As a real estate hedge fund manager for a decade now, I use an approach I developed years ago involving 5 parts to a balanced real estate portfolio: safety, solvency, liquidity, reserves and leadership.
Safety
- Different asset types such as some multiple units and some single units
- Different locations such as different cities or states with high demand and steady growth in population as well as scarcity of potential new competition of new buildings
- Different strategies such as buying to rehab and resell for immediate profits and some to buy and hold for long term
- Diversified asset type of income such as from multiple units small tenants like apartment buildings or high income from less units such as single tenant retail buildings with corporate guarantees
Solvency:
- Low to no debt obligation (low LTV)
- If debt, then well-structured in both the low amount owed and the terms over time (non-recourse)
- High reliable Income against all expenses (high DSCR)
- Great insurance covering business interruption and asset protection structure
Liquidity:
- Locations that make it easy to resell if needed (based on demand)
- Credit lines against properties to access cash through borrowing at low rates in case of a cash crunch
Reserves:
- Having cash reserves equal to one-year payments on the side in case market drops in various locations simultaneously and resale gets delayed
- Having a reserve of back up investors interested to be involved in transactions at reasonable terms in case of a cash crunch
Leadership:
- Having the right team members in place (intelligent, ethical, energetic and committed)
- Providing the right incentives and rewards as well as feedback and penalties
- Supervising the progress of each project and property and getting the proper accurate reporting as frequently as needed
- Maintaining financial controls at all times
In my real estate funds Welcome to MIGSIF and Secured Fixed Income Fund we buy, fix and sell higher end residential properties in California, mainly the Bay area, where demand is higher. We also buy and hold in Old San Juan, Puerto Rico where cash flow is more reliable due to cruise ship business and the historic zone.
Wishing you all the best in your investments.
(407) 608-5448
