undefined | Better HN

0 pointsBeetleB2y ago0 comments

This has no bearing to my comment. In fact, Warren Buffett, being a value investor, likely agrees with me. He would invest in companies where he had faith in their management (i.e. the operators I refer to).

Your link is about comparing index funds with people who manage other funds. None of these people are involved in the business operations. So yes, they suck and index funds do better. The investments I am talking about are where you invest directly in a business. You are not buying stocks in the business, the value of which depends on a fickle market (hence why I explicitly said "non-publicly traded investments"). You are buying equity of the actual business, with a contracted amount of returns (i.e. preferred investor). The operators I spoke of are the people who are actually running the business. In the case of an apartment complex, they are involved in the operations of running the complex.[1]

Don't think in terms of the stock market and index funds. Think in terms of "Hey, I'm starting a business and I'll give you 3% of equity if you give me $50K." The difference is that here they typically aren't starting a business, but buying an existing business (that already has clients, and a revenue history), so it's easy to analyze whether the business will be successful, and get a good forecast of revenue in the first 5 years.

For the record, most of my investments are in index funds so I know where you're coming from.

[1] OK, not really. Most will hand off to a property management company, but they've vetted the PMC before offering the investment to you.

0 comments

2 comments · 1 top-level

thenerdhead2y ago· 1 in thread

You are promoting private REITs like they are something special when they aren’t.

BeetleBOP2y ago

Sorry, but it is clear you do not understand these investments.

REITs, whether public or private, are funds.

I am not talking about funds.

REITs usually invest in multiple vehicles to diversify. When you put in $100K in an REIT, it is spread across multiple properties. Some of it may even be used to lend money.

When you invest in the investment I speak of, you are investing in one property. There is no diversification.

When you invest in an REIT (or even in an index fund), you have no ownership of the actual investment vehicle. The REIT manager(s) do, but you don't.

When you investment in the investments I speak of, you are a part owner on paper (even if you have no say in the operations). As a result, you get all the tax benefits of owning a property. When you invest in an REIT, the tax code does not entitle you to any of those tax benefits. The REIT fund may mislead a bit in their wording, but at most they are saying that they'll pass on some of the tax benefits that they accrue to you, so you get a higher return.

There is little to no regulatory barrier to investing in an REIT, which is why their minimum investments are not that high.

The investments I speak of can allow a maximum of 35 non-accredited investors (by law). That is one big reason they carry such high minimum investments - they need enough money to buy a property and have a limited number of folks who can supply it.

In this thread I speak primarily of RE investments, because that is where I have the most knowledge. But the larger principle I speak of applies to other investments - not just RE (people investing in farms, storage businesses, car washes, hotels, etc). Again, the barrier is a rather large minimum investment and accredited status.

Again, most of my investments are in simple index funds, and I stuck to those for almost a decade because I didn't find anything better. I'm a conservative investor, and I always analyze any investment to see if there's a good chance it will exceed the S&P 500 returns in the long run. If it's not clear that it (easily) can, I do not invest. I suggest you do as I did: Join an investment group, and examine/analyze the investments they present. Learn the risks/rewards, and you'll then see that higher return (but higher risk) investments exist. They are higher risk because they are not diversified.

j / k navigate · click thread line to collapse