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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry.
And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
If you’ve been reading my stuff here for any length of time, you know that I’ve been beating the drum LOUDLY about the mainstreaming of real estate private lending since the spring.
It’s not hard to see why. With the Fed keeping interest rates near zero, the returns on Treasury securities is a joke. And saving accounts are now charging YOU to keep YOUR money in them.
Then there’s the stock market. Going higher and higher and higher, all while defying both business performance and business fundamentals simply because all the money the Fed is printing has to go somewhere.
So the truly smart people have been bailing out of stocks since the spring. And now it looks like the average Joes on Main Street are finally getting the message and bailing too…
Which leaves both the big money crowd and average Joes with a pretty big problem.
And that’s what to do with all of their investment funds.
This hit home with me when I read an article on Marketwatch.com titled: “Private real estate funding gains traction with average investors.”
Bubbles, Bubbles Everywhere
The article pretty much stated the obvious – that as the stock market hovers near a record high, the talk of a bubble is getting louder.
As a result, investors may be looking to diversify and balance risk by finding safer investments that still offer viable returns.
The author stated:
"Alternative assets can offer safer risk profiles than more common and popular securities. There’s an array of alternative assets available in the market with varying degrees of risk and return. And one of my preferred areas of alternative investments is private real estate funding."
He went on to say that private real estate funding can be a rather broad area. And that he was referring specifically to the lending of investment capital to real estate investors who are acquiring investment property.
Does that sound like anyone you know?
He argues that funding real estate is an area often overlooked by investors because they think they need significant amounts of capital, but he encourages people to look for opportunities to invest, because there are many opportunities available that allow folks to participate in funding real estate investments at lower capital commitments and with safer returns.
He then goes on to explain that these opportunities for real estate investors to earn higher returns exist because of the economy, and especially because there is still a good supply of foreclosures and abandoned homes, which allow real estate investors to take advantage of and get strong returns themselves.
Kind of a perfect win-win scenario, you think?
But before you get gung-ho about this and start carpet bombing Craigslist and your friends with your funding needs, understand that it’s going to be a bit more challenging to bag these people as our private lenders.
You need to keep in mind that we’re talking about average Joes whose investment experience, in general, consists solely of picking mutual funds based on their Morningstar ratings. And it doesn’t include anything remotely similar to looking at cash-flow projections for a rental or a profit projection pro forma for a fix and flip deal.
They’re used to someone else doing the analysis, or at a minimum, giving their seal of approval.
The Crowdfunding Connection
In my book the answer to this is crowdfunding.
Think about it.
Crowdfunding is all about “general solicitation.” It’s the funding a project or venture by raising monetary contributions from a large number of people, typically via the internet.
And while the federal government has a set of highly restrictive laws with some rules that are very expensive to comply with, several states have passed their own very simple crowdfunding laws that make it much easier and much less expensive to raise funds.
In those states all you have to do is file your offering with the state, and then create (or have created for you) some basic disclosure documentation.
That’s pretty much it.
And if you do those things, you can wave your deal in front of anyone you choose. And since you’ve followed the crowdfunding laws, you’ll have a kind of “seal of approval” that you can use to attract the average Joes who are looking for higher returns.
But the time is now…
None of us has any clue how long the Fed is going to continue to keep interest rates so low. All we know is that it can’t last forever.
So now that you have a tool like crowdfunding that you can use, you should look into using it.
Most people won’t because it requires some extra effort and some money. So that means those who do will have very little competition for the funds.
What are you waiting for?
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.