INVESTING FOR WEALTH VS. INVESTING FOR SHOW

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Over the holidays, you may gather in smaller groups but no matter who you socialize with, talking business will inevitably come up.

As an attorney and investor, I get a lot of questions – both legal and investing-related – no matter where I go. Many think I’m a walking encyclopedia. I try to stay in my lane – sticking to what I know and what I have experience with.

When the discussion turns to investments, one or more of these friends – without fail – will bring up Shark Tank. They talk about getting in on the ground floor of these “exciting” startups What they don’t realize is that Shark Tank doesn’t reflect the reality of startup investing. Most don’t know 90% of all startups fail, but they won’t hear that on Shark Tank.

What they also don’t know is that these “exciting” investments are rare and most of the companies on Shark Tank aren’t even seeking capital – just publicity. They’re seeking potential distribution channels, celebrity endorsements, etc.  

What my friends and many investors suffer from is shiny object syndrome. They move from one investment fad to another in search of the next Amazon or Facebook.

When it comes to real estate investing, investors suffer from the same disorder – thinking the best investments are in the big shiny cities in the big shiny offices or high rises.  

When it comes to the subject of what I’m investing in, I don’t come out of the gates telling them what I invest in. I turn the tables on them and quiz them – giving them clues about my favorite real estate segment – and see if they can guess what I’m invested in.

Here are some questions and clues I give to my friends:

  • It’s in low supply with little new construction.
  • With acquisition cap rates of 7-10%, very few sectors can compete.
  • Cash flow is recession-proof.
  • Experiences very low vacancies.
  • High demand.

“New York City apartments!” is the most common response.

When I reveal the sector I’m investing in to be mobile home parks (“MHPs”), my answer is always met with a gasp or an audible “really?” Yes, really.  

My friends were thinking sexy. I have to bring them back to reality. I ask them what they think average cap rates are for apartment buildings in New York or other primary markets. No one expected the sub-5% rates that are the reality. I tell them my test for them is exactly why I invest in MHPs.

They’re unsexy and just an afterthought for most investors. With all the attention on primary coastal markets like NYC and LA from institutional and foreign investors, cap rates get squeezed – reducing profit potential.

With investments in the non-sexy low-supply, high demand affordable housing sector, I’m able to deliver for myself and my clients’ above-market recession-resistant returns – outpacing sexy NYC apartments. 

Who needs celebrity endorsements? I like MHPs just the way they are – under the radar and delivering top-market returns.

When considering investment alternatives, ask yourself:

WHY ARE YOU INVESTING?

ARE YOU INVESTING IN THINGS TO CALL ATTENTION TO YOURSELF?

ARE YOU INVESTING FOR WEALTH?

If your goal is to invest for wealth, try investing without biases. If one sector outperforms every other sector, why does it matter that it’s not glamorous?

MHPs are ideal for building wealth. They offer:

  • Cash flow
  • Appreciation
  • Inelastic demand
  • Recession-resistant income
  • Low ongoing expenses (tenants own their own homes)

That’s why I invest in MHPs.

Ferd Niemann IV

Ferd Niemann is a mobile home park owner, operator, and lawyer, as well as a real estate investor, financial analyst, entrepreneur, and attorney whose career has focused on a myriad of areas of real estate. His experience includes mobile home park investments and turnarounds, retail development and redevelopment, residential investments, and real estate law.

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