Entrepreneur of the Week Alon Gilmore # Post 4
Today Part A: For investors - how to choose an investment manager / entrepreneur to run with + investment confidence.
Tomorrow Part B: For entrepreneurs - how an investor chooses to run with him + conduct in recruitment and marketing.
The moment comes when we understand.
We're not really in the real estate business. It's just the device.
Our real business is Relationships
With a local team, with the investors with us, with the management company, with our tenants, with the Lender, with everyone.
I am sitting with an investor who is interested in starting to invest in the US.
Even though I have heard the same concern dozens of times, I still not only hear it but actually listen.
She comes with her son and tells me, even though she wants to invest, about all the objections and warnings that the family of "advises" her about investing, and how risky it is to invest, and it is better to put in a savings plan, and the US is very far away, On TV, the one who cheated, and the ones who disappeared, etc.…
Not sure I understood why she came to meet me in the first place, probably needed reinforcement it was a long time ago.
The family is worried. it's clear. There is no one like me to understand this.
However, there is also no one like me to understand how the "advice" she received from her family is really dangerous.
(I did not see fit to convince her that I am a real estate entrepreneur on a daily basis and not a financial educator, except this week…).
Apart from 12 years in one of the largest investment houses in the country in the capital market, also in real estate - I have accompanied many hundreds of real estate investors in the US in recent years, I have seen and experienced this emotional roller coaster.
More than that - I also invest, even before I take the initiative.
An investor who has experienced both losses and gains. I know exactly how it feels.
The intensity of the pain of losing $ 30 is greater than the intensity of the joy of an interval of $ 60, and do not tell me this is not true.
On the other hand, we want to build our private pension with the greatest possible confidence.
so what are we doing???
First - remember what your investment strategy is, from post 1.
Second - meet with who will manage your investment.
And workers - enter investments with open eyes:
Understand in depth what the chances are like what the risks are, and find out in meetings "what is the worst that can happen"?
Understand reality as it is: no more beautiful than it is but also no worse.
And if you know what to do-
I'm here to tell you that it is possible to build a passive income until you reach economic freedom - without taking unnecessary risks,
Without trying to "time" the market, we are not betting on our money
Without caring for tenants
Without looking for the bonanza investment that you get rich from without risks within a year - because there is no such animal.
Of course, this Israeli invention also had a "guaranteed return"… 🤥 (hopefully the phenomenon has disappeared from the world).
I want to go a step further, and give my 2 cents on confidence, but from a slightly higher place than the technical analysis, what do you care.
We want for sure. That someone will guarantee us the profit, the return, the schedule, that the surgeon will succeed in any surgery, that the lawyer will win my case and the maximum, and that the financial advisor will double the income for us, that someone will take the responsibility from us all the way.
Confidence is a basic need.
But the truth is that life is not safe, you know that.
No one can make them safe, there is no way to guarantee them and the truth - it's good that way.
Absolute confidence is a fiction, no matter how much confidence you acquire it will never provide. Why?
Because in this experience of ours, called "life", it is simply unnatural.
Now we're here, and tomorrow or in an hour? who knows?
Now I saved for a year on Milky and Cottage and in a moment a car malfunction will cost me thousands of shekels.
We are looking for security in banks, and in contracts, in insurance companies and in the courts, and we think we are now prepared for everything to be "safe", but the truth is that we will never reach absolute security.
Entrepreneurs like us have left. An investment bank, one of the largest in the world, which has been active for 158 years, from 1850 - a symbol of stability, and what security! And on September 15, 2008, this investment bank, Lehman Brothers filed for bankruptcy.
And with us? 10 years ago What was Nochi Dankner's signature worth? Everything !
What is it worth today?
You will hear an absurdity that will make some of you scratch your head .:
Some people are afraid to invest in real estate in the US. All right, very legitimate.
But they have hundreds of thousands of shekels in provident funds and funds without being aware of the management fees charged to them, sometimes 30% of the savings throughout the period (yes, yes!).
And if you thought it was absurd - what would you say about it, that in order for these investment houses to provide those who are afraid to invest in real estate in the US - returns, they invest their money in, among other places, in the US
I'm not saying you should not invest in security, I'm writing the opposite for a whole week. I say the moment comes when the responsibility for doing it is on you.
Do, and trust that full confidence will never come.
And it is still possible to control the levels of financial risk - and the only dangerous thing is to leave the bank to erode your money in its favor, because the bank has told you for decades that it is the "safe" place for you.
“So okay, Alon, I got you I'm there:
You keep saying that the time has come to trust.
But I'm really exhausted from marketing, and checking deals, everyone's so nice and compelling, but at the end of the day I again took no action because:
How do I know who to go with? How to determine the investment strategy, how much profit to expect, and also - let's talk about the elephant that is in front of us at its full height: how to beware of charlatans? ”
So here, without sending you links or downloading a guide, here I have packed it refined for you.
First - adjusting the investment characteristics to my strategy:
So like I said - investing has 3 basic elements: security, return, and liquidity.
One must give up one of them.
You already know that I believe in lifetime cash flow income from real estate investments in residential buildings:
And in cash flow transactions in assets that are purchased well below market value, and that have a healthy element of improvement.
In addition to the extra security that real estate has on the capital market in my opinion, there is also a low correlation to the risky capital market, and we see this more this year.
Scatter, scatter and scatter again. Do not buy a detached house for remote control. Scattering greatly helps not to lose money.
A detached house, whose repair is unexpected or the absence of a tenant for 6 months, can end up with a return of two years.
If such a situation occurs in a unit in a multifamily building of 50 apartments, then the damage is void in the sixties, what is more it should be calculated correctly in the business plan in advance. (I hope..)
Rule of thumb: The profits between real estate investments should be divided between the rental income and the capital gains. Both need to "sit" on a great deal already in the purchase.
The first has control — the second is more speculative.
Make sure that the part of the lease generates a stable and fixed income, and that you understand what the value-add is planned for the project. That's why you're investing in the US. This is what contributes to a better night's sleep. Make sure you are in an area with very good employment and income data. It's your tenants who work in these places.
Regarding the exit part: No one has a crystal ball - so, make sure you enter the deal below its market value and in demand areas.
The exit is actually made at the entrance to the investment, remember?
It's not just us in the cash flow investment business.
Even when the land value of the field can change - the tree will continue to bear fruit (rent).
And here's the most important thing. If there is anything you will take from this post - this is what is written from here:
And most importantly: Choosing an investment manager or entrepreneurial company:
First to avoid:
There will be people who might be angry with me, for the following rule, it's okay:
Work directly with non-local marketing companies:
I will be brief and say simply: Do not invest in marketing companies that are not the local entrepreneur themselves.
Not because of matters of integrity God forbid, and not because the investor does not matter.
But because of the model itself, it just does not work.
Control: The amount of links in the chain (the amount of potential failure points) The investment between you the investor, and up to the asset, which require complete control, will be too large. Marketing companies really have no control over investment management.
In marketing companies that are the "Middle Man" the people who test and decide on the investment - they are not the people who will manage it for you. And most of the time there will not be those in communication with you, you will not even know who they are.
The analysts, and marketers in the button-shirts at the marketing companies, who sell the investment - have never visited the property, some have not even been to the US!
And add to that the turnover of employees (employees) in these companies, who today are here tomorrow they are in another company, without any personal commitment to you.
Where did I learn this from? Simply, I was there too. And as you remember- it was my trigger to go out and start our company.
The local developer in the field - knows every bump in every property in the project.
When the company is mediating, it does not have a common interest of yours — by definition. Its profit structure is different and not subject to the outcome of the project for the most part.
Worse, there is a danger that its brokerage costs may reflect you entering a transaction at a value higher than the value of the property, God forbid, instead of the other way around, and you must not allow that to happen.
*** Important Note: It is perfectly fine to work with a marketer, if he refers you to the entrepreneurial company, and does not charge you any payment for it.
Entry below market value:
Al! Invest in a property at market value or higher. Even 10% below value, it's like a value entry if you take into account brokerage fees in buying and selling.
You need to make sure that the total investment is significantly lower than the value of the property ALL-IN.
Investment in a prospectus-
This prospect is a security, you say?
So a prospectus does not guarantee anything. You have nothing to be impressed with by investing in a prospectus. It costs hundreds of thousands of shekels that you investors will finance and in return - it will not guarantee you anything.
It's better than a presentation, because you can tell fewer stories, but it does not guarantee you anything.
The investment property in the United States is not so interesting in the prospectus written by a law firm in Israel, nor by the Israel Securities Authority.
Therefore, the most important element of all:
Who manages your investment? the people.
Invest in choosing executives before you invest. In the end - it's always the people.
There is nothing more important than that. There simply is not.
Meet the person who is going to manage your investment and finances.
Check their level of control over the management companies.
Feel them. You will be convinced that their set of values, and their frequency, do you good and right in the stomach. Intuition is an amazingly supportive decision-making tool, and can help with significant dilemmas.
Choice of investment route:
People think that construction assets are always risky, and that in multi-family assets it is impossible to lose money.
This is not true! It all depends almost on management.
Right. In real estate there are also things that are out of control, very true. And there is also a higher power. No one said that real estate is a bank clerk, see the security clause above.
And yet, as for what is indeed controlled — everything is in management. With skill and experience.
Even mediocre mismanagement can sometimes drain all investment money.
Regarding the commissions of the management company: Every entrepreneur and every company is entitled to commissions and profits as part of the syndication, it is fine and it is fair. You do not want your entrepreneur not to make a profit.
But, and there is a big but:
The less the percentage of the fees that the company charges depends on the success of the project, and is collected in any case - this creates a greater conflict of interest with you, the investor. In addition, it is always good for the entrepreneur to be with you in the deal even in an investor's hat.
It is better to invest with a good manager in a bad sector, than to invest with a bad manager in a good sector.
Investment managers who are also entrepreneurs in the field are much better than institutional investment managers, talented as they are, not only for the reasons I have written but also for the fact that today they work here - tomorrow elsewhere.
In David Swanson's book Portfolio Management, he showed a 17% (!!!) difference in the annual return of good executives compared to bad ones on those investment instruments.
The market is always bigger than the assets, everyone knows you have to buy cheap and sell expensive.
At the end of the day all the entrepreneurs are in the same market and in the same game.
In the end, it all boils down to management.
You will always meet with the entrepreneurs themselves, who are the people in the field and are the ones who manage your investment. Make sure they control the assets and the management company (critical).
After all the data and dry data, make sure that they, the administrative, the people, "pass you by" even at the level of the stomach and intuition, regardless of whether they are nice or not, and if something is right or wrong - listen to it.
Remember that even as investors you have a responsibility: to examine and understand what the deal is offering you, and to understand the level of risk to the end.
And finally, remember what Warren Buffett said about the qualities of investment managers:
“Look for integrity, intelligence and vigor. If you do not make sure of the first - the other two will eliminate you. "