Lately, two things are constantly reoccurring in my life: People are asking me how they can invest in development and I keep receiving ads from Ellevest on Instagram.
Ellevest is a service that “promises to take my money and invests it for me in businesses and real estate investment trusts for a fee, giving me a return in line with markets ... “ Blah, blah, blah.
Oh, wow! So I can ship my money off to invest in a toothpaste company or 10 other far-away things and then pay someone to tell me how they’re doing? Will I ever get dividends?
Not so much.
Here’s the thing: I’m a control freak. I don’t want to own toothpaste companies. Now I don’t mind long-term investing, but I want something tangible. I want to invest in real estate that I can see and produce quality within. And I want to support the businesses inside those buildings.
Clearly, I’m all for helping people invest in real estate. So let’s talk about how someone can invest in real estate without being the developer.
In my last blog, we talked about having “skin in the game.” That’s the idea that if you’re going to run a company or development project, that you’re as personally at risk as your outside investors.
A typical equity stake (skin) in a development project (game) is 12 to 20 percent, depending on all sorts of internal and external factors. A $1 million project with a 15 percent equity stake, for example, requires $150,000 from the equity partners.
To keep it simple, let’s say there are five equal partners at $30,000 each. They have a developer who is also willing to defer a portion of his/her fee as reassurance in the project’s performance. The returns are based on the project.
Now I can’t give you an exact metric of the projected cash flow without a specific scenario.
But I can tell you it feels damn good keeping your money in your own community and investing in its outcome. Owning a portion of the property that will make your business tenant money is a win-win.
There are development projects in the works out there with the potential for very healthy returns. I’m talking about returns three times what you’d see from a conservative stock portfolio -- and it can happen right in your community. You could drive by it with your children and grandchildren, shop at those stores, and know you’ve invested in a community that’s part of your life.
Now that’s the kind of investment I’m talking about.