Why I Invest in Real Estate/Alternatives

[The White Coat Investor]

Peds wrote:

robaxin wrote:

Curios as to what others think is a good time to start investing outside of the equity markets?  Do you have a set # i.e. xyz amount of money in the market? Or perhaps some other metric?

 

 

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its either a part of your plan or it isnt. the caveat being you need a certain amount to play in some rooms thus making it not possible early on. i feel WCI falls into this category, but maybe it was part of the long play after all.

the most common story is when ppl get too much money and feel the need to branch out.

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For sure I couldn't play in many of these rooms on just a physician income. I mean, $100K might be 1-2 years of retirement savings.

[Peds]

robaxin wrote:

Curios as to what others think is a good time to start investing outside of the equity markets?  Do you have a set # i.e. xyz amount of money in the market? Or perhaps some other metric?

 

 

Click to expand...

its either a part of your plan or it isnt. the caveat being you need a certain amount to play in some rooms thus making it not possible early on. i feel WCI falls into this category, but maybe it was part of the long play after all.

the most common story is when ppl get too much money and feel the need to branch out.

[wonka31]

Again, it depends. There are composite K1s or state taxes filed by the fund.

REITs are easy, but they are correlated to the market. You lose the tax benefits of RE in those. I would recommend further research if you’re interested. If not, then just do REITs, there’s nothing evil about them. Not everything is for everyone, but avoid inaccurate blanket statements as there are many ways to handle tax filings in these situations.

[robaxin]

Curios as to what others think is a good time to start investing outside of the equity markets?  Do you have a set # i.e. xyz amount of money in the market? Or perhaps some other metric?

 

 

[Lordosis]

PTM wrote:

 

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Thinking about of the eREIts now to get at the “small cap” side of REITs (houses instead of malls)

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The last think I would want to concentrate my investing in is malls right now.  Seems like they are all struggling.

[PTM]

CFEonline wrote:

PTM wrote:

I heard the recent podcast about private real estate funds.  The returns north of 10% sound good, but if its essentially a debt deal I don’t see the allure to a high income professional such as WCI.  After all, aren’t the proceeds taxed as ordinary income?  I don’t need more income, I make plenty in my day job (and get taxed plenty too).  I need more tax-efficient assets, but don’t have the time or expertise for single family homes. 

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I believe you can purchase these through a 401k if you have the correct plan document, which would shelter the income from taxes. Perhaps there would be an option to purchase through an IRA/roth, not sure on that.

 

Here’s a site where they talk about structure a plan document for 401k that would allow you to invest in real estate https://www.biggerpockets.com/forums/51/topics/364326-self-directed-solo-401k-setup-question

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I get that you can invest in equity side of these deals, but then the tax situation becomes more and more complex with multiple state returns and K1s...at the end of teh day I come back to the ease of REITs.  Thinking about of the eREIts now to get at the "small cap" side of REITs (houses instead of malls)

[CFEonline]

PTM wrote:

I heard the recent podcast about private real estate funds.  The returns north of 10% sound good, but if its essentially a debt deal I don’t see the allure to a high income professional such as WCI.  After all, aren’t the proceeds taxed as ordinary income?  I don’t need more income, I make plenty in my day job (and get taxed plenty too).  I need more tax-efficient assets, but don’t have the time or expertise for single family homes.

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I believe you can purchase these through a 401k if you have the correct plan document, which would shelter the income from taxes. Perhaps there would be an option to purchase through an IRA/roth, not sure on that.

 

Here's a site where they talk about structure a plan document for 401k that would allow you to invest in real estate https://www.biggerpockets.com/forums/51/topics/364326-self-directed-solo-401k-setup-question

[The White Coat Investor]

orthodds wrote:

I think it would be most effective if WCI kept the web site part of it separate or left it out completely when giving an accounting of his investment returns since web site investing is something few of us care about.  It also makes a post about investing in “real estate” alternatives kind of pointless when most of the investments are not real estate, but rather reflect the growth of the WCI empire.

A separate post about the returns and investments of the WCI empire might be interesting, and it would certainly be a much more straightforward conversation.  However, I doubt WCI wants to get into the details of the WCI empire at this point.

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Yea, it seems like it would have been smart to keep them separate on my spreadsheet so I could do that. I literally don't have the data in an easy to access place.

I do have a update of each of my individual real estate investments coming on Monday. Katie and I are talking about breaking the websites out of our AA this year, which would essentially mean doubling my real estate equity investments. It's really hard to really get a true return there though since most are illiquid for years and aren't marked to market even annually. So it looks like low returns for the first 5 years because all I'm counting is the yield and then BOOM in the year it's sold it looks like an 80% return. In reality, that return was spread over the previous years, there was just no way to know what it was.

[Complete_newbie]

Zaphod wrote:

Website investing seems very interesting and an inefficient market, but even here like is true many times elsewhere WCI has his own and is familiar with the model. Probably not as easy for rest of us.

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Not easy. Like any small business. Also never buy new business you can't run confidently. Content websites with branding have great growth and reach but it comes with the owner(see, WCI) which is part of the branding. E-commerce websites you can buy but I didn't have much expertise initially - I did get lucky to find a trusted experienced partner to learn about it. I wouldn't have jumped in otherwise. Also e-commerce/websites get hyped; a succesful retail in a strip shop also generates money and sometimes more than a website (I say from experience). Websites get hyped from online marketers and brokers.

[Zaphod]

Website investing seems very interesting and an inefficient market, but even here like is true many times elsewhere WCI has his own and is familiar with the model. Probably not as easy for rest of us.

[Complete_newbie]

orthodds wrote:

I think it would be most effective if WCI kept the web site part of it separate or left it out completely when giving an accounting of his investment returns since web site investing is something few of us care about.  It also makes a post about investing in “real estate” alternatives kind of pointless when most of the investments are not real estate, but rather reflect the growth of the WCI empire.

A separate post about the returns and investments of the WCI empire might be interesting, and it would certainly be a much more straightforward conversation.  However, I doubt WCI wants to get into the details of the WCI empire at this point.

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Most the the issue comes from valuation. Stocks, RE etc are valued in a way we all know and can understand. Websites etc are small businesses and their valuation is whatever you want to make up (there is industry "standard" but its gray area and its all what the buyer is willing to pay or bids you get).

Value add on websites does boost returns. Mine were 110% (yes yes yes I excluded "labor") [revenues have more than doubled]

 

"A separate post about the returns and investments of the WCI empire might be interesting, and it would certainly be a much more straightforward conversation.  However, I doubt WCI wants to get into the details of the WCI empire at this point."

Yea...good luck with that. This forum post by him should tell you its not going front and center page anytime soon. I can respect that.

[orthodds]

I think it would be most effective if WCI kept the web site part of it separate or left it out completely when giving an accounting of his investment returns since web site investing is something few of us care about.  It also makes a post about investing in "real estate" alternatives kind of pointless when most of the investments are not real estate, but rather reflect the growth of the WCI empire.

A separate post about the returns and investments of the WCI empire might be interesting, and it would certainly be a much more straightforward conversation.  However, I doubt WCI wants to get into the details of the WCI empire at this point.

[Complete_newbie]

The White Coat Investor wrote:

Complete_newbie wrote:

Not asking for books the implicit query was how to value a website.

Partnership breaking up would depend on what fair market value of the e-commerce business is and other partner can buy out that percentage based on that. It’s not in contract but it’s understood between us two partners. Besides I can’t forsee partnership breaking up.

Good for you to have it in writing. We didn’t think it was necessary based on level of trust and the way we do business. Still good to know about I suppose if I get into future partnerships with people I don’t know as well.

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No your question was what our contract says. And I’m refusing to answer that one.

“How are you valuing the “equity” in the website leading to 84% growth? 3x the revenue?…still vague.”

You can value a website anyway you like, but in general 2-3X profits seems to be as close to an industry standard as anything. But the more valuable the website, the higher the multiple generally. Like real estate and other small businesses, lots of people don’t subtract the value of their labor before calculating profits. You have to be careful not to buy a job.

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Think you are confusing what I was asking. You said 84% growth in equity which means 84% growth in overall website equity which is based on revenue ( mostly ). I really don't care or want to know how much you own % wise. Thats not really that helpful and I agree its private for you. Notice I said "valuing equity" (NOT "what is your equity", but how are you valuing it) not what the contract says - its revenue + goodwill (nebulous in online specially content websites...). Your second paragraph is answering my question though. Although it is possible - the way you are responding - that its value is predefined, which wow, I've never seen that before. Anyways, this thing has run its course. Didn't mean for you to go in this direction but oh well.

Also my online investments are passive. I meet with partner once a month and discuss business or look at a few others to see if there is opportunity. Thank you for the advice though re: job; I don't operate the online businesses thankfully.

[The White Coat Investor]

Complete_newbie wrote:

Not asking for books the implicit query was how to value a website.

Partnership breaking up would depend on what fair market value of the e-commerce business is and other partner can buy out that percentage based on that. It’s not in contract but it’s understood between us two partners. Besides I can’t forsee partnership breaking up.

Good for you to have it in writing. We didn’t think it was necessary based on level of trust and the way we do business. Still good to know about I suppose if I get into future partnerships with people I don’t know as well.

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No your question was what our contract says. And I'm refusing to answer that one.

"How are you valuing the “equity” in the website leading to 84% growth? 3x the revenue?...still vague."

You can value a website anyway you like, but in general 2-3X profits seems to be as close to an industry standard as anything. But the more valuable the website, the higher the multiple generally. Like real estate and other small businesses, lots of people don't subtract the value of their labor before calculating profits. You have to be careful not to buy a job.

[Complete_newbie]

Not asking for books the implicit query was how to value a website.

Partnership breaking up would depend on what fair market value of the e-commerce business is and other partner can buy out that percentage based on that. It's not in contract but it's understood between us two partners. Besides I can't forsee partnership breaking up.

Good for you to have it in writing. We didn't think it was necessary based on level of trust and the way we do business. Still good to know about I suppose if I get into future partnerships with people I don't know as well.