It’s no secret that I’m a real estate investor, so I get calls from people wanting me to invest in things all the time. On occasion, someone presents an opportunity to me that isn’t in real estate, and last week someone called me about investing in a movie. Now, this gentleman is a very successful producer. He hasn’t yet had a blockbuster per se, but if I named some of his movies it wouldn’t be surprising to me if you’d seen a couple, and if I named some of the people involved in the venture that he wants to fund, they would definitely ring a bell. He’s far down the road on a new project and is looking to raise $2.5 million … or at least, a minimum of $500,000.
Since he knows that I raise capital for real estate deals, he started the conversation by saying something that I hear time and time again from many, many people. He said, “Real estate is risky, so you probably work with a lot of people who are willing to roll the dice a bit for a big payout. I thought that it might be worth reaching out and seeing if this might be something that your investors would be interested in.”
At this point, I was thinking that here’s another incredibly smart person who has been conditioned to be afraid of real estate in general, because they’ve been told that it’s very risky. I believe that because it’s exactly how I used to think, and I meet people all the time who are of this mindset, too. Over the past five years I’ve discovered that “real estate investing” is a large category, and as a real estate investor, it’s critical to understand your investing goals long before you analyze an investment. It’s important to keep as much of the emotion out of the transaction as possible. A strategy that’s worked for me, and that I highly recommend, is not even considering any investments that don’t focus on my main objectives.
What are my objectives? Well, I talk a lot about “staying in my lane.” What that means is that I have strict criteria for an investment, and I rarely deviate. In my case, capital preservation is my very first priority, then cash flow, and then if the asset appreciates, that’s great. If it doesn’t, that is less great, but I’m OK with it. What I look for, and what I offer my investors, is income and diversification from stocks and other riskier investments. (Yes, I believe that for the most part, stocks are much riskier than multifamily, cash-flowing apartments. At least if they are underwritten well.) What are your objectives? They may be the same or different from mine, but you should know them and commit to them.
Besides the fact that I know little to nothing about the film industry, investing in a movie is basically the polar opposite of what I look for in a multifamily opportunity. Although some of my investors could be interested in this deal, my typical investor is someone who is looking for dependable cash flow and low risk and wants to shave their tax bill. These investors want assets that are already making money, pool plenty of capital to have a strong emergency fund and plan for conservative rent increases while small improvements are made to the property along the way. It’s very boring compared to the entertainment industry. As a matter of fact, it’s boring compared to trading stocks and definitely very pedestrian compared to venture or angel investing. Of course, risk tolerance is different for everyone.
The movie deal may be an exciting opportunity for someone out there, but I’m going to stick with my slow and steady apartment communities. I’ll see the movie when it starts streaming online, but for those who can stomach the risk, it sure sounds fun. If I had the guts, I just might have rolled the dice.