game. People jump on board late in a cycle, “Hey, I can do this too. I can hit real estate home runs.”

It’s fine if they want to take a shot at it themselves. There is nothing wrong with that. If that’s you, I would just caution that the traditional models that used to work so well in years past may not work well in this next phase of the cycle. Investing in rental properties or fix n’ flips only works when the market is on the rise, not when we are facing the headwinds of inflation in a higher interest rate environment (I discuss this more and how you can keep up with the change in a recent podcast of mine).

My issue, however, is when those same individuals have a little luck with their single-family houses and think themselves experts. They make some money there and decide they can do this for other people.

“I can create a real estate fund. I can be a real estate syndicator. I can be a general partner (GP) and accrue all this money from my buddies, friends, colleagues, and people I influence. I'll tell my story. I've had a few years of these big wins, so I must be really good. I must be a genius.”

Everyone's a genius in a bull market, but you must be cautious today. Most of these individuals don’t have bad intentions. It’s usually not nefarious real estate scammers where things go awry. Yes, some of those exist, but let's put them aside for now. I'm talking about people with good intentions.

They see opportunity, but they don't know what they're doing. This crosses a line when they start taking other people's money. You can do it with your own money if you wish, but when you use other people’s money and promise them the moon, it becomes irresponsible. 

They think they can handle it because “I attended a weekend course. I learned how to do syndications. I can do a fund because I have an attorney who wrote up a PPM, and it's all good. It's all written to a securities code.”

What “written to securities code” means is they have no liability, while you, the limited partner investor risking their money, have very few rights.

So long as everything goes well, the market stays up, there are no issues, everyone makes money, then everybody is happy. The problem is the current market headwinds are beginning to show who the real experienced operators are.

As Warren Buffet says, “When the tide goes out, you find out who's been swimming naked.” The tide has been going out for the last year, particularly in real estate. (Don’t worry. The stock market and all financial assets will also have their day.) 

You must be careful about throwing your hard-earned money at individuals who have never been through a full cycle (peak to peak, upmarket to upmarket, or down-market to down-market).

Ask the operator or sponsor, “How long have you been doing this?” Not just about their career as a doctor or someone who has personally invested in some real estate over the years. Let’s be more specific.

“How long have you been running your fund or syndication?” If they started in 2021, that is not a full cycle. That means nothing in terms of investment success. Again, we’re discussing where to invest your hard-earned money. You must be careful.

Optimism in a Sea of Market Change

Now, I’m not a Debbie Downer or a big doomsday person. I’m an optimist. Those who understand a full cycle know that there are opportunities in every market, up or down.

The challenge is that the opportunities look very different at each stage of the market cycle. When you understand that real estate has layer after layer of different opportunities, you realize you can protect and grow your capital in up and down markets.

You should play more than just the equity game, which is what everybody wants to do. “We can just use leverage, receive the tax benefits, and grow to the moon.” But the market can’t always give that to you. You shouldn’t expect it to.

I know and teach how to pivot money, equity, and net worth into other assets and financial structures. I like to stay in real estate, but investing in real estate looks different in every market cycle. 

Personally, I don’t like the 401(k) or the traditional markets. If you follow me, you know I’d rather put my money under the mattress, in treasuries and precious metals. That’s exactly what I’m doing with a portion of my portfolio today because I'm waiting to put a substantial amount back into equity when the time is right.

Safe Real Estate Investments Today?

Today, I also invest more in the debt market. Debt can be an asset, not just a liability. Being the bank (owning debt) is another game that most people don't know how to play.

There is also investing in debt with equity participation when the time is right. This allows me to make some equity plays as purchasing power declines due to today's higher inflation.

There are so many ways to slice the real estate onion. You just need to know how to do it. There are better ways to invest in real estate than what is largely promoted.

Opportunities exist, but you must position yourself to see and take them. You must become educated in the different real estate investments, obtain access to those opportunities, and have the resources to invest.

It pays to play with those who know what they're doing. If you want to learn more, follow me on YouTube, Linked In, Twitter, or my podcast. 

I'm happy to teach you what I know about keeping your money safe so you can avoid wasting years of work and time in your quest for financial freedom.