Seek Favorable Long-Term Economics
In order to create legacy wealth, you need to build a portfolio of assets and hold onto them over long periods of time. To that end, we want to focus on niches with favorable long-term economics. This means investing in a niche where the demand grows at a higher rate than the new supply coming online. These favorable long-term economics will serve as a tailwind helping contribute to outsized investment returns over time.
Buy Recession-Resistant Assets
Capital protection is key to building legacy wealth. Focusing on recession-resistant assets allows us to protect the downside risk. When the economy is going well, the rising tide lifts all boats. Nearly every asset class performs well when the times are good, but how does an asset class perform during a downturn? We want to ensure that we’re protecting the downside risk. Folks that are investing with us are accredited investors. They’re sophisticated folks who have already built some wealth.
They’re not going to be investing with the last dollar that they have to live on, and you only need to get rich once. Once you have some cash, your first priority should be to protect the downside. We subscribe to Warren Buffett’s famous two rules of investing: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” So, protect the downside and ensure that even when the economy sputters you will be able to hold on to your asset until the next recovery surfaces.
Find a Fragmented Niche
Simply put – we like asset classes where institutional capital hasn’t yet consolidated the space. In a fragmented niche, we are often able to acquire assets from smaller ‘mom-and-pop’ owners who may be less sophisticated than institutional players. When institutional capital has flooded the market, it is more difficult to buy great deals. In a fragmented, imperfect marketplace, where we’re working directly with that ‘mom-and-pop’ owner, oftentimes we can buy that deal with a nice margin of safety right at acquisition.
Create Off-Market Transactions
Sam Zell said it best, “We don’t buy markets. We buy deals.” Our core competency is to buy deals in off-market transactions direct from owner. Our lead principal has been doing this for more than twenty years: going direct to owner to buy assets, sending out hundreds of thousands of pieces of direct mail over time, making tens of thousands of phone calls and utilizing very unique marketing tactics to target asset owners. Once we locate a potential opportunity, our decision-making process revolves around whether the individual asset is attractive enough in that specific risk environment to actually make that transaction happen. While strong underlying microeconomic market fundamentals are essential, having a strong market is not enough. We leverage our core competency to create off-market transactions. We don’t buy markets, we buy deals.
Invest for Cash Flow & Legacy Wealth
We invest for cash flow and legacy wealth. To avoid outsized risk, we only acquire assets which have positive cash flow in place from day one. We do not attempt to time the market. Opportunistic developers with myopic, short-term business models and syndicators who promote heavy value-add transactions eventually mistime the market, and their mistakes cost investors dearly. See Rule No: 1, above. To that end, our acquisitions must have positive cash flow and the opportunity to create legacy wealth. Real wealth grows over time through efficient management of capital, buying right, and investing for the long term. For that reason, once we have acquired a great cash-flowing asset with appealing long-term economics, our favorite hold period is forever. This investment strategy allows us to build a portfolio of assets which generates cash flow and builds legacy wealth for our families.