5 Controversial Reasons Why People Want to Invest In Your Real Estate Deals (….But have absolutely no idea what you’ll hit them with!)

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Generally speaking, no one asks for marriage on the first date.

…And if they do, they’re either incredibly ballsy or incredibly clueless.

Much is the same with raising capital among retail investors. You need to spend the time to court them.

Even though capital is a commodity in the institutional world today, the retail investors you’re targeting, if you’re just starting out, are generally less sophisticated, and scared.

Comparatively speaking, they make investment decisions primarily based on emotions rather than relying dispassionately on facts, data and analysis, only because they aren’t professional investors.

They are…

  • Doctors
  • Surgeons
  • Dentists
  • Pilots
  • Attorneys
  • Business owners and operators
  • Other professionals

These retail investors are great at what they do; otherwise, they wouldn’t have the discretionary income or funds to invest in your deals.

But assuming they know everything you do about proper due diligence is akin to you performing a root canal on yourself.

So, knowing that, how can you utilize this blog post for the biggest benefit?

Use it as a backdrop to create a meaningful conversation among prospective investors. It’s an ice breaker to lead into after you meet someone at that summer picnic and they ask you, “So what do you do?

Let’s get started.

1. Artificially Low Interest Rates Robs Savers Of Retirement Income

We know this. We see it.

Perpetually low interest rates is a tax on savings. It robs savers.

As a result, these savers are forced to take risk by staying in risky assets that really don’t benefit them.

They have no control. If the stock market sells off tomorrow because of a single terrorist attack or any other geopolitical event, they are not secured and their holdings are not insured.

Unless they have at least $5 million in an actively managed account where their holdings are legitimately hedged, most savers and pensioners are completely exposed to losing almost everything they have in equities.

Have that cash in a bank? Well, here’s a few other reasons to not sleep well tonight:

You Are An Unsecured Creditor

Dealmakers-Tips-104-RMeaning your deposits are not secured in the event your bank goes into bankruptcy.

Bondholders and other secured creditors will get paid first. We saw this first in Cyprus in 2013 as, in this author’s view, a trial balloon to see how people would react. You can read that here.

The FDIC Insurance Fund is Severely Underfunded

This is something the gray-haired men and women and financial guru Suzi Orman got paid to say here for that matter will never tell you.

The FDIC is seriously underfunded. Read here to see how underfunded it is. But Americans following the advice of the herd still trust big banks.

Which means that there could be a tax on deposits soon like what’s been passed in Australia.

Now, will they say there will be a “tax”? No.

Of course not.

It will be spun as something different. Perhaps as an equity investment, implying they are now involuntarily invested into a bank and they have some ownership.

Capital Controls

Again, another term you’ll never hear mentioned in the western mainstream media. You’re seeing it as a crackdown on large denomination notes like the $100 bill under the banner of “keeping it out of the hands of the drug dealers and bad people”.
That’s really not the reason, as has been documented all over, but this article here really does a nice job of explaining it.

But ask yourself “why now?” Why not back when Nancy Reagan started her “Just Say No” campaign?

Another form of this is limiting withdrawals. Ever try to go into a bank and withdraw $20,000 cash?

I have.

And you know what happens? You’re asked questions.

Lots of questions.

Questions where the answer I wanted to give was “none of your damned business”, but rather just stated I was buying a car and the seller wanted cash or no deal.

People come out of the back office and ask you to take a seat in the closed cubicle in the corner. Your spouse gets nervous. You feel like you’re going to the Principal’s Office.

For what reason? I simply wanted my money.

Suffice it to say, if that bank burns down, and you’ve not been tipped off first, are you insured?

How are you protected?

2. Cyber-Terrorism: Not If, But When

I’ve talked about this before (check out #4 in this post) and I still stand by my words.

To reiterate, the United States has been the target of cyber warfare for quite a while now.

You’re going to see more of this, perhaps in the form of rogue hackers ultimately trying to cause a meltdown in the NASDAQ or NYSE.

In countries like North Korea, there are cyber-warfare training camps where the best and brightest are given unprecedented prestige and awards if they can penetrate a large, multi-national medical or financial services firm.

JPMorganChase was hacked; however, it was barely whispered in the western media. And that’s just a stepping stone towards the trophy of an electronic exchange. Imagine the terror that would create.

No one would trust investing any money in any electronically traded stocks for a long time. 

NOTE: Want over 73 commercial real estate investing blueprints, templates, strategies, and cheat sheets? Get all that and more in The Commercial Investor’s exclusive Wall Street Bible… The Big of Blueprints, 2nd Edition. Learn more and join the elite now.

Big Book of Blueprints

3. Increased Taxation

It used to be that if you had $1 million, you were considered rich. Now it’s $250,000.

But if it looks like a tax, and says it’s a tax, is there nothing else that can be a tax?

Well, ask yourself if you think inflation is a tax.

Where does it come from?

When you go grocery shopping, have you ever noticed that you’re paying the same price for the same-sized box of cereal? However, when you open the box, its contents are about 25% less than what you used to get.

Most Americans think inflation grows on trees. Tell me what you think in the comments section below… 

4. Siren Call Of Government Managed Retirement Accounts Getting Louder

There are 17.5 trillion reasons why the US Treasury can’t seem to ignore your retirement plans, as ostensibly stated here.

Why?

Generally speaking, the national debt is about equal to or slightly higher than the amount held in defined contribution plans (401(k)’s, IRAs, and the like).

In 2014, during his State Of The Union Address, President Barack Obama introduced the MyRA savings plan. (Regardless of your political persuasion, it is my firm belief that this also would have been launched at the exact time if Governor Mitt Romney were elected president.)

Pomp and circumstance aside, this is really nothing more than putting your money into a government savings bond. That’s it.

Perhaps with an inflation-protected escalator every year or five.

Who knows?

But the real sleight of hand is that it is using new money to pay off old debt.

So let’s visualize how this could possibly work and, more importantly, how a sudden demand for these MyRAs could happen:

First, you’d have an event where the market would sell off. It would be global in nature, meaning markets around the world would sell off concurrently, as they tend to do now.

The United States is not an island, and is interconnected economically, globally.

How this would be caused is a subject of an entirely different blog post.

Feel free to put your thoughts in the comments section below. I’m genuinely fascinated as to what you believe would be a catalyst for panic selling.

Second, savers and pensioners, including Baby Boomers who lived through the economic downturn in 1987, 2001, and 2008 will have given up on equities and most other liquid traded assets. There will be a flight to safety.

Then, remembering that this MyRA was announced, those pensioners and savers will run to the full faith and credit of Uncle Sam. Whatever they have left will be placed into these new-fangled investment vehicles where the government is protecting (and implicitly insuring…) their money.

Lastly, the US Treasury will report that the national debt had been paid down by $4 trillion or $5 trillion, and the current party will have won influence over the populace as being a heroic problem solver…which is the equivalent of going to Las Vegas and only gambling with the change machine.

Problem not solved, but merely pushed forward a generation or two.

When will this happen? You tell me.

However, let me remind you – before you comment below – that we’re also in the midst of one of the most contentious election years this country has ever witnessed.

(RELATED: How Much Is Donald Trump Really Worth?) 

5. Fiduciary Rules Written Against Their Interests

Those gray-haired actors like Kevin Spacey on those brokerage commercials never tell you this: that the money you have in those brokerage accounts is also unsecured.

You may not have heard of MF Global, the commodities trading house that went into bankruptcy after the company made risky bets and lost with its customer accounts.

You can read more about it here, here, here, and here.

However, what you have to know is this:

  1. No one was arrested.
  2. No one who had a brokerage account at MF Global got their money back due to a special law that placed them into unsecured creditor status.

dealmakertip99

So What Does This All Mean?

Simple.

Lower-net worth (less than $500,000 in liquid assets) investors have a strong desire for more intimate money management in a safer asset class like real estate where they have an alignment of interests with their owner-operator.

This could mean several different things, for example:

  1. Accessibility: All of our institutional investors have access to my cell phone. If they have questions, they call. No gatekeepers. Conversely, if a company’s stock is tanking, and you own 50 shares of that company, do you really think you’re going to get the CEO on the line? No. It’s purposely designed that way.
  2. Quid Pro Quo Gains and Losses: Depending on the structure, if you as investor gets hurt in one of your operators deals, he should get hurt, too. Those operators who have skin in the game are seen as having something at risk and if the deal falls apart, they lose, too.

On the other hand, if you win as an investor, than your operator partner wins, too. The losses and winnings are shared and not asymmetric to just the investor. 

Although this is a short post on this subject, I firmly believe those who can understand how the confluence of these issues come together will benefit from the next golden age in this asset class.

That is learning how to raise capital in an extraordinarily low interest rate environment that shows no signs of changing anytime soon. Perhaps in your lifetime.

Until next time.

NOTE: Want over 73 commercial real estate investing blueprints, templates, strategies, and cheat sheets? Get all that and more in The Commercial Investor’s exclusive Wall Street Bible… The Big of Blueprints, 2nd Edition. Learn more and join the elite now.

Big Book of Blueprints

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Salvatore M. Buscemi
A former investment banker for Goldman Sachs in NYC, Sal is one of the nation’s leading authorities when it comes to investing in residential and commercial real estate. He’s raised over $50 Million in capital for his real estate hedge funds.

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Salvatore M. Buscemi

About Salvatore M. Buscemi

A former investment banker for Goldman Sachs in NYC, Sal is one of the nation’s leading authorities when it comes to investing in residential and commercial real estate. He’s raised over $50 Million in capital for his real estate hedge funds.
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