Sunday, August 24, 2014

Rich-Uncles Brings the Crowd to Newport Beach

Saturday, 8-23-14, 17 Corporate Plaza, Newport Beach, CA...

It's 9:45 a.m. and I've just finished driving through a maze of streets starting from South Coast Plaza (Costa Mesa, CA) and ending in the parking lot of Rich-Uncles RU website headquarters.  I had to avoid the toll road, and I was using a new iPhone navigation app that of course mapped my drive utilizing the toll road!  First thought that hits me, I made it!  Second thought that comes to mind, I hope Jessica (my wife) doesn't break the bank at South Coast Plaza mall.  Mighty glad, therefore, that I was where I was, ready to expand my knowledge of investing in real estate, commercial RE to be exact.

I'm not alone, other investors are getting out of their vehicles and walking toward the building entrance.  We're greeted with a firm handshake and a kind, "welcome," by Rich-Uncles employee, Scott Miller.  Up to the second floor and to the reception desk we all go, where we meet the lovely, Taylor Cervantes, another Rich-Uncles employee.  Being a Rich-Uncles investor, I'd had several conversations with Taylor before, so it was nice to finally put a face to the name.  8.5 by 11's with arrows point the way to this room:

Co-Founders and "Rich-Uncles," Harold Hofer and Howie Makler start the presentation, introducing themselves to investors.  The room would be close to capacity minutes later with more investors trickling in.  It is a Saturday morning in So Cal after all.  Notice there are three founders on the television screen.  The third?  None other than CBRE Chairman, Ray Wirta!  We would soon all learn that Mr. Wirta is actually the "financial braun, and brains behind the operations" (quote--H. Hofer).

Now, with this post I could write with generality about the Rich-Uncles investment.  And I would, if I hadn't already done this.  So, if you are reading this post without having read the most popular post on my blog, I suggest you to stop reading here.  Please go to: Investing with Rich-Uncles.  Then come back!

I'm going to instead highlight why the Nexregen REIT ("Rich-Uncles" is just the brand name) is leaps and bounds above the competition in the equity REIT industry.  For starters, in the case of crowd funding entities, how many out there, Realtymogul included, are inviting the "crowd" to their corporate offices?  How many REITs out there are willing to educate the little guy, not with hard to believe claims, or with a sales pitch that leaves you nervous, wondering if you're going to make it out of the place intact (not parting ways with your wallet/purse).  I reiterate: How many REITs out there...don't charge an admission fee to hear industry experts, leaders, not one, but TWO millionaires, talk to you about an asset class, insert their product seamlessly and not shove it in your face?  I'll tell you how many.  Zero!  Only one, Nexregen.

Howie Makler asks: Why do people prefer to put their money in a bank and not invest with it?

An audience member responds: Because it is safe!

Makler: You're right.  It is a 100% safe guarantee that it will lose value over time.

Howie was alluding to the erosive qualities of inflation.  He'd later explain how money in a bank isn't really safe at all, not with inflation eating up purchasing power.  Instead he'd suggest to Think Like a Rich-Uncle, and buy an asset that's going to at minimum track the rate of inflation or even better, beat it.  The asset is of course, real estate.

Howie later said: We're not suggesting that all of your money should be in real estate.  But one cannot dismiss the many positive virtues that make real estate attractive, including being a hedge against inflation.

What separates Rich-Uncles from other public REITs?

Sure, you could go after better yields in the stock market, buying publicly traded REITs.  The shares of these REITs fluctuate daily with buyers and sellers, including high frequency trading machines, and gi-normous institutions, executing orders.  These share prices increase and decrease with no actual change to the value of the underlying real estate.  What's to become of you when the Bernanke and Yellen party ends, and interest rates begin to rise, shocking the market and sending all currently buoyed stocks  down?  I'll tell will sink!  The Nexregen REIT is public, requiring governmental permitting and audited financial statements, but it is NOT coupled to the stock market.

Moreover, unlike many REITs that offer a better yield (Rich-Uncles yields a 7.5% annual return), Nexregen isn't going to do this at the expense of a steady and safe(r) dividend stream.  The quarterly dividend investors get, a quarter of 7.5, is not as an outcome of playing with investor money, as many REITs do, leveraging as much of "other people's money" as possible.  Makler added: Sure, we can increase our profit by increasing our risk, but that is not our motto.  We look to protect the integrity of the income stream by buying properties with an LTV (Loan to Value) capped at 40% because that's what our shareholders are counting on.  Are you kidding me?  Here's fiduciary duty at its best.  For a second I could almost see a glowing halo above Howie's head.  It was truly sincere.  Harold Hofer is actually the architect behind the strategy of leveraging well below industry norms to safeguard investors.  Like many of us, he's been burned in the past during boom periods, and it won't happen again on his watch!  Besides, the current model of bypassing risk to reward the managers is not only unfair to investors, but just plain unethical, and alas with many (other) REITs this, go for the gusto, strategy is alive and well.

What about other crowd funding platforms, like Realtymogul?  What separates Nexregen from an investment on this platform?  Simple, with Nexregen, you get three Rich-Uncles: Ray, Harold, and Howie.  Hofer added: With other crowd funding entities, you put your money into an investment that you've read up on and you hope that it works out as stated.  There's numerous deals to look at, with many different players.  All of this adds to a variability in terms of results.  With us, you get three proven experts with over 25 years of experience implementing a single strategy.

The strategy:  The Nexregen REIT purchases single standing commercial buildings and leases them to well known creditworthy companies (like Del Taco and Chase bank) utilizing a Triple Net (NNN) lease.  A triple net lease reverses the liability and expenses associated with owning commercial real estate by having the tenant pay all taxes and insurance, utilities, and maintenance.  Someone in the audience asks: How do you get tenants to agree to a triple net lease?  Hofer replies: In shopping centers, this is actually the norm, and any other type of lease is actually rare. We like this kind of specific asset.

Nice.  So a triple net lease maximize returns for a landlord and in turn improves the yield on an investment.  What's good for the company is good for the shareholders.  Another nuance I learned is that the large institutions aren't as interested in single standing commercial RE buildings.  They prefer entire shopping centers with multiple suites.  This too is a plus.  Nexregen in this case doesn't have to compete with players with large sums of capital who can outbid them in the quest to purchase an asset.  The early bird gets the worm but not if the next bird on the scene is twice its size!

Why buy real estate equity?
Can you afford a 20% down payment on a rental?  Do you have great credit?  What's your debt to income ratio and will it make an underwriter happy enough to give your loan the stamp of approval?  If you agree that for the sake of asset allocation, you should own some real estate in your portfolio, but the three questions just above, when answered by you, leave you thinking pessimistically, then perhaps Rich-Uncles is the investment for you.  By the way, your home is not an asset until you sell it, and that's only if you're not upside down on the mortgage.

How to get started on an investment with Rich-Uncles?

I would suggest that you first go to the website: Rich-Uncles' site.  Read, read, and read some more.  If you're comfortable, sign-up.  Note: this does not mean you have to invest.  You'll simply be added to the database of investors and at some point, get a follow-up call from a Rich-Uncles employee, probably Mathew Wilkins or Scott Miller.  If you're not comfortable, you can email  I'll be more than happy to help you make sense of things.

I wrote about ten pages of scripted notes during my time with Harold and Howie.  And I could certainly continue writing more lines here on this post.  But my goal was simply to whet your appetite, recommend a solid investment, and hopefully get you thinking about delving in yourself.  It behooves me on many levels to promote the Nexregen REIT.  I'm an investor and realize that the more the merrier (more new money = more money for the fund to buy properties = more money in the form of rents = more money for dividends).  There is no dilutive factor when new investors come aboard so the value of my shares will not fall from newbies piling in.  In fact, the shares outstanding will be static, equaling $25 million dollars worth at the end, prior to the fund's closing.

Until next time, amigos! 
Investors look on in this pic.

Oh, I almost forgot, my wife did not break the bank at South Coast Plaza, as it turned out.  Phew!

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