As we spoke on the phone, I could hear the pain in her voice. It was not long before I sensed the tears rolling down her cheeks. Barb had lost half the portfolio she worked so hard and long to accumulate.
Many of us are like Barb. We rely on customary investment strategies and purchase stocks and bonds. Because this is common, it is considered normal and even “safe”. I have a degree in finance, and work around finance all day, and I can’t understand the stock market. How do typical investors, like you and me, make smart buying and selling decisions on Wall Street when we are competing against experts that trade stocks and bonds all day long for a living? And let’s not even talk about Enron.
So how do you invest for growth or income without the wild ride? One solution is to stop pouring all your hard-earned cash into Wall Street and consider diversifying into Main Street. When I say Main Street, I am referring to private investments where you can deal directly with the owner of the organization you are investing in. Some examples include investing in a local company, real estate, or private notes. In my business, we raise private money to make loans to small real estate companies that fix and flip houses. This is a very secure and stable investment because there is a set rate of return and notes are secured. We secure our notes with liens on property. Because real estate is the collateral and not the actual investment, we don’t need to worry about tenants and toilets, and our exposure to the ups and downs in the market is limited.
When done right, the returns in real estate lending are very high. This creates a comfortable income stream or strong growth. Here is how to stay safe:
· Keep the loan amount at a low percent of the real estate value. For example, don’t lend more than 70% of the value. This way, if there are any issues with collections, you have enough collateral to eliminate a loss.
· Make quality loans. Make sure the borrower is able to repay the loan and that they have the resources and expertise to do the project.
· Keep the loan term short in case there is a shift in the real estate market. You don’t want to be stuck in a long term investment in a depreciating market.