There are a few goals for this newsletter:

Today we’re going to focus on this last one.

I’ve had several versions of the conversation around what I do.

My favorite is when a friend reports that they had no idea how to explain what I do for a living to someone else.

My short answer is often just “real estate” to save time but the actual answer is generally more simple than that;

I’m a value investor.

I buy things for less than they’re worth.

It’s something I’m very good at and is a deceptively undervalued skill that allows you to print money.

Crypto, stocks, e-commerce, real estate…

It doesn’t matter what it is. If you can sell it for more than you bought it for, you can make money in any market forever. The limiting factor is only the capital you start with.

That’s why my next project is a fund.

A loose overture of what a fund is:

I’m an investor. I invest in things, and I earn larger returns than what you can get investing in an index fund. So what if other people also want to earn those same returns?

It’s fairly simple, everyone pools their money together, I make trades and invest on their behalf and I get a portion of their returns.

Funds are great because when they work everyone gets larger returns while reducing risk by spreading out their money across different asset types, and the fund operator(me) gets a return that’s untethered by their capital. This means you get to scale your income infinitely(in theory).

What am I Interested in investing in right now?

I’ve been running real estate experiments in Alabama for a couple of years now. My original thesis was this:

Many markets in Alabama have not appreciated nearly as much as NY. There are places in Alabama where you can buy houses under 50k. In fact, we purchased a house for 28k two years ago. You can then rent those houses for 800-1000+ dollars a month. Compare this to NY where you might buy a house for 350k and then rent it in the low 2000/month range.

Also, the taxes in AL are incredibly cheap. We paid under 2k one year for a property.

Let’s say conservatively, you buy a house for 70k and rent it for 900 a month.

That’s a gross annual return of 15%. This is the lower end of returns for this area which is a huge deal.

So, naively and optimistically, we entered the market with this thesis and this is how it turned out:

Tenant churn was exorbitantly high. We could not keep them rented to save our lives. At that price point, you just cannot get good tenants. Not only that, but even though the ratio of the return is high(good cash flow in relation to capital outlay) there’s just not enough cash coming in at that scale to pay for property managers, or for someone to deal with maintenance.

The other HUGE hurdle:

Financing at this price point is nearly impossible. Nobody wants to loan you money on these houses. Too much risk for a relatively small return. We couldn’t take on any debt; which is slow.

We were ready to give up when we came up with some simple solutions to our problems.

Section 8 gets a bad wrap sometimes. People feel that these investments can be risky because of the tenant base, but your customer isn’t the tenant. It’s the government.

Whatever you have to say about the government, they make for good customers.

Using a fund to start at a larger scale solves both cash flow issues and financing issues.

If you own a million dollars worth of Section 8 housing you can afford property management, lawn care, and maintenance at scale, and you have access to better vendors with better negotiating power.

Banks also take you more seriously when you have a million+ in real estate. Less risk that way.

There are more experiments to run through, and I’m also excited to try new tactics and iterate.

More updates on this to come…