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Motivation for starting Creative Real Estate
My personal journey into real estate began through my interest in investing at the young age of 16 after an Uncle of Caley’s (my wife) suggesting I read a book called “The Intelligent Investor” by Benjamin Graham who was Warren Buffet’s mentor.
I remember I had a genuine interest in the stock market and any other alternatives as a result of wanting to create this seeming illusion of “Financial Freedom” through creating a dependable income stream, so that I could focus my energy in future on things that are more important to me than money.
I ended up studying investments at the University of Stellenbosch, and then later started focusing on the Real Estate market as a result of the realisation of
3 KEY CHARACTERISTICS:
While the stock market and paper assets have their benefits in liquidity and their truly passive nature - they generally provide little to no cashflow, you can’t safely leverage them, and you have no control over the outcome.
This breaks all my personal rules for wealth creation, while there are rockstars out there that make $’s in the stock market, they generally have the volume and capacity to exercise control which the average investor can’t. Unfortunately even if I invested a $1m in a listed company - a substantial amount for most individual investors - it’s a drop in the ocean relative to the full market cap of that company and I can’t exercise control in the company to correct mismanagement or poor strategies that are resulting in losses for the business.
This left me with two options, private equity & real estate. Private Equity, is an asset class I’d love to get involved in at some stage when I’m old and wise :-D, but is much more complex and there is a much higher probability of failure, I was looking for a steady way to build something tangible that would endure almost any economic upsets. PE is also challenging to leverage “safely”.
Out of university, I happened to join a group in South Africa (my home country) that focused on helping investors in developing countries, invest in real estate in 1st world countries, predominantly the United States, United Kingdom & Australia. At the time, they focused on turn-key single family homes, condo’s and medical office building syndications. After spending some time in all these markets and conducting a lot of research - the United States was the largest and most robust. It also had some very creative financial products that allowed me to take advantage of characteristic #2.
Unfortunately in many developing nations, like South Africa, where I was born and raised, property does not produce much cash flow until 3 - 5 years down the line because you are generally negatively geared and have exposure to floating interest rates and rather predatory finance terms by comparison to the US. It’s a capital growth play - which is not a solution to create a steady, reliable income stream. Typically you are also generating your wealth in a currency that is depreciating relative to hard currencies for a number of reasons, but predominantly due to inflation (my opinion). Real Estate is a great hedge for inflation, but typically when you work out your real return (return taking inflation into account) vs your nominal return, you realise you still better off in hard currency markets.
In the US, I am able to participate in real estate deals that are positively geared, meaning the interest rate is lower than the cap rate, resulting in positive cash flow from day one on my capital invested. This means capital growth is an additional benefit if / when it happens and not a necessity to have a successful investing experience. Positive gearing serves the purpose of steady dependable cash flow.
Generally speaking the cash-on-cash or if it were stocks, dividend yield, that you would make on your money in direct real estate is a minimum of 6%. The current average dividend yield on the S&P 500 is around 2%. This means you get 3 x more value on your invested capital, I’m aware this is not a perfect comparison and you could make multiple arguments in either direction which are not comprehensively covered here, but for what I want to achieve - A SAFE, DEPENDABLE INCOME STREAM THAT DOESN’T REQUIRE ME SELLING MY POSITION/SHARES IN ORDER TO PAY FOR DAY TO DAY EXPENSES - it’s a very solid argument. Not to mention all the tax benefits that come from direct real estate ownership, that allow for you to declare all your rental income and still keep the majority of it with no tax burden.
This allows me to create the steady income stream I want to create so I can spend more time and energy on what is most important to me rather than on month-to-month financial pressures.
I’m 5 years into this journey, and for the last 1.5 years, my focus has been on sourcing sponsors and deals in the multifamily market in the South East of the United States for reasons mentioned in the “Multifamily Opportunity" tab of this site.
Today I’m intentional about identifying opportunities with a variety of strategies, developing relationships with the stakeholders, underwriting deals and driving them through the closing process for personal & 3rd party acquisitions that fit each group’s unique objectives.
Ultimately my motivation for starting this business and educational content, was for me to be able to learn from and develop relationships with industry stakeholders, and allow for anyone interested to follow my journey and either participate in it or learn and apply it on their own.
Either way, I want to be a resource for you or your group, so that you can also spend your time & energy on the family, friends, experiences, hobbies, memories & purposes that are most important to you!
LETS CONNECT
