Investing with Rich-Uncles

This month I invested with Rich-Uncles.  Rich Uncles is the brand name for the Nexregen Real Estate Investment Trust (REIT) I fund.  Nexregen runs out of Newport Beach, CA.  How I came across the Rich-Uncles brand was through Facebook, believe it or not.  I saw their ad and decided to comment.  This put me in contact with Uncle-Howie, Howard Makler, a co-founder of the company.  To make a long story short, after doing my due diligence on the company, investigating what type of returns I'd get on my money, reading the prospectus (includes risks and growth prospects), and talking at length with Howie, I decided to invest.  I used my Roth IRA to invest and put in $10K.  This bought me 1,000 shares of this public, non-listed REIT.

Why I like the investment and the company:

First, you will earn anywhere from 7% - 7.5% on your money (annual return).  You can certainly try to earn more in the stock market, but...the stock market is currently overvalued.  In "Learning to Live With a Stock Bubble," Boston based money manager, founder, and strategist at GMO, Jeremy Grantham, states that stocks are 65% overpriced.  He says that stocks could run up another 30% but by this point we'd be at a true bubble.  (Source: Barron's magazine, March 17th edition).  I don't want to be around in the market when we've reached this point.  Do you?  I hope not.  So, a 6%-7.25% return on my money looks good in comparison to what I could make in an ominous stock market.  Nexregen REIT I is not coupled to the stock market!  It is a public, but not exchange traded, REIT.

Second, it allows me to diversify my portfolio.  I own rental properties, equities (stocks), and now...shares of a non-listed REIT!  With the rental properties I own, I have to hire a property management company to take care of collecting the rents, evicting, and attending to the needy tenants.  Not to mention, if something breaks, I have to authorize expenses to fix the problem, (no hot water, air conditioning goes down, etc.).  Sure, these are all tax deductible expenses, but not until the end of the year!  With Nexregen, you are in essence a minority owner of multiple commercial real estate properties.  Yet, you are not a landlord.  The company takes care of any necessary upkeep for you, they collect the rents, lease the properties, etc.  You sit back and collect the quarterly dividends (and can reinvest them, i.e., use to purchase more shares), as if you owned a rental property, but never have the headaches related with being a landlord.

Third, as a REIT, Nexregen has to, by government regulations, disburse 90% or more of the profits it makes to all investors, i.e., share holders.  I expect Nexregen, a crowd funding entity, to continue to grow.  I like its growth prospects and I'm not just saying that because I'm an investor.  Right now, Nexregen is stocked with 22 properties, leased to the Del Taco franchise, in California.  The fund, because of current regulations, that I suspect will end soon thanks to the Jobs Act, is prohibited from doing business with non-California residents.  Again, to me this is an ephemeral situation.  Soon enough, the fund could go national!  And then....just think....more investors = more properties = more in profits = more in the form of dividends to shareholders.  Also, I don't think the fund is anywhere near being saturated in California.  It is in its infancy within its growth cycle.  So, investors now are on the ground floor.

Fourth, in my estimation, the real estate market is on the rise again.  It has already experienced its bust in the cycle, and as you know, this bust was one of epic proportions.  Really, can real estate fall back to those 2008-09 levels?  I think the odds of that are very slim.  What does this mean?  It means that properties, including those held by the Nexregen fund, will appreciate!  When and if the company decides to sell a property, the value of the building should be worth more (I don't want to assume, but I would expect they would only sell in cases where they would turn a profit on the building) and the proceeds from this sale must be disbursed to shareholders.  I'm not a commercial real estate expert, but if residential properties stand to increase in value, I would suspect that the commercial real estate market is right behind.

Fifth, ease of entry.  The fund only asks that you have a family income (combined) of $75K OR a net worth of at least $250K.  This opens it up to many, many, people (in California).  The minimum investment is only $5K!  I looked at other crowd funding platforms, in particular, www.crowdfunder.com.  With crowdfunder.com, you have to be an accredited investor!  Also, you have to select the deal you want to help fund. And, there is no guarantee that the deal will even fund.  You end up waiting for the deal to go through, in other words.  With Rich Uncles, you'll be immediately in their books once you buy the shares, benefiting from any upside, and with each passing day, you are that much closer to getting your dividend disbursement.  Also, you don't have to worry about whether or not you funded the right company/deal with your decision because the current structure is that of the multiple Del Taco properties.

I've share three Pros and now I'm going to share the Cons:

First, the shares are relatively illiquid.  Although you can sell your shares (a platform to do so would be www.Reitbid.com), there is no open market for them, unlike shares of publicly traded companies.  So, if you're buying into the fund, most likely you want to accumulate shares via the dividend reinvestment option, though you could opt for steady, long-term income, with a reasonable return.  Think real estate investor, not stock market investor.  You're not going to make a trade, buy low, sell high, in less than 1-year.  You are committing to being part owner of many commercial real estate properties, so you should be in it for the long haul (until the fund closes, 4-7 years from now).  I don't think this is that bad of a Con, but it needs to be stated.  When the fund closes, that is, reaches its cap of investor capital, a liquidation event will take place.  This is when you'll get your value back, what your shares are worth at the time, plus profits from the proceeds of the sale of all of those buildings!

Howard Makler states: "It's going to be closer to five years.  We will look to be at the top of the commercial real estate market (when we sell everything) to squeeze out the most upside we can for our shareholders."

***New Update: 5/15/14: The Nexregen REIT has implemented a share redemption program.  In the event of a crisis or emergency (whatever you deem to be as the investor) you will now have the option of selling back you shares to the company at full value!  This is a game changer for me and it adds two things in my mind: 1) reassurance that I can cash out when I need to and 2) liquidity.  I intend on staying invested for the duration but it is good to know that investors could, under hardships, sell back their shares and attend to their financial needs.  This makes this investment now almost bullet proof!

Second, you're not going to get a fixed interest rate on your money.  Unlike a bond that returns 6-8%, the interest rate from the Nexregen REIT will be variable.  7-7.5% annual rate is a true descriptor of the variability.  Why isn't a fixed rate?  Well, because with real estate, you will have variable expenses each quarter.  If nothing goes wrong, every building runs smoothly, every Franchisee pays the rent on time, and all is wonderful, then yes, you should expect a premium return as a shareholder.  But, alas, there are always little things that happen, and this hits the gross proceeds (top line) of the fund.  You may be thinking right now that a bond is a better option.  It is not!  Especially not right now (2014).  Bonds are a terrible investment right now.  You have to consider that the Fed (Federal Reserve) is going to raise rates.  Rising interest rates mean lower bond prices.  Sure, just consider a $10K investment in a bond today, yielding 6%.  Say a month from now the Fed raises rates and an investor can get the same bond with a 6.5% yield.

In order to attract more investors, the price of the bond you paid $10K for, will need to adjust to $9,500 or something like this (I'm not a bond expert) so that others will be enticed to buy the bond.  Bonds have inherent risks as well, e.g., default, when the entity you bought the bond from can't meet its obligations.  You could get a bond with a shorter maturity, 2 years, for example to avoid the pitfall of rising interest rates, but...there is no appreciation (like real estate) and they are overpriced right now.  Mr. Grantham states: "They look absolutely, nerve-rackingly overpriced, and in a crisis, who knows what will happen to those securities?  They could make stocks look like a safe haven if the the next bust occurs at the federal levels of the large countries.  Bonds, including government bonds, are a lot more dangerous than people imagine."  Nexregen is superior to a bond in my view, if you can live with the slight variability in the rate of return.  (**Update: the fund has returned 7.5% for 6 quarters straight now as of August, 2014).

These are all of the cons I could think of.  I fully endorse Nexregen REIT fund, better known as Rich-Uncles, and cannot wait to begin collecting my steady quarterly dividends!

C. Osvaldo Gomez with Rich-Uncle, Howard Makler

August, 2015 update: The company is now called, Rich Uncles Real Estate Investment Trust I.  The website platform has made investing completely automated.  In addition, the portfolio now includes a Chase bank, and 3 Chevron service stations!

My Best & Worst Trades of 2013

It's almost April.  2014 has not been bad so far for stocks and the overall trend of the stock market is still, up.  The "bull run" is five years old, starting in 2009.  2013, for me, was my best year investing in stocks.  My 1-year performance was +48.2% in my Brokerage account, and +34.6% in my Roth IRA account.  Not bad, huh?  I can't say the credit for this has to do entirely with my stock selection skills, although this did play a role.  Getting overconfident or trusting in my abilities to evaluate the stocks of companies I want to buy, is not part of my investment strategy.  It would be foolish to think you're some sort of stock picking genius.  Not to mention, a sure recipe for disaster.  Much of my success, like much of the success other people in the market had last year, had to do with it being something called a, "beta" market.  I write about a beta market in my e-book, Common Core Money (due out very soon).  Anyway, what this really means is that last year was all about stocks going up together, and coming down together, and for most of the year, they went up!  So, even a monkey at a computer could've picked a bunch of winners.  I'd like to share with you my best and worst trades of 2013.  Maybe you'll glean something that can help you as you invest in the stock market.  A word of caution.  Stock picking is risky.  If you're not already doing it, I suggest you read multiple books on the subject.  If you don't like to read, I suggest then that you buy a low cost, low turnover, index mutual fund, like Vanguard's Total Stock Market Index Fund (VITSX).  In many cases, index funds of stocks or bonds perform just as well, if not better, than individual equities and debt (bonds).

Best Trade:

Sanchez Energy Corp (SN): +$1,262.50.  I believe I learned about this company from Jim Cramer, the host of CNBC's Mad Money.  I recall he had the CEO on the show.  I didn't just blindly go in.  I never do.  I write the names of these companies down when I hear of them and do my research.  If I find the "hype" to be true, I go ahead and pull the trigger.  I held the stock from 3/21 to 5/2 of 2013.  I bought the stock in several installments, not just in one lump sum.  I must have received indications of positive momentum to give me the confidence to continue buying.  Looks like I held a total of 550 shares and sold 100% of the shares from May 16 to 6/5/2013.  Lesson: Don't just blindly buy in when you get a tip, follow up!

Worst Trade:

SPDR Gold Trust ETF (GLD): $-436.26.  Remember Syria?  Now it's about Ukraine and Russia.  Before this it was North Korea.  Well, in 2013, it was all about Syria.  Gas was supposed to have gone up to exorbitant levels.  The U.S. was figuring out what to do with the allegations of use of chemical warfare against the Syrian rebels by the "regime" of al-Assad.  Gold had been falling for much of 2013 and everyone was talking about a "floor" (bottom level) being established for Gold since the previous years it had risen to crazy levels.  We also had, if you recall, the big debt default scenario because U.S. politicians couldn't agree on a budget.  Traditionally, when the excrement hits the fan, when it appears that all hell is going to break loose, that's when you buy Gold bullion (if you can afford it; I can't!) or shares of Gold stocks/Exchange Traded Funds (ETFs).  The SPDR Gold Trust ETF was the best of breed.  Being confident that weight of all of this bad news would scare investors into Gold, I bought 75 shares of GLD in two installments, on 9/25/13 (50) and again on 10/01/13 (25).  Seeing that my premise (you have to have a premise before you get into a position, i.e., buy a stock) was utterly defeated, the world was not going to end or at least investors weren't going to be scared into gold in droves, I did the wise thing and sold.  You have to be willing to take a loss and get out as soon as possible if what you anticipated happening, didn't pan out.  I sold all of the shares on 10/11/13.  It taught me one important lesson: Carlos, you don't know enough about precious metals, stick to stocks!


I hope you've enjoyed my first installment of Best/Worst Trade.  See you in 2015!
    

Qualifying for a home Loan for a Rental Property

I've just been pre-approved for my third rental property and let me tell you I was sweating it.  Why?  I already own two rentals, plus my primary residence.  Leverage, using someone else's money to control all of an entity, in this case, a home, is great.  I'm sure many of you have heard of the concept of good debt vs bad debt.  Bad debt, is debt that is a liability to you, and takes money away from you monthly.  Good debt, is debt that's financing an asset purchase (or control) and produces income for you each month.  Being over-leveraged is a not a good place to be.  Banks will not lend you any more money to finance what you need (a real estate purchase or a business start-up, e.g.).  They figure you are a high risk borrower who is in danger of defaulting.

All real estate investors get to a point when they can no longer use conventional financing. Once I finalize the purchase of my third rental property, a 3 bed, 2 bath home in Memphis, TN, Bartlett area, I will undoubtedly be done with banks and conventional loans.  Although banks can use the rents from properties as income to pre-approve you, again, there will be a time when it won't matter how much rent you're bringing in, banks won't lend to you.  What do you do in these cases?  More of this on another post.

Using leverage:  I put 20% down, the bank puts 80% down, but control 100%!

Negotiating is Not an Art form or Hidden Talent

Negotiating a better deal is not an art form or some hidden talent. It simply takes a little thinking on how you can get what you want, and in turn, give the other party a different, but also beneficial offer. I'm attempting to negotiate $2K less on the asking price of an investment property for a 3-month reduction on a 1-year rent guarantee by the wholesale company selling the property. The rent will be $815 a month, times 3 = $2445 in potential savings for the company (only in the case there is a vacancy). As an additional bargaining chip, I proposed a direct referral to this company's website via my soon to be released e-book.  I wrote on an email to them:

"I was thinking last night how else I may facilitate the decision on a slightly less asking price for the property.  I didn't tell you this before but Meridian is in my e-book, mentioned as a "wholesaler" I bought rental properties from.  Here is an excerpt from the Introduction section of my e-book:

"During the market low of the recent real estate cycle, I found a wholesaler of residential properties.  I did my research. The company was local and they operated in the Memphis, TN area, buying foreclosed homes within the “sweet-spot,” renovating and selling them at a reasonable cost to investors.  I bought two rental properties, cash-flowing a combined seven hundred each month."

Each chapter (section) ends with "Notes" at the end.  I could place the following note at the end of the Intro:

"The real estate company I bought the two rental properties from is Meridian Pacific Properties."

I have over 1,000 contacts on FB/LinkedIn combined.  The cost of the e-book will be $2.99 so the price will not be an issue for many of my followers.  Though I can't put a cash value on the traffic (or eventual sales via my e-book referral) you may receive, it could be easily worth more than the 2K off the asking price.

Just something else to consider."

As you can see, you have to be willing to offer something in return for what you are asking for.  This is called, value propositioning.  Think about your network base as a means to offer free advertisement to companies you want to invest with/in.

Being a Professional Isn't Enough

For Educators:

Being a professional, a doctor, lawyer, teacher, police officer, etc, is a middle class aspiration.  You will never become wealthy in America working for someone else.  Being a professional should be a means to an end.  A launch pad so to speak.  And what's the end? Retiring comfortably, choosing and not being forced to work beyond a certain age.  Many teachers and other educators consider their careers as the end all be all path to retirement, and make few investment decisions during their formative years.  They rely on their defined benefit pension and years of service credit to carry them once they leave the profession.  This blog will be dedicated to assisting educators and other professionals on how to change their mindset about their earnings potential.  The millionaire mindset is easy to develop and it doesn't take a college degree to embrace the millionaire in you!

For Investors & Entrepreneurs:

I will post tips and investment ideas periodically to assist my peers with becoming financially literate.  I will also provide you with the latest on my own investment ventures to build your own motivation.  Finally, I will be periodically reviewing companies/businesses that cater to investors and entrepreneurs.  My goal with this is to provide my audience with reliable, authentic, and reputable reviews of these companies.  I know that as an investor, it can be a scary thing to navigate the multiple investment opportunities that came our way.  I will do my best to present an unbiased summary of an investment opportunity I come across.  Similarly, as I endeavor to build my brand, I will no doubt come across businesses that assist the individual entrepreneur with particular brand growth services.  Again, I will do my best to evaluate these companies and their services for you.

Please visit this site often and share it with others.  It's time my middle-class professional brethren...it is time for us to lift ourselves up, out of the monotony of our day jobs, and become the rich people we have always desired to be.

I'm C. Osvaldo Gomez, author, stocks and real estate investor, entrepreneur, the millionaire Assistant Principal.  My e-book: Common Core Money: Financial Literacy for Educators and Other Professionals will be published at Amazon.com for Kindle in early April of 2014.  Look out for it!