All Forum Posts by: Franklin Schmidt

So just to clarify what I meant, when Chris said "partner", I assumed that meant I would be working too. If I am completely passive, then I can work with someone anywhere. But for me to be passive, I have too be sure that the deal makes sense.

Chris, I have no problem investing outside of El Paso as long as it isn't a partnership arrangement. In other words, if someone in another city has constructed an investment package that looks good to me, I would be happy to invest. But if I have to work with that person as a partner, then I want them in the same city so that I can be more involved.

Regarding leverage, this is just a trade-off of returns versus safety. If there is a depression, your stocks will be worthless and you won't be able to pay your debts because your renters won't pay their rent. I have no idea what the probability of a depression is, but safety means minimizing risk under all possible conditions. I understand why a real estate expert would like leverage as a way to maximize the returns from his own expertise. I am not a real estate expert and I don't want to rely more than necessary on someone else's expertise. My primary goal is capital preservation.

I am just a computer programmer who got lucky with a web company, and this forced me to learn something about investing. So I look at my programming projects as my way of making money, and my investments mostly as a way to not lose whatever money I have already made.

Thanks Bryan. How can I look into these private equity funds? And why would a fund want to be difficult to find? I would think a fund would want to advertise to attract capital.

Why do I think real estate is superior? Stocks are overpriced. Bond yields are too low given inflation risk. Most commodities are at their all time high, so are probably overpriced. The world economy today is weak, but there is an excess of investment capital looking for returns. This is why most investments are overpriced. Add to that a high risk of an economic disaster, either high inflation or recession/depression. Unleveraged residential real estate is the only asset that I can think of that is safe and gives reasonable returns. I looked at real estate in my town, El Paso, TX, and I see CAP rates around 10%. There is no other investment that I can think of that gives this type of returns on an unleveraged inflation-protected asset.

I talked to my real estate broker (who I bought my house with) about how he helps people buy investment properties and I realize that most real estate people have no idea what they are doing from an investment angle. They don't even bother trying to guess what kind of NOI they can expect on a property they are looking to buy. The reason that all that excess investment capital out there hasn't found its way into residential real estate is that there is currently no sensible vehicle for doing this. During the real estate bubble, it was ignorant speculators using leverage who bought real estate. Now that real state actually makes sense for a value investor, there is no way for the value investor to invest sensibly. Anyone who succeeds in putting together an investment vehicle for average investors is going to be extremely rich.

Chris, I recently moved to El Paso, TX, and I don't know that many people here. The people in El Paso are very nice, but brains and ambition aren't their strong point. If anyone on this forum is interested in moving to El Paso and working with me on this, please let me know.

I have no intrinsic interest in real estate. My interests, in order, are:

1. capital preservation
2. stable returns
3. yield

So why am I here? Because I think unleveraged residential rental real estate in middle America best satisfies my interests. I have researched many investment options including the usual - stocks, bonds, and commodities. None of these meet my needs today and all are overpriced.

I have read books on real estate investment and these books are badly misaligned with my interests. The books advocate leverage to increase yield at the expense of risk to capital preservation. They assume active real estate investing when I have no interest in this.

When I invest in stocks, I buy mutual funds. I have neither the interest nor the knowledge to pick individual stocks. So I pay an expert, the mutual fund manager, to do this. Why isn't there something analogous to this for residential real estate? This is what I want. Yes I know the standard real estate options like REITs and real estate operating companies. These generally have leverage, aren't restricted to residential real estate, and aren't nearly as transparent as a mutual fund. So they don't satisfy my needs.

Any suggestions to solve my investment dilemma would be greatly appreciated.