I consider myself one of the most fortunate men on this planet. Growing up on a small farm in Oregon, I learned how to break horses, buck hay, rope bighorn sheep, build barns, and fix and weld tractors: “Go to bed, because tomorrow comes early.” It was hard work, but I wouldn’t trade it for anything. I learned a lot about life from that experience.
Fast forward to today, and I attribute all my successes to what I learned on that farm. I gained a work ethic and perspective.
So what does living on a farm working your tail off have to do with real estate? Real estate is hard work. And with real estate being one of your portfolio’s strongest (and typically largest) asset allocations, managing a few rentals or flips simply won’t cut it if you have a full-time job. If you chase two rabbits, they’ll both get away.
My progression toward real estate fund management has been a wild ride, to put it lightly. It is not a career that one can simply jump into blindly without finding themselves lost, not knowing which way is up. It is not a career with a low barrier of entry — a $500 exam won’t cut it on this one. Whether managing a large real estate portfolio, a single rental, or a flip, it takes the skill sets of loan officers, real estate brokers, property managers, bank underwriters, construction contractors, wealth managers, insurance brokers, and more.
I am leaving out many professions and services that are involved in real estate, but you get the point. It is less about IQ, and more about experience. The current real estate market cycle is up, and it’s strong. Anyone can make money, right? No, this is not 2006 — we will never see that again. The area’s real estate climate is perfectly poised for investing, with one of the strongest economies and neighborhoods in the nation.
On a local level, the Eastside’s Clyde Hill and Medina regions are boasting some of the highest prices in the nation, and the local investment community is surely reaping the benefit. I believe it is always a good time to invest in real estate — in up markets and in down markets. And for us in the great Pacific Northwest, the timing couldn’t be better, or more lucrative.
However, putting all your eggs in one basket (or one project) is not a diversified strategy. I don’t recommend investing into a single area, but into multiple localities with economies that rely on different employers, and have different demographics. This is also diversification. Unfortunately, most people simply do not have the capital or bandwidth to spread their risk over millions of dollars of real estate, and they especially don’t want to over-leverage and create a house-of-cards scenario. Insert real estate funds here.
Real estate funds are different than REITs (real estate investment trusts) in that they are actively managed and diversified into a range of performing properties. These funds develop, improve, or hold (for income) multiple properties simultaneously, diffusing risk and profit over time. Consequently, this translates into a great benefit to those investing, as the fund provides opportunities beyond the reach of the individual. Because of the experience of the fund manager, real estate funds often have the ability to negotiate better terms on properties because of their unique financial strength and leveraging abilities. The accumulated profit is used to maintain returns to fund investors that are reliable and stable.
I am one of the fortunate few that had the privilege of graduating to the real estate fund management world. It was hard work, and I would not have been ready for it if I hadn’t learned from the experience my early years taught me. But it took more than getting kicked off a few horses to learn to put in the time. It also took building and operating a myriad of companies, including construction, land development, mortgage banking, real estate, and insurance brokerages, and financial services companies; for me, real estate fund management was the next natural step.