Real Estate Crowdfunding For Non-Accredited Investors

The fourth quarter is now upon us. I can’t believe that we are in October. Can you?  

We have much to look forward – deciding a new U.S. President (which had me fired up on the debates last week), participating in holiday festivities, executing on smart tax strategies, following those stock company earnings (for us market junkies), and enjoying the last days of 2016.

 

Now, let’s also remember that the last three months also offer reflection on your 2016 money goals and whether or not you have taken action like we’ve discussed. If your money situation is creating some anxiety for you, you’re not alone as money issue can be stressful!

 

One way to reduce stress, and especially money stress, is to practice mindful meditation. As I learned during my recent travels, the Japanese have a strong meditation culture and I was re-inspired to incorporate it into my daily routine. And this year, new scientific evidence has shown that mindful meditation has positive physiological ramifications.

 

Don’t know how? All good - check out these mindfulness techniques. My favorite is taking time out to breathe.

 

I had to do some breathing before I participated on the Real Cap Chicago’s real estate crowdfunding panel last Thursday. I also want to share several takeaways: (Read more to find out how you can make money in real estate crowdfunding)

 

3 Takeaways on Real Estate Crowdfunding.

 

1.Real estate crowdfunding offers an alternative way to invest in real estate. One of the biggest hindrances to direct real estate investing is the amount of time you can spend in managing the property. If you do not want to invest in REITs or other equity-like real estate investments, crowdfunding offers another option. Real estate crowdfunding allows development companies to raise funds through online platforms for private real estate deals, which should generate a return for you. Think of Kickstarter solely focused on real estate.

 

2. Non-accredited investors will get more access to private real estate deals. Under the 2015 JOBS Act, non-accredited investors, are allowed to participate in crowdsourced deals. Here is a list of the major real estate crowdfunding sites. If you’re in Chicago, you could not miss the opening of Whole Foods in Engelwood last week. Of the $15MM raised as part of the deal, $500,000 was crowdsourced.

 

3. Education is key. If you’re considering a crowdsourced deal, it’s important that you do your homework. You should be able to articulate why your are making the investment, how the investment fits in your overall portfolio, what’s the investment opportunity in the deal, and who are the people behind the company that is developing the real estate. If you have a financial advisor, ask them these questions and what deals would they recommend.

 

If you’re not ready to crowdfund, it’s OK as the opportunity must be right for you. In the meanwhile, please continue to share your investing successes and failures with the community below – we’d love to hear from you.

Is investing in a timeshare a great investment?

It’s the summer and I hope vacation is on your mind as much it’s on my mind. Eventually, I want to get to a place where vacation occurs everyday between 9am and 5pm, and work is what happens only 3-4 weeks per year. In the interim, I strive to find ways to go on vacation several times a year without incurring debt. One way that I accomplish this goal is to use my timeshare, which I purchased seven years ago.  

Several clients have asked me whether investing in a timeshare is worth it. I want to first share my experience, define what a timeshare offers, and then give the verdict along with tips to increase your chances of success.

 

My timeshare experience and how to buy a timeshare?

 

Let me start off by saying that I have a love-hate relationship with my timeshare.

 

If you haven’t been haggled by a timeshare salesperson, you’ve missed an important experience in adulthood. It happened to me when I was with a group of friends in the Poconos at my friend’s Wyndham timeshare. I went to a mandatory “welcome” meeting and I ended up buying a timeshare with 168,000 points to use every other year for $10,000.

 

They started off at $16,000 and a finance charge of 15%. After calling my Mom (who owned a timeshare) and getting her advice, I said “no thank you” to the finance charge and asked if I could pay over 6 months with 0%. I then negotiated down to $10,000. Now, that 168,000 points usually equates to 5-10 nights depending on the location and time of travel.

 

Now, I decided to pay cash over six months because I had a savings stash at the time that I purchased the timeshare. Since I already had some money in the stock market and I loved traveling, I thought it provided a good diversification strategy. I also knew that I wanted to put in the investment now while I had the money so that I could have someplace to go in the future in case I didn’t have a salary but still wanted to get away for vacation. It offered me a good retreat from the world during my early entrepreneurial journey, when I spent a lot of my money on the business. The timeshare has also come in handy for family and friend retreats.

 

What is a timeshare?

 

When you “own” a timeshare, you only own a piece of a property that usually resides in well-traveled vacation areas, like Florida or Mexico. Other people also own that same property and you share the use and cost of maintaining the resort over the course of the year. I compare a timeshare to partially owning a condo at a beautiful resort with a kitchen, washer and dryer unit; you pay for the property upfront and you also pay annual maintenance fees.

 

The main difference in owning a timeshare relative to other properties (including the condo), however, is that if you want to sell your timeshare, you will most likely get less than what you’ve paid for it upfront. So, you are buying a depreciating asset on the hope that you get a ton of intangible value such as:

  • Fond memories in a spot that is not a hotel, someone else’s house, or an Airbnb location. [I definitely have fond memories of utilizing my parents’ timeshare as a child and even sometimes as an adult – thanks Mom and Dad]
  • A consistent place to go on vacation with family and friends.
  • The convenience of booking and knowing that you’ll be in a particular location well in advance, especially if you can book early and place is available.

 

Now, you buy depreciating assets like cars or clothes all the time when you believe that there are benefits and intangible value. But, the key is to recognize that you are making such a decision, minimize the lifetime costs and still acquire a quality purchase, and try to extract as much value as you can.

 

There are additional tangible benefits such as the fact that you can potentially lower the cost of lodging. This is particularly true if you have a big family, thereby eliminating the need for multiple hotel rooms. You can also cook and clean your clothes in a timeshare unit, so you potentially save real dollars in your vacation expense.

 

So, is a timeshare a great investment?

 

No, I believe a timeshare does not reflect a great financial investment, where one would expect a positive return on their money. Rather, I believe that a timeshare really reflects an alternative way to go on vacation, with a lot of intangible and some tangible value. Great financial investments usually go up in value, and your timeshare will not. Furthermore, many people do not pay cash upfront for a timeshare, and thus must pay a finance charge that can be 15- 20% to pay for the timeshare in installments – just like taking out an expensive mortgage to buy a home – which drives up the total cost of the timeshare. And, let’s not forget those annual maintenance fees, which can run $500-$1,000 per year.

 

With disruptive companies like Airbnb.com and luxurylink.com, you now have more vacation alternatives that drive down the cost of lodging. And, if you’re a bargain shopper on sites like Orbitz or hotels.com, you will dig deep for a low lodging costs. Also, if you’re single or like the flexibility of travel, a timeshare can feel like a money drain because you cannot extract as much value as the big families can.

 

Remember, you still have to get to the timeshare, albeit by plane or car, and this is no different than any other vacation. Also, if your schedule changes at the last minute or your family cannot coordinate a time to go, the timeshare is worthless because you are not utilizing it.

 

At best, I think a timeshare is a mediocre investment if you extract a lot of value from it. You have to know how the game is played to outsmart the timeshare industry, which generated $7.6 billion in sales volume in 2014. In an industry this big, you know it has figured out a formula that preys on the uninformed and vulnerable.

 

How do you extract value from your timeshare?

 

Here are my top 10 ways to extract value from your timeshare and outsmart the timeshare industry.

 

  1. Know why you want to use your timeshare, albeit as a primary or secondary vacation alternative.
  2. Minimize the cost of your timeshare by paying no finance charge or a very low one, and looking for units with low maintenance fees.
  3. Negotiate the cost of your timeshare – it can be done.
  4. Don’t fall prey to the “nice” and aggressive salespeople, who entice you with gift cards and other prizes. Be strong and smart, and you can come out on top if it’s what you want. If the salespeople hate you, as they do me, that’s a good sign you’re negotiating well.
  5. Always ask a few people who’ve bought timeshares from the same company their advice on the financing deal, maintenance fees, perks, and drawbacks.
  6. Ask one of your friends with a timeshare to refer you for a weekend getaway to experience the product before you buy (If you’re interested in Wyndham’s Vacation Resorts, which is mine, email me).
  7. Ask if there are additional fees if you gift your timeshare, or allow a family or friend to go in your place. I’ve gifted several friends and family members several nights, and I did not have to pay additional feeds.
  8. Go for the points instead of the weeks. With points, you get more flexibility in where you can stay.
  9. See if you can a buy a timeshare in the secondary market (on Craigslist or Ebay) instead of buying it at a timeshare resort
  10. Ask the timeshare people what the process and cost of selling the timeshare will be.

 

Remember, the whole point of a timeshare is to go on vacation. And, you want to be stress-free in doing so. Only you can determine if a timeshare is right for you, but now you’re armed with some tools to help you on your journey.

 

Let me know your timeshare experience and how you’ve outsmarted the industry!

Investing in a City on the Come Up

My husband and I recently traveled from Chicago to New Jersey for a weekend full of family festivities, and we decided to say in Newark. Even though I grew up on Long Island and lived in Brooklyn for 6 years post-college, the only time I spent in Newark involved traveling through the city by train or around the city by car. Before our trip, family and friends asked – “why are you staying in Newark?” And their immediate follow-up question became – “what is happening in Newark?” By the end of the trip, the same family friends asked whether I would consider investing in Newark now. Well, here are a few thoughts.  

First, we decided to stay in Newark because we could use our hotel points and stay several nights for free (thank you Starwood). It did help that we previously read about Newark’s revitalization efforts, which have been somewhat significant. After talking to some locals, driving around, and checking out the sites, I now wonder whether Newark could truly represent a great real estate investment opportunity. I asked myself why the city hasn’t attracted the same level of investment interest as Detroit, but more buzz than places like the Southside of Chicago.

 

Back in 2008, I got priced out of investing in real estate in Park Slope and it left a bad taste in my mouth because I had been living in the neighborhood six years prior. I told myself that I would always be on the look out for a new opportunity to invest in a neighborhood before gentrification takes over. Here are a few factors that I considered when seeing if I would invest in Newark real estate:

 

Local presence. I think living in (or at least somewhat close to) the community you’re investing in is important. Unless I had some feet on the ground to keep an eye on things, manage the property, and be in the know with the development of the surrounding neighborhoods, it’s hard to be committed to ensuring a return on your investment. The real estate investors that I have known to be successful are present locally.

 

Big business. When the businesses start coming, it’s time to take a deep look at opportunity. In Newark, Prudential and Audible.com had the most visible signs of big business anywhere in the downtown area. And while Teacher’s Village was a bright spot on our trip, it took us several minutes to realize we were actually in the place. We also stopped in a local Kmart on the outskirts of the business district, and I thought I went back in time about three decades. It was apparent that the store had not been updated in years and still had inventory from three years earlier. It’s comforting to here that Panasonic has moved its headquarters there, but I think the City still has a little ways to go.

 

Reviving arts and culture. Chicago’s own Theaster Gates has been championing the impact of art and culture on community revitalization, and I could not agree more. You cannot escape seeing the New Jersey Center for the Performing Arts in your view when driving around the City. Many residents and visitors frequent the center daily, and it is clear of its impact on helping the city get beautified.

 

The diversity. You must ask yourself whether a community of color, like Newark, will eventually become more diverse. Yes, this is the sad truth of gentrification. While we fight to change a housing market that systemically favors white economic mobility, we must be cognizant of this truth. When traditional communities of color get infused with other ethnicities outside of black and brown people, things change all around. Restaurants pop up, amenities appear, and the neighborhood will often lose its stigma of being “the hood.” While these are all good things, the same community of color usually does not participate in the wealth generated as a result of the neighborhood’s revitalization. So, you must be honest with yourself and see whether you want to invest in a community that has the promise of getting revitalized, yet a fighting chance of not getting too gentrified. For others, your investment returns because of gentrification might outweigh the social costs borne by the existing residents.

 

After giving the Newark opportunity some deep thought, the local presence factor is big enough to keep me from seriously considering Newark right now. I will keep my eyes on it, however, and concentrate on opportunities a little closer to home in Chicago. But, my newfound Newark excursion has sparked in me a desire to closely examine other neighborhoods that are prime for revitalization.

 

What will you do, and have you ever made an investment bet on a City ripe for revitalization?

 

Where is the Best Place to Invest?

Over the last few months, I’ve been getting the same question – Charisse, should I invest in the stock market, a new business idea, a new investment property, or pay down my debt? This question has been coming at me from all ages, income levels, and professional careers. So…. I have one answer for you that you’re probably not going to like – it depends. But, these 3 factors will help you figure out what’s best for you now:

 

1. Time Frame. What you want to achieve in the next 12 months is different than what you want to achieve in the next 3-5 years. In the asset management world, we use the fancy word of “time horizon,” but it’s the same thing. We’re pretty much wired in American society to have things on demand, but be careful not to get caught up in wanting things now without truly understanding how long it’s going to reap the benefits of your investment. You must figure out what’s important to you now and how can you prepare, at least a little bit, for your future life, and that of your family’s.

I am wired as a long-term investor, but I often know that there are short-term (less than 12 month) goals – going on vacation and getting a little extra money to replace a broken dishwasher – that I want to hit right now. This plays out in how I allocate money in a few ways. First, I make sure that all of my debt payments (mortgage, student loan, and credit card) do not take up more than 20% of my gross income because I do not want to be hamstrung by debt. You may say, “I can’t swing that. “ If you can’t, it means that you need to get you a little more income or find a way to reduce your loan payments. Additionally, I invest predominantly in mutual funds and exchange traded funds (ETFS) over a 3-5 year period and individual stocks when I’m trying to make some short-term gains.

Other friends will tell me that they have no patience for the long-term (or even medium term) because they can be gone tomorrow. One’s culture upbringing also plays a key role in shaping our propensity to make choices for the present versus the future. If you fall in this category, good for you – just be mindful that your future self will be so pleased that you spent some time planning for her (or him).

 

2. Time to Devote. Your time is your most precious asset, and so spending the time that it takes to commit to whatever it is you’re investing in will be key. Let’s be real – it takes time to do research and consistently keep up with any investment, so do not underestimate this factor as you balance other life priorities like family, perhaps a 9-5 or independent contracting job, or just doing NOTHING – which I’ve learned is its own piece of heaven (thanks hubby!).

Of all of the investment options, starting a business will take the most time and effort. And, I’ll lump investing in real estate into this category because your business here is property management and building ownership. Whether it’s the late night hours of thinking of how you can improve that first website or minimum viable product, or securing that first customer, it takes time! The beauty of financial instruments or serving as an investor (and not the entrepreneur) in business ventures is that you do not have to put up much sweat equity.

 

3. Other Pulls on Your Cash. In my mind, cash is king. First off, I’m a big fan of ensuring that you have enough money to eat and live indoors. If you cannot sustain the basics, putting additional money toward investing will be extremely difficult. Unless you either have multiple streams of income or an inheritance, most of us also have a fixed amount of cash on hand. My mantra has always been that you should always put your cash toward the asset (stocks, real estate, start-up) or liability (e.g. mortgage, student loan, credit card debt) with the highest rate.

Over time, however, I have morphed into believing that sometimes you have to put a little money into something that doesn’t have the highest return just to keep you in the game if you can spare it. For instance, putting a few hundred dollars into a brokerage account, even once a quarter, can get you in the habit of participating in the stock market and getting comfortable with pushing the “buy” button. Yes, there are phantom stock trading platforms (e.g. Yahoo, Etrade, Fidelity) that offer you the opportunity to trade without real money, but there is nothing like   If you’ve been a saver, however, you will have more cash and choices to allocate a couple of different ways.

 

Now that you have a framework for evaluating how you should invest your next dollar, share your plan. Let me know which of the three factors is most important to helping you figure out how you will invest.