Investing in Real Estate is About to Go Bananas

But, why take all the risk flipping houses when you can just enjoy the returns?

Heyyyo,

We have officially reached 48,029 subscribers… HOLY F*** 🤯

Thank you all for the incredible support!

That makes this the largest micro-investing Substack in the game, and we’re just getting started… Each week I try to feature startups and other investment opportunities that I’m looking at with the added hook that you don’t have to be rich AF to participate (if you don't know what that means, click here).

If you like what you see here and haven’t already subscribed, please do 👇👇👇

Side Note: Am I the only one who’s logged about a bajillion hours on the sofa this year watching HGTV thinking, “how hard can it really be?”. 2021 will be the year of the real estate-influencer. Mark my words.

If you don’t believe me, watch my interview with pro flipper Megan Blu 👉 https://bit.ly/3olpWWe

This week, I’m throwing you all a bit of a curveball, as I have a slightly new obsession. Real Estate crowdfunding.

Register to Invest here 👉 https://bit.ly/33FDjsB

Subscribe to my podcast 👉 https://spoti.fi/3kVHU0y

DM me on Twitter 🐦 @kitun with any questions!

Scott


Real Estate Crowdfunding

Let me begin by saying, there’s a number of quality Real Estate micro-investing platforms to choose from; but I’m already a registered investor on Republic (Hopefully you are too :) so when they launched Republic Real Estate I was already cough* right at home!

It’s pretty much exactly the same as equity crowdfunding for startups — you invest into an SPV that entitles you to pro-rata return on the overall profits upon dividends, sale or acquisition. Only, for most of the featured real estate deals, such as American Dreamhouse the anticipated hold period is <12 months.

There’s a TON of different types of real estate investments featured, from large commercial developments, TikTok houses (not recommended, more on that in a future email) to flippers and everything in-between.


Meet the Founder (You)

Are you a GC or Interior Designer? Let me try this a different way; when the ceiling fan shits out, do you call someone? Just because you have a Home Depot card does not exactly qualify you to be successful flipper…

But, that shouldn't exclude you from a massive investment market. Imagine if you could invest in Property Brother’s flips or the Shiplap Castles being built by Chip and Joanna Gaines!?! Or better yet, a parlay with Blackrock? As mentioned on the above pod with Megan Blu, we talked about how many of the best local/regional flippers are now being assisted by micro investors to fund their projects. So too are commercial builders. Meaning, you don’t have to be a pro builder to invest in awesome projects going up in your neighborhood — or across the country for that matter!

Like startup investing, I believe in two golden rules; start with what you know and what you love. Are there amazing commercial deals out there? Hell yes. Should you invest? Probably. But, before you get into complicated deals that have a lot of red tape between investment and return, start with something simple — like a vacation rental or flip. Then, up your sophistication level based on risk tolerance and horizon.


Active Investments

Draper Startup House is a planned income property with an estimated hold period of 3-5 years after acquisition. Total return on investment will consist of a combination of income generated during the hold period and capital appreciation that may be realized when the property is sold. 

I’m not a big believer in TikTok homes (as mentioned in my opening remarks) but I want to clarify here the key difference between that and say, a “startup house”. One is a scam based on potential revenue sharing that never actually happens and a perceived value increase because, you know… the house is now Insta-famous 🤦‍♂️ and the other is a great opportunity to capitalize on a major housing trend. Draper house is the latter — cities like Austin, LA, Chicago and beyond were already gearing up for a major real estate shift prior to Covid. Basically anywhere with a tech epicenter. Young founders essentially creating their own incubator in a sweet house just outside of downtown. If you’re from Chicago think Bucktown or Roscoe, if you’re in LA think, Westchester. Post-Covid, this is going to be a HUGE trend!

Nectar Tulum is acquiring 4 units of a 15-unit luxury condominium for a total purchase price of $840,000 with approximately $50,000 in expected renovation expenses per unit including furnishings, closing costs, and staging each of the unit for vacation rental or short-term occupancy.

If investing down the street is ambitious, investing in Mexico is Level 5. But, but, but… hear me out. People haven’t vacationed in 9+ months, sans South Carolina family resettlements. AirBnB IPO is looking stronger by the minute and once Covid gets ghostbusted, people are going to adjust to a new remote world and travel restrictions will be 86’d. Meaning, a major discount (20% in this case) on a hot vacation and short-term rental spot cannot not pay off. Sure, it comes with some risk — when’s the last time a trip to Mexico didn’t come with a little risk?


Market Opportunity

There’s a popular quote attributed to Mark Twain that goes, “Buy land. They’re not making it anymore.”

It’s unclear whether America’s greatest writer was also a shrewd real estate investor, but the quote underscores a core principle of personal finance: real estate is (almost always) the most foolproof investment you can make. Land is scarce and it almost always appreciates in value.

Of course, there are exceptions to this rule. The 2000s mortgage bubble artificially inflated the value of homes and ruined many people’s finances when it inevitably burst in 2008, and natural disasters, such as the wildfires that have ravaged parts of California the past several years, can erase real estate value.

But by and large, home values tend to increase over time.

Problem is, fewer adults are buying homes than ever in recent history. The homeownership rate for millennials is approximately 7 to 8 percentage points lower than that of Gen-Xers and Baby Boomers — meaning a lot of millennials are missing out on a vital wealth-accumulation vehicle.

Fortunately, Republic now affords people a way to invest in real estate without committing to buying an entire plot of land. Through crowdfunding, every investor can enjoy a tiny slice of the American Dream at a cost they’re comfortable with.

That said, it’s hard to evaluate the real estate market at a macro level. The market potential varies with each individual investment, so here are some things to consider if you’re thinking about getting into the real estate game:

  • Focus on regional, not national, trends. Real estate prices vary wildly from state to state, city to city and sometimes even neighborhood to neighborhood. Given the variance, it’s far more important to stay abreast local real estate trends than national ones. The national median house sale price doesn’t have much bearing on a flip in L.A.’s booming Westchester neighborhood.

  • Land > the building. One of the biggest misnomers about real estate is that the physical qualities of a building are what drives its value, when in reality, it’s the land that’s most valuable.

  • Land in cities is inherently more valuable. Corollary to that, land in population-dense areas (e.g. major metropolitan regions), where space is at a premium, will always be more valuable in the long-run.


Terms & Takeaway

Invest in Draper Startup House here 👉 https://bit.ly/3lHqJ2p

Security Type: Crowd IPA
Annual Dividend: 9.5%
Target IRR: 7%
Investment Goal: $170,625
Raised (as of publishing): $126,647
Minimum Investment: $195

Invest in Nectar Tulum here 👉 https://bit.ly/37rdhuo

Security Type: Crowd IPA
Annual Dividend: 9.5%
Target IRR: 21.25%
Investment Goal: $1,000,070
Raised (as of publishing): $137,700
Minimum Investment: $100

Here's what I like: Both of these deals are completely different in one respect, and utterly the same in another. A single family home is not a condo…in Mexico. But, both are future-forward. Both are placing bets on obvious trends, in obvious markets. Austin is (and has been) growing fast as shit, 85% increased home value over the past 10 years — entrepreneurs are already cohabitating just outside center city and Covid only accelerates this trend. Similarly, remote families are not going away even when this asshole-of-a-virus does. So, if you believe what I do, that people are going to be on the move in a big way after stay-at-home goes bye bye… then, both deals should be trending upwards!

Here's what I don't love: I hate guessing. This time, I am pretty confident in human nature but to ignore the financial impact of Covid would be a mistake. A financial meltdown is coming, one way or another and if you don’t have a job or mortgage payments… the rest is moot — that said, Mexico is cheaper than LA and tech founders might be the single example of an economy (mostly) impervious to Covid.

Either way, I’d be lying if I didn’t say I am a little nervous putting money into anything that likely pays out after life resumes, ‘cause … who the fuck knows when that’s happening?

Who should invest and why: I can honestly say these investments are for ANYONE. I plan to expand this newsletter beyond just startups and into rev shares, real estate, crypto, public markets… even betting (if the price is right); and a major reason for that is diversification. What makes self-directed investing, especially micro-investing, so cool is the ability to not put every last cent you have into a long shot — but, rather, spread it out… no matter if you have $500 or $5,000,000.

If you’re looking for some short[er] term returns (respective to startup investing), these are two pretty solid opportunities. If not these, I would certainly keep my eyes open for deals similarly positioned to benefit from the post Covid real estate whirlwind.

As always, investing in private offerings is super high risk, anything can happen. So, don't invest money you can’t afford to stuff stocking with... real estate is a great way to broaden your portfolio, but it’s not for everyone 🏚

Register to Invest here 👉 https://bit.ly/33FDjsB

DM me on Twitter 🐦 @kitun


Disclaimer: It goes without saying, but this information should not be constituted as financial advice, my investing opinions are my own and all diligence is the responsibility of each individual investor.