In August, I posted that I purchased a small stake in a thoroughbred race horse named Work of Art (WOA). The plan was to race at Saratoga, NY in September, but the horse was not ready at that time. Well, tomorrow is the day for his debut at Belmont in NY and a chance to see if WOA has what it takes. His workout times were very good and he showed ability. WOA will be running in the 6th race on the turf for a $60,000 purse with jockey Eric Cancel at the reigns. The winning horse typically keeps 60% of the purse and the remaining amount is distributed down to 6th place. From the winnings, there are numerous expenses, including the jockey’s and trainer’s share. A win at this level to start would be very positive and would position the horse to run for higher purses in the future. My cash outlay so far is $1,582 for my 2% share, plus $360 to cover estimated expenses through December. I will provide an update of the results tomorrow. Unfortunately, I am not able to travel to Belmont for this race so I will be watching WOA on the television.
Some quick other investment notes:
A. Fundrise just deposited a 3rd quarterly dividend of $60 into my account based on the $3,000 in their real estate investment trust.
B. The iPO investment of $4,000 seems to be status quo based on the updates given by the company as they continue to build shareholder value.
C. Gold prices have rebounded to $1,306 an ounce so that investment is nearing break-even.
D. After the significant gains from the St Pete condo, I am spending time researching geographic areas for my next purchase. I was very fortunate to have sold prior to Hurricane Irma hitting that area. Weather-related problems are part of the equation when investing in tropical destinations, but I believe the potential gains are worth the risks if the numbers make sense.
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The purpose of this blog is to show how unconventional investments can add value to your portfolio. The condo went to settlement a week ago and closed the chapter on this investment. Final sales price was $171,000 on a small beach condo purchased for $83,000 six years ago. That was a 106% gross return on investment and an 88% return net of commissions and transaction selling costs. By all standards, this was a great success. The condo paid for itself for all 6 years through rental fees and never required any additional operating cash from my personal funds. A couple of observations from the past several weeks:
A. When selling an out of state property, a hands on real estate sales person makes a huge difference. Sheila Geer with the St Pete office of Coldwell Banker was fantastic in handling all aspects of the transaction, including meeting repair contractors and even the small tasks such as having keys made. That level of assistance and expertise is very much appreciated.
B. The appraisal can throw a monkey wrench into the best of deals. In our case, it come in lower than our contract price but the buyer did not have a contingency in the contract for that circumstance. Even though they wanted a new price, the original was not changed. My opinion is that the appraised price had not caught up to the fast sky rocketing prices the area was beginning to experience and the buyers were still getting a good deal.
C. Be aware of the tax consequences that a sale can incur and plan accordingly so surprises in April do not take you off guard. The right tax planning can make the difference so contact your tax professional for options.
As this investment gets placed in the plus column, it is time to look for a new replacement so let the fun begin…
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It was definitely the right time to list the beach condo for sale. Within 3 days, we had 3 offers to purchase the unit. With a list price of $179,900, the 3 offers were as follows:
1. A full price offer with a contingency stating that their condo must be sold first
2. A cash offer of $165,000
3. A offer of $171,000 with a 24 hour deadline to accept and settlement in June
The 3rd offer was accepted after the party with the cash offer refused to go any higher. The contingency offer was not considered due to the uncertainty of their sale. After our contract was signed, we learned that the two others were considering a change to their offers in the event that our transaction does not make it to settlement; so it is great to have these as potential backups. There is no guarantee the transaction will be completed as it requires numerous steps to be attained. These include a property inspection, real estate appraisal and financing approval.
An inspection has been done and requests by the buyer for additional settlement credits were countered with an offer to purchase a home warranty insurance policy on their behalf with a term of 1 year. This was accepted and is a common concession in these circumstances. A year policy can be purchased for around $500. Step 1 is now completed. Next step is to ensure that the unit is valued at the sales price by a real estate appraiser so that the bank will approve their financing. I will keep you posted on our progress.
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Time for another investment. As I already own a rental property (beach condo) in my portfolio, I would like additional real estate returns but without the headaches. Fundrise, LLC seems like it might fit the bill. Their website states that they had the “simple idea to give everyone the opportunity to invest directly in high quality real estate, without the middle man”. They combine online crowd source funding with technology and commercial real estate to locate the best deals for their members, now numbering 80,000+. A Fundrise investment in 2015 would have returned 13% according to their website. For 2016, they now have two offerings: an Income eREIT (focuses on income through debt) and a Growth eREIT (focuses on growth through equity). REIT stands for real estate investment trust. A REIT is a “company that combines the capital of many investors to acquire or invest in a diversified pool of commercial real estate”. These REITS are not publicly traded on the stock market so they do not fluctuate with the broader market and have a 1% management fee which is lower than their publicly traded counterparts. The Income eREIT has lower risk with fixed returns. The Growth eREIT may provide higher returns but with higher risk associated with their investments. Both pay quarterly dividends.
I am going to invest in the Growth eREIT so I will only focus on that portfolio. The objective of the Growth eREIT is “to produce moderate returns over the life of the investment, with the potential for much higher returns paid out at the end of the investment”. In order for Fundrise to show accountability to their investors, they will pay a penalty to the eREIT if certain preset annual return objectives are not met. It is their version of skin in the game. There are currently 4 property investments in this eREIT at cost totaling $19.5 million. Returns are produced from rental income and appreciation when the properties are sold. The company does have a redemption plan but I definitely consider this a long term investment. There are risks associated with this type of investment so any purchase should be made after doing due diligence. I would recommend researching all aspects of any purchase by going to the company’s website and searching the internet. Since a REIT is required to distribute at least 90% of the taxable income that it earns annually, there are tax implications of which one must be aware. I will choose to limit my initial investment to $3,000 (their minimum required amount is $1,000) with another $2,000 in reserve to be invested after seeing how this proceeds. Since my mission is to learn and educate by diversifying into many investments, I will limit each particular investment and document the asset’s cycle through this blog.
41 Unit Property in Denver held by the REIT
Thanks for reading.
Jeff Kahn CPA