One of the things that always surprises me is how intelligent and successful people can make really poor decisions when it comes to investing their own money.
I am in the commercial real estate business as an owner, broker, developer and board member of an international commercial brokerage firm. So sometimes people come to me for advise on real estate matters (I mean other than clients and people we deal with on a daily basis and pay for advice!). Usually friends and acquaintances. The conversation goes like this “Do you know anything about x company?” I tell them that yes, they are a real estate syndicator. “What do you think of investing with them?” By this point in the conversation, I know they have already invested in the company and sadly, over the past few years, most of these investments evaporated.
Many of the promoters of these companies have been charged, sued, banned from dealing, trading etc. The real question is how did these people decide to invest in these “opportunities” that turned to dust? Besides the obvious promise of outsized returns at low risk, high-pressure sales and a desire to get on the real estate bandwagon, the other issue is a lack of awareness of alternatives to enter the market. Fortunately, most of these players have been swept out of the market as values stabilized and the inability to support the mortgages and to pay the promised returns came to light. These losses have been a real blow to many mom-and-pop small investors. So what might have been a better way to go? How can you participate in the big money business of commercial real estate as a smaller investor?
There are several ways, but the low-risk, steady return route is likely the best path to take. A couple of options to consider are real estate investment trusts (reits) and mortgage investment corporations (mics). Both routes have numerous companies to choose from, many publicly traded, with reliable data to study for due diligence. They are varied by product type, location, fund sizes, etc. Do some research in advance and some reading about the options to determine what is the best fit for you. There are some very good, stable investments out there in these sectors that can provide attractive returns without excessive risk to your capital.