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...
There’s a guy in my market that at one time owned a bunch of rentals and was a pretty active real estate investor.
A couple of years ago, he decided to start using his self-directed IRA to make a loan to another experienced investor here on a slam dunk real estate deal.
He made pretty good money on that first deal. So he made another one, then another... Over time, he found that he really enjoyed the process of making loans, and because he started making good money doing it, he made the decision to sell most of his rentals and start doing lending exclusively.
He’s making great money now and is happy as a clam.
So, I was interested when I saw an article on some different ways to make money in real estate investing.
The author wrote that there are a number of alternative investment options that you might consider for your investment portfolio.
But why might you consider investing in something less proven or less traditional than stocks and bonds?
Well, he continued by saying that there are a handful advantages to consider…
Advantages of Alternatives
Diversification
One of the biggest factors in successful investing is diversification. Diversifying your portfolio helps you to mitigate risk and secure a more stable path to long-term gains.
Why not diversify your portfolio beyond the standard model of investing that we’ve established over the past 100 years?
Novelty
This motivation is less convincing from a pragmatic standpoint, but it’s impossible not to mention the novelty of investing in a new strategy.
If you have fun investing, these could take your enjoyment to the next level.
Flexibility
Most of these forms of alternative investing are so new that they’re malleable. The legal and practical rules for their development aren’t concrete, and there’s plenty of wiggle room when it comes to consumer choices.
This gives you a higher degree of flexibility in terms of your investments, and quite possibly, a degree of input in how the industry develops. Simply voicing your opinion or backing one organization over another could help move the industry in the right direction.
The author also mentioned…
3 “New” Ways to Invest in Real Estate
Equity Crowdfunding
Equity crowdfunding is a lot like typical crowdfunding but with a few perks that make it an actionable capital investment.
It’s a relatively new development, as crowdfunding laws mandate that no participants could contribute capital in exchange for equity in a campaign. Today, the laws are still tight (and under development), so only select qualified investors can take part.
However, in the near future, it will likely be possible for average investors to participate. You can select the campaigns, companies and ideas you think have the highest potential for profitability and maximize your potential return.
Legal Funding
Legal funding is a way of investing in court cases with a promising potential payoff to the plaintiff.
Mostly driven by companies and organizations, this method of investment involves a rigorous underwriting process, evaluating the risks and rewards of potential court cases.
If the plaintiff is awarded, the legal funders see a return on their investment. If he/she is not, he/she doesn’t owe anything. The key here is to select the right plaintiffs and the right cases.
Crowd-Based Loan Distributions
Crowd-based loan distributions, sometimes called peer-to-peer lending, is a relatively straightforward model with varying degrees of potential payoff.
Much like a typical crowdfunding campaign, a platform collects relatively small investments from a large number of contributors and makes that capital available to lenders, who can also apply to the same platform to secure a loan…
Potential borrowers are evaluated in terms of credit history and are given a score, which contributors can then use to balance the risk and reward of their contributions. The higher the risk of the borrower, the higher the interest rate will be.
Bottom Line
Alternative investing isn’t for everyone, and traditional modes of stock, bond and mutual fund investing are still solid means of diversifying your portfolio and achieving a significant return.
However, if you’re in the market for something a little more adventurous or something that takes advantage of more modern technology, consider one of the above investing methods to round out your strategy in the modern era.
Speak Up
If you have experience in any of these alternative investing strategies, please tell us about it in the comments section below.