Why Invest in a Real Estate Fund? - Episode 6
Carl:
Real estate beats stocks in every way.
Brant:
Agreed. And you should not invest in it on your own if you don't know what you're doing. Hey guys, welcome, this is Meaningful Capitalism. I'm Brant and this is Carl. Thanks for joining us today.
Carl:
Today we're going to be talking about why to invest in a real estate fund. There are many advantages to investing into a fund structure versus doing it on your own versus investing in stocks or bonds. And so we kind of wanted to sit around today and talk about some of those different benefits. What's your favorite benefit when it comes to a fund structure over a DIY, I mean, or stocks. We can kind of compare and contrast those three types of things.
Brant:
Yeah, it's a great question. What I would say is, a lot of people, when they think about investing in real estate, either for some people it's kind of scary or maybe it's not their primary business and they feel like, "Yeah, I couldn't get into it, because it's going to take up all my time." Or maybe they would be uncertain if they're getting a good deal or not. Or maybe they're like, I love the idea of cash flow assets and real estate investing in things that crank out that monthly revenue. But I don't want to be a landlord.
Brant:
I've heard all sorts of different things. But when it comes down to it, real estate investing is absolutely hands down, the greatest way to build wealth that exists. 2% of the world makes over $250,000 a year or more in income. Of those two percenters, 80% of them have made their wealth in real estate. And what we do with fund investments is we capitalize on leverage. So to your question, leverage is the biggest value. Socrates once said that if you give me a lever big enough, I can move the earth. And so what we do is we leverage people's experience and expertise. We leverage capital. So, somebody, an investor out there might not have enough money to buy a 10 million investment property. But you do if you're buying it in a syndicate fund, if you're pulling your money with other high net worth individuals and going in on a project together.
Carl:
Yeah. So, as we kind of dig into this, one of the thing and one of the reasons why we love investing in a fund is it just creates a level of diversification across multiple properties, multiple geographic locations. And so, if I take that same amount of money I would put in a fund and I go invest it myself. Even if I'm successful in doing that, I'm putting all of my eggs in one basket.
Carl:
Because with these syndicates, you can get into them around the $50,000 range. Which is about the low end you can get into a single family home as an investor. And even if you got into two houses, one of your residents moves out and now you're coughing up out of your own pocket to pay that mortgage every month. And so, I really like the diversification here. And not just diversification into multiple properties in multiple geographic locations because as we invest in these funds, we put some are in Dallas, some are in Houston, some are in other parts of the nation. As we do this, we also are buying multi-family properties. So when one resident moves out, it's not catastrophic. It's not even dropping a pebble in a pond that leaves a ripple effect. It's virtually unnoticed.
Brant:
You're right.
Carl:
Because we can turn those back around so quickly. And so, that's one of the things that I personally enjoy about this kind of investing. So I kind of want to ask you a question a little bit. So talk to me a little bit about how these assets that are real estate return capital differently than what you can do with stocks, for example.
Brant:
Well, it goes back to that point that I made about leverage. So, typically when you're buying stocks, you're buying stocks with your cash, with your money. And then if you ever want to cash out of it, you got to sell the stock. And now you lose the asset of the stock and you have your cash. And your cash is in your hand, but now it's not growing for you anymore. You got to do something else with it to continue the growth.
Brant:
In real estate it's wonderful because you can use a combination of debt leverage and cash. And what that does is that allows you to make what we call an arbitrage on the bank's money and create a high yield return on your own cash, as well. And so, being able to invest into real estate compared to stocks or compared to bonds or other things that grow at a very slow pace. In real estate, you're actually making money in equity, you're making money in appreciation. You're actually getting tax benefits. You're actually getting that cash flow. And it's just building wealth for you in so many different ways, rather than just one way.
Carl:
Yeah. Try calling your banker and saying, "Hey, my stock has doubled in value, will you give me a loan based on that? So that I can go make a new investment into more stocks."
Brant:
It's not going to happen.
Carl:
He's going to laugh at you. But that's exactly what we can do in real estate. The real estate appreciates in value, we go take and refinance, take that capital and go invest it into another asset. Now, both of them appreciate, and you can go refinance on both of those and buy additional assets. And so, you can really multiply your wealth in real estate in the way that I just don't see it panning out in stocks. I mean, you can get lucky, I do invest in stocks and I've bought stocks. When everything plummeted at COVID, I actually jumped into the market that had just rock bottomed out. And I actually made a pretty decent amount of money. But it's not something that you can do and then re-leverage and refinance. And take the bank as a partner who wants to just make a real small interest rate as a partner and utilize the wealth that they would give us. And so-
Brant:
That's right.
Carl:
I really like that part.
Brant:
So real estate's such a powerful investment and wealth building tool. And what a fund allows us to do is be able to do more than what we could do by ourselves. We put together funds, syndicates that allows multiple investors to put money into a pool and buy the best assets. So for me, if I was just investing by myself, in real estate I could probably do pretty well. But the problem with it is, is I would be limited to only what I could afford to buy.
Carl:
Right.
Brant:
However, with the fund, now I can go after the greatest assets in exactly the geographic markets that I want, I don't have to only invest in my own backyard. I can invest in the best backyard.
Carl:
That's right.
Brant:
I don't have to go after only what I can afford, I can go after the best assets in the country. And that's very powerful because why would they be the best assets? Well because they're going to perform better than anything else out there. So the fun and the syndication, you're spreading risk over multiple investors, over multiple properties, over multiple geographic locations, just like you said.
Carl:
Exactly. And so, I think the final thing that a fund brings to the table. When you invest in companies that do fund structures, like the ones that we're doing. And actually, I'm going to put a little plug here, like the one we're about to open.
Brant:
Yeah.
Carl:
And so, you actually are able to leverage a company's experience and the years of knowledge that they have. You don't necessarily have to pay the dumb tax of messing up something when you're managing. That you can lean on that company to say, "Hey, they've been managing this asset class for this many years. They have this many assets under management. They've turned this many properties around and they've returned capital to investors at these exponential rates, over this period of time." And so, I can keep my day job and I can put my money into a fund. And I can continue to do my skillset that I'm really good at, instead of stepping over and trying to learn a new skillset that I'm might be okay at. Or have the chance of paying the dumb tax, I can leverage the experience of a big company.
Brant:
Well, it's the best thing to put your money to work and make your money work for you. And we've already paid the dumb tax.
Carl:
Twice, maybe.
Brant:
We've paid the dumb tax. We've learned the areas where you can mess up and we've learned how to not do that anymore. And because of that, like you said, we've built a track record. And that allows us to have the combination, the most powerful combination is a great business model and a great operator.
Carl:
That's right.
Brant:
You can have a great business model and have a terrible operator, and you really got nothing.
Carl:
Yeah.
Brant:
You can have really great operators and a terrible business model, and you've really got nothing.
Carl:
Yeah.
Brant:
But when you got great business model and great operators, that you're working with coming alongside, you're putting your money with them and your money's working for you. Now, you got something that's powerful.
Carl:
Absolutely. Absolutely. And if you want to learn more about the dumb tax, jump into some of our other episodes. We've recorded many episodes about some of the places that we've made mistakes and areas of growth. And we really set forth to make this podcast really, to share that knowledge, share that experience and let other people know, "Hey, these are some pitfalls we've made. Don't go jump in the same pit. It's not a great one, we've been there." And so you don't have to pay that dumb tax.
Carl:
Guys, we thank you for joining us today. I'm Carl Moore, this is Brant Greathouse. This is Meaningful Capitalism. Have a great day.
Brant:
Have a good one.
