WSJ: Surprising Profit-Maximizing Risk-Minimizing Investing Strategy of Ultra Wealthy That EVERY Investor Should Consider

A November 1 Wall St. Journal article, “Investing as a Family Affair”, discussed a surprising profit-maximizing, risk-minimizing investing strategy of the “ultra wealthy” that is available to virtually every investor, regardless of how much money you have, and one that every investor should consider.  It’s relatively simple, inexpensive to implement, and doesn’t involve the securities laws.  And the benefits that motivate the “ultra wealthy” are just as important to every investor, regardless of their net worth.

 

The strategy is partnering.  Specifically, where one “ultra-high-net-worth family—typically with more than $100 million in assets—joins with another wealthy family to buy investment property.”  And it’s a “growing player” in real estate investing.  It’s surprising because these financially independent families obviously don’t need each other to invest; they have more than enough wealth to invest by themselves.  Yet, increasingly, they are choosing to partner with other financially independent clans when it comes to closing the deal. 

Why? 

 

Because they want those benefits that are uniquely available to partnerships that are not available when you invest alone.  If these investors, who have the best financial advisors money can buy, choose this strategy, shouldn’t you consider it, too?

Here are the primary benefits cited in the WSJ article:

• Less Risk: “Despite having ample cash, these families are looking for partnerships in order to lessen their exposure to risk: If real-estate values were to tank, for instance, losses would be spread out over at least two parties, rather than one family incurring the entire hit.”
• More Control:  “When two families team up to buy property, both parties have more decision-making power than they would if they pursued real-estate transactions as a limited partner with hedge funds and private-equity funds or via real estate funds.”  In other words, they like having the greater control when they buy direct instead of handing their investment dollars to a syndication managed by somebody else.
• Synergy:  Some families look for others who have investment experience in other real estate vehicles.  Some look to combine their expertise with other families who have similar backgrounds.  Either way, they seek the synergistic benefits that can result when the whole is greater than the sum of its parts.
• Diversification: The diversification partners can enjoy may be with the type of real estate they choose to spread their wealth among as well as geographic areas.  As to the latter, the article states the benefit this way: “if a market takes a turn locally, the families still have rental income from other locations.

When investing with partners, the article identifies a number of factors one must consider, including:

·         What is the partner's track record?

·         Who will have control?

·         Do you agree on liquidity?

Being an investor as well as a lawyer, I have used this strategy myself with great success.  While the WSJ article is a good introduction to the concept, there is much more you need to know if you want to pursue this.  Perhaps most importantly, you should NOT attempt this strategy without competent legal and tax advice. 

This is an area we focus on heavily and would be happy to discuss with you.  As a quick, easy, free next step, click here to get your FREE special report “17 Steps To A Successful Joint Venture”.   If you’re already in a partnership, click here to get your FREE special report “12 Warning Signs You’re Headed For A Lawsuit With Your Partner”.  If you would like to discuss this topic further, please schedule an appointment by using the “Schedule Appointment” box in the column to the right of this article or send me an email: jeff@lermanlaw.com.