Other investment opportunities besides the stock market

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skor99
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Other investment opportunities besides the stock market

Post by skor99 » Tue Sep 18, 2018 1:12 pm

I have lately received a few offers from people I know, to invest in their businesses such as gas stations or car wash and be a minority partner. The other offers include investing as a group to buy a hotel or buy homes for flipping or renting out.
All my investments thus far have been in the stock market and I have never ventured outside of that to do anything else . Obviously the potential for higher returns exists here, but I think so does the risk, even working with people you know.
Has anybody done anything of the sort as a newbie and how successful ( or not) have they been ? What would be a good process to investigate the opportunities thoroughly to see if they make sense or not ? Also where would one go to check what the typical rate of return are on a gas station or car wash etc ?

Thank you

HEDGEFUNDIE
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Re: Other investment opportunities besides the stock market

Post by HEDGEFUNDIE » Tue Sep 18, 2018 2:45 pm

Well, if you have ever watched Breaking Bad, car washes can be very lucrative 😉

columbia
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Re: Other investment opportunities besides the stock market

Post by columbia » Tue Sep 18, 2018 5:06 pm

Some will say rental properties, but that’s - of course - running a business.

Thesaints
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Re: Other investment opportunities besides the stock market

Post by Thesaints » Tue Sep 18, 2018 5:32 pm

Bond market.

ThrustVectoring
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Re: Other investment opportunities besides the stock market

Post by ThrustVectoring » Tue Sep 18, 2018 10:47 pm

Generally speaking, if someone offers you an investment opportunity, the best course of action is to politely decline. There's a lot of snakes out there, and it only takes one to lose a large chunk of money that you cannot afford to.

If you want non-public investments, figure out what's involved and how much money is needed to start up and go into business yourself (or 50/50 with a trustworthy partner).
Current portfolio: 60% VTI / 40% VXUS

skor99
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Re: Other investment opportunities besides the stock market

Post by skor99 » Wed Sep 19, 2018 9:18 am

I understand the point of not falling prey to the ‘snakes’ but beyond that the question still remains about returns on investments such as these.
Let’s say if the trust level is there, then what to look out for from an investigation and returns perspective for such investments ? Could the returns be more than the stock market for a gas station/carwash/hotel investment in the long run? Especially if somebody is working another full time job and would need to employ a manager to oversee ( in addition to other employees) ?

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ReformedSpender
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Re: Other investment opportunities besides the stock market

Post by ReformedSpender » Wed Sep 19, 2018 10:14 am

Regarding your examples, I know from experience that gas stations have minimal profit margins. Not much investment to be made on the small mark up on gas/diesel and snacks. Car washes are no better. Equipment breakdowns, inclement weather and liability insurance chew away at profits quick.

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

AlohaJoe
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Re: Other investment opportunities besides the stock market

Post by AlohaJoe » Wed Sep 19, 2018 10:21 am

To try to offer some marginally concrete and useful information:

Get previous financial reports. Learn to read them. Learn how to do basic valuation of a business, dividend discount model, for instance. The textbook answers don't necessarily apply in the real world for every business but the process of doing it helps you understand the business better. Understand what kind of information rights you'll have, how often you'll receive information and so on.

Are you going to want monthly spreadsheets or are more of a have coffee once a quarter to get the latest business updates. There's no real right or wrong but make sure what you want is what the owner is offering.

Valuethinker
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Re: Other investment opportunities besides the stock market

Post by Valuethinker » Wed Sep 19, 2018 10:35 am

ReformedSpender wrote:
Wed Sep 19, 2018 10:14 am
Regarding your examples, I know from experience that gas stations have minimal profit margins. Not much investment to be made on the small mark up on gas/diesel and snacks. Car washes are no better. Equipment breakdowns, inclement weather and liability insurance chew away at profits quick.

:beer
Drought, also?

Do the authorities close car washes when water supply gets tight?

HEDGEFUNDIE
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Re: Other investment opportunities besides the stock market

Post by HEDGEFUNDIE » Wed Sep 19, 2018 10:35 am

TA and MUSA are pure play publicly traded gas station companies

Net income margin for TA is 0.2%, for MUSA is 2.3%.

Good luck.

texasdiver
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Re: Other investment opportunities besides the stock market

Post by texasdiver » Wed Sep 19, 2018 10:44 am

If their books were that good they wouldn't need you for capital. They could get it from their local bank.

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Abe
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Re: Other investment opportunities besides the stock market

Post by Abe » Wed Sep 19, 2018 10:51 am

I invested in rental houses, mortgages, stocks and bonds and a few other things along the way. With the advantage of hindsight, I could have done just as well, maybe even better, if I had just put everything in the S&P 500 index fund back in 1975, and saved myself a lot of time and effort. Of course I didn't have the advantage of hindsight, so I did the best I could with the knowledge and information available to me at the time. I have to say though, it was a learning experience.
"In school, you're taught a lesson and then given a test. In life, you're given a test that teaches you a lesson." Tom Bodett :beer
Slow and steady wins the race.

texasdiver
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Re: Other investment opportunities besides the stock market

Post by texasdiver » Wed Sep 19, 2018 10:53 am

Abe wrote:
Wed Sep 19, 2018 10:51 am
I invested in rental houses, mortgages, stocks and bonds and a few other things along the way. With the advantage of hindsight, I could have done just as well, maybe even better, if I had just put everything in the S&P 500 index fund back in 1975, and saved myself a lot of time and effort. Of course I didn't have the advantage of hindsight, so I did the best I could with the knowledge and information available to me at the time. I have to say though, it was a learning experience.
"In school, you're taught a lesson and then given a test. In life, you're given a test that teaches you a lesson." Tom Bodett :beer
That is my new favorite quote. Thanks

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SquawkIdent
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Re: Other investment opportunities besides the stock market

Post by SquawkIdent » Wed Sep 19, 2018 10:54 am

I've always wanted to either own or invest in a parking lot. But the good ones are either very expensive or rarely come up for sale. So I'll stick to what I know. :sharebeer

mervinj7
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Re: Other investment opportunities besides the stock market

Post by mervinj7 » Wed Sep 19, 2018 10:56 am

Valuethinker wrote:
Wed Sep 19, 2018 10:35 am
Drought, also?

Do the authorities close car washes when water supply gets tight?
It's the opposite in California. Most car washes around me recycle their water and reuse each gallon of water for 4 to 5 washes. According to the article, the most efficient commercial washes use about 2.5 gallons per car, which is less than what your dishwasher uses. Thus, during our severe drought these last few years, washing cars at home was banned unless you had shut-off nozzle on your hose. It's been a boon for the car wash industry with lots of "eco-friendly" washes popping up all over the place.

https://www.marketplace.org/2015/06/09/ ... l-car-wash

Valuethinker
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Re: Other investment opportunities besides the stock market

Post by Valuethinker » Wed Sep 19, 2018 11:03 am

skor99 wrote:
Tue Sep 18, 2018 1:12 pm
I have lately received a few offers from people I know, to invest in their businesses such as gas stations or car wash and be a minority partner. The other offers include investing as a group to buy a hotel or buy homes for flipping or renting out.
All my investments thus far have been in the stock market and I have never ventured outside of that to do anything else . Obviously the potential for higher returns exists here, but I think so does the risk, even working with people you know.
Has anybody done anything of the sort as a newbie and how successful ( or not) have they been ? What would be a good process to investigate the opportunities thoroughly to see if they make sense or not ? Also where would one go to check what the typical rate of return are on a gas station or car wash etc ?

Thank you
You are better off in equities. Equities pay high returns but have high volatility. For a long enough investment time horizon you can ride that volatility and seek the superior returns.

Franchises have the highest failure rate of new businesses. The failure rate of new businesses generally is high - most lack capital, scale, barriers to entry for new competitors. If you see immigrants, they work very hard to make a living. Some become very successful - buy one motel, live with the family there, the kids manning the desks at night etc. Then reinvest and buy another, etc. But they put in the hours -- their kids may go to medical school, but they work at it.

If you buy into someone else's business then there are control issues-- are you going to work there full time? Silent partners tend to get done over - the numbers can be misstated, the managers may for example employ their own family in the business (I've seen a number of cases where the son or daughter was "on the books" and basically showed up to "work" when they felt like it, and did what they felt like doing).

One exception is real estate. Returns on the ownership of RE are pedestrian - lower than stocks. BUT you can leverage your investment (the principle of "Other Peoples Money"/ OPM ) and not be margin called - as long as you make payments on the mortgage, you can ignore fluctuations in market value.

Which is not to say it's easy. It is undiversified and there are serious risks of bad tenants, rental void periods (no tenants), repairs in the property, landlords' liability etc. Commercial properties a new highway opening can kill you, or a decline in the local economy. Residential property has all of the known hassles (the son of one prominent investor, now a hotel operator and with other responsibilities, learned from his father collecting rent to stand away from the door in case the tenant shot a gun through the door at the rent collector ;-)).

See George V Higgins "Rat on Fire" for a (fictional) tale of same but based on his experiences as a criminal attorney.

https://www.fantasticfiction.com/h/geor ... n-fire.htm

Lots of people are trying to do it. It takes work - fixing toilets at 3 am is no one's idea of fun. It's a personal business decision NOT an investment portfolio decision.

But it can be a good way to get rich slowly.

WanderingDoc
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Re: Other investment opportunities besides the stock market

Post by WanderingDoc » Wed Sep 19, 2018 11:07 am

columbia wrote:
Tue Sep 18, 2018 5:06 pm
Some will say rental properties, but that’s - of course - running a business.
Yes and no. I spend an average of 2.5 hours per MONTH on the entirety of my real estate portfolio. I spend a lot more time then that watching irrelevant and mediocre YouTube videos, per WEEK.

To be fair, I spend roughly five hours per month browsing this forum. Therefore, I spend more time on Index Fund investing than I do real estate investing.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

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bertilak
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Re: Other investment opportunities besides the stock market

Post by bertilak » Wed Sep 19, 2018 11:10 am

texasdiver wrote:
Wed Sep 19, 2018 10:53 am
Abe wrote:
Wed Sep 19, 2018 10:51 am
"In school, you're taught a lesson and then given a test. In life, you're given a test that teaches you a lesson." Tom Bodett :beer
That is my new favorite quote. Thanks
I keep a list of great quotes. That just got added.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

Valuethinker
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Re: Other investment opportunities besides the stock market

Post by Valuethinker » Wed Sep 19, 2018 11:14 am

mervinj7 wrote:
Wed Sep 19, 2018 10:56 am
Valuethinker wrote:
Wed Sep 19, 2018 10:35 am
Drought, also?

Do the authorities close car washes when water supply gets tight?
It's the opposite in California. Most car washes around me recycle their water and reuse each gallon of water for 4 to 5 washes. According to the article, the most efficient commercial washes use about 2.5 gallons per car, which is less than what your dishwasher uses. Thus, during our severe drought these last few years, washing cars at home was banned unless you had shut-off nozzle on your hose. It's been a boon for the car wash industry with lots of "eco-friendly" washes popping up all over the place.

https://www.marketplace.org/2015/06/09/ ... l-car-wash
Good old Yankee know-how ;-).

It should have occurred to me that this would have been anticipated.

dpa789kd
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Re: Other investment opportunities besides the stock market

Post by dpa789kd » Wed Sep 19, 2018 11:40 am

We bought into a hotel chain in Fall of 2016 looking to do something similar. The guy had a good track record and had managed several hotels over the years. He built one in 2012 and had a good financial track record. There were some hiccups int he building phase due to the contractor, but he stayed on top of everything and in our first full year of operation we'll turn a nice profit. I think we'll see a 12-20% IRR on our investment. A nice additional perk is we get the owner rate anytime we stay at an IHG brand hotel so it makes vacations cheaper. A standard room usually runs between $40-80 now. There's obviously more risk here depending on local economy and other things, but he has a pretty good strategy we felt like. He will probably build another one in a year or so and we'll likely invest with him again.

We also bought into a couple syndication deals that purchase apartment complexes in larger metro areas. The first one we bought closed just last month for a total annual return of just over 30%. The others seem to be trending that direction. It's been completely hands off. I've been happier with these deals than the hotel. There seem to be quite a few people out there doing this. I spoke to probably 10-12 when we were vetting people. Ultimately we have 3 that we're comfortable with at the moment.

I would second the advice to avoid rentals. We have several and work full time as well and it can be a bit much sometimes. My goal is to slowly sell off some of them and get into more deals where I'm just an investor and not the manager/maintenance guy/eviction guy, etc...

TheOscarGuy
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Re: Other investment opportunities besides the stock market

Post by TheOscarGuy » Wed Sep 19, 2018 12:01 pm

HEDGEFUNDIE wrote:
Tue Sep 18, 2018 2:45 pm
Well, if you have ever watched Breaking Bad, car washes can be very lucrative 😉
I think it will reduce your life expectancy though :D

skor99
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Re: Other investment opportunities besides the stock market

Post by skor99 » Wed Sep 19, 2018 12:46 pm

dpa789kd wrote:
Wed Sep 19, 2018 11:40 am
We bought into a hotel chain in Fall of 2016 looking to do something similar. The guy had a good track record and had managed several hotels over the years. He built one in 2012 and had a good financial track record. There were some hiccups int he building phase due to the contractor, but he stayed on top of everything and in our first full year of operation we'll turn a nice profit. I think we'll see a 12-20% IRR on our investment. A nice additional perk is we get the owner rate anytime we stay at an IHG brand hotel so it makes vacations cheaper. A standard room usually runs between $40-80 now. There's obviously more risk here depending on local economy and other things, but he has a pretty good strategy we felt like. He will probably build another one in a year or so and we'll likely invest with him again.

We also bought into a couple syndication deals that purchase apartment complexes in larger metro areas. The first one we bought closed just last month for a total annual return of just over 30%. The others seem to be trending that direction. It's been completely hands off. I've been happier with these deals than the hotel. There seem to be quite a few people out there doing this. I spoke to probably 10-12 when we were vetting people. Ultimately we have 3 that we're comfortable with at the moment.

I would second the advice to avoid rentals. We have several and work full time as well and it can be a bit much sometimes. My goal is to slowly sell off some of them and get into more deals where I'm just an investor and not the manager/maintenance guy/eviction guy, etc...

Thank you, this is the kind of input I was looking for. Where can somebody find these syndication deals and what is the kind of investment required ?

columbia
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Re: Other investment opportunities besides the stock market

Post by columbia » Wed Sep 19, 2018 1:08 pm

As far as real estate, the closest I would want to get is the TIAA fund, although I’ve never bought it. In thinking about that fund, would it be completely impractical to offer a real estate state product with a constant NAV and the return varied on revenues and fluctuations in the property values? Since that doesn’t seem to exist, it’s probably a birdbrained idea. 🤔

dpa789kd
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Re: Other investment opportunities besides the stock market

Post by dpa789kd » Wed Sep 19, 2018 1:11 pm

skor99 wrote:
Wed Sep 19, 2018 12:46 pm
dpa789kd wrote:
Wed Sep 19, 2018 11:40 am
We bought into a hotel chain in Fall of 2016 looking to do something similar. The guy had a good track record and had managed several hotels over the years. He built one in 2012 and had a good financial track record. There were some hiccups int he building phase due to the contractor, but he stayed on top of everything and in our first full year of operation we'll turn a nice profit. I think we'll see a 12-20% IRR on our investment. A nice additional perk is we get the owner rate anytime we stay at an IHG brand hotel so it makes vacations cheaper. A standard room usually runs between $40-80 now. There's obviously more risk here depending on local economy and other things, but he has a pretty good strategy we felt like. He will probably build another one in a year or so and we'll likely invest with him again.
Thank you, this is the kind of input I was looking for. Where can somebody find these syndication deals and what is the kind of investment required ?
Well the hotel I came across on another finance forum. A guy I had interacted with quite a bit bought into the first one and told me about the one that I bought into. It turned out to be about 2 hours from where I live so it was easy to go meet them all and do site visits at anytime.

The syndications I found on another real estate website. I'm not sure we're allowed to list other forums here but it's a very popular one. I contacted several different people and finally learned about the syndication options and narrowed it down to about 10 to interview. I was pretty skeptical going in, but it honestly seems like less risk than my local rental property investing. These are pretty large scale projects with very low, fixed rate loans, and they all had excellent track records.

The only requirement is that you be an accredited investor, which I'm sure you are familiar with. I believe the hotel minimum was $25,000 and the syndications have different minimums depending on the partner but range from $50,000 to $100,000 generally.

I don't want it to sound like a sales pitch, but if you want to PM me I'd be happy to email you the people I've worked with or visit on the phone sometime. You can contact them and vet them from there.

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Portfolio7
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Re: Other investment opportunities besides the stock market

Post by Portfolio7 » Wed Sep 19, 2018 1:55 pm

A different but related situation: DW is a partner in her small firm, 2 principals. She works there and owns just under half the business also. The cost to buy in was substantial, but she now works in and helps run the business, and she discusses key decisions with me. At the time the business was growing 30% + every year, expenses under control.

5 years in, we're down about $1K from a cash perspective, ignoring salary and typical employee benefits. I had expected we would be positive about $10K at that point, so it's in the ballpark but a little short of expectations. The shortfall is mostly due to investments to enable further growth. Generally you want a 3 year payback, but there was also a six-figure equity position granted up front (which is worth what you can sell it for, so grain of salt), so there is more to think about than your classic cash flow IRR.

My ten year cash projection suggests a 25% IRR, but it doesn't take much to push that up or down 10%. If you factor in the value of the business (and assume we can extract our equity at the ten year mark) then the IRR projection is about 50% over that same ten year period. If we only get half of that value, it still will have worked out well for us. If the business lasts beyond 10 years, our business loan will be paid off by then, and the free cash flow should be at least low 5 digits annually - not enormous but nothing to sneeze at.

Things to keep in mind, this was a long established & respected business that saw a lot of benefit from DW joining it, and it's not surprising that there was a bump in Revenue... but still, the growth was big and ongoing. They still have more customers than they can accept. It's a services business, labor intensive, which limits how much it can be scaled.
An investment in knowledge pays the best interest.

Valuethinker
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Re: Other investment opportunities besides the stock market

Post by Valuethinker » Thu Sep 20, 2018 7:35 am

columbia wrote:
Wed Sep 19, 2018 1:08 pm
As far as real estate, the closest I would want to get is the TIAA fund, although I’ve never bought it. In thinking about that fund, would it be completely impractical to offer a real estate state product with a constant NAV and the return varied on revenues and fluctuations in the property values? Since that doesn’t seem to exist, it’s probably a birdbrained idea. 🤔
It has been tried.

Various sorts of guaranteed values. A Stable Value Fund is just a bond or money market like fund, which is guaranteed by an insurance company. If the insurance company were to fail, then I imagine the SVF would drop in value, investors would probably redeem at a discount in the unwinding.

Note that post 2008 reforms, many Money Market Funds (such as those offered in 401Ks for example) have a floating NAV - they can break the buck.

In other words, you can't do away with risk, you can only move it around. Various "structured products" use these strategies to guarantee investor's capital, but they are opaque and usually conceal substantial fees (some I have seen you don't get the dividends on the index, which is equivalent to a 250-350 basis point management fee).

For any open ended vehicle, the ability of investors to sell/ redeem fairly requires an estimate of current market value. That means a Net Asset Value which fluctuates.

In a Real Estate Investment Trust or REIT or other closed end fund, there is no redemption per se. But investors still need to value the shares (maybe at a premium or a discount) and thus a floating NAV. As well as a share price which may be at a premium or discount.

In the case of institutional Limited Partnerships for Private Equity, Real Estate, Infrastructure the investors (the Limited Partners) are locked in typically for 10 years and they are legally on the hook for further investment in the fund (up to their initial commitment). You still have audited annual NAVs, but your returns really are cash to cash.

(there actually is a market in Secondary Fund purchases, where your investment in KKR (Barbarians at the Gate) number 17 Fund, say, can be sold, usually at a discount to current NAV. This is if some pension fund has a strategy change and needs to get out of its 10 year commitments).

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