Besides being a swell singing cowboy, Gene Autry was also a pretty smart investor. He bought KTLA-TV for $12 million and sold it for 20 times as much. He also paid $2.45 million for Major League Baseball’s Los Angeles Angels when they were an expansion team. That was in 1961. In 1998, he sold the Angels to the Walt Disney Co. (ticker: DIS) for about $150 million. It was a year before his death. Talk about cashing out.
And while there’s no proof Autry’s purchase of a 110-acre ranch had any link to his hit “Don’t Fence Me In,” it’s easy to picture him gleefully rolling in dough as he sang, “Give me land, lots of land under starry skies above.”
Land investing has always been big business and today, it’s starry skies and high hopes for those who tackle it in new ways made possible by better information and business innovation. Those elements certainly haven’t removed all risk, but they help investors reap what they sew in ways not possible a generation ago.
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One new wrinkle comes via investment crowdfunding through the Jumpstart Our Business Startups Act, which went into effect last month. For the very first time, it allows non-accredited investors to back private companies. Before that, accredited investors — those with a net worth of at least $1 million — were the only ones allowed to do so.
In the planning stages for the better part of four years — ever since President Obama signed the JOBS Act in 2012 — real estate crowdfunding awaited the green light from government regulators. Now that it’s a go, the investment channel provides an accessible mode for individuals interested in putting real estate in their portfolio — and, boosters say, reaping returns that can surpass 10 percent annually.
“At a time when the stock market has been particularly volatile and where yield is hard to find because of low interest rates, the real estate is a sector where you can find relative stability and strong performance,” says Charles Clinton, CEO of EquityMultiple, an online real estate investment platform based in New York City.
Of course, as far as the JOBS Act and real estate go, “The industry frankly isn’t old enough to have much statistical evidence in one direction or another,” Clinton says.
And in real estate — a market famous for euphemisms such as “cozy” (cramped) and “must see the inside” (ignore the outside) — it only stands to reason that a very exciting new term beckons like a siren amidst the untested waters: “mini-IPO.”
Without a doubt, IPO (or initial public offering) unleashes all the adrenaline of a high-tech company landing on the NASDAQ, or a wildly successful private venture hitting the jackpot. But in real estate, the term applies differently insofar as its “mini” moniker.
“The mini-IPO terminology gets thrown around a lot because IPOs are something that most investors are familiar with,” Clinton says. “In a broad sense, any equity offering for an individual deal is analogous to a mini-IPO.”
At the very least, it didn’t pop out of thin air as a deceptive stunt. The new Regulation A+ of the JOBS Act functions similarly to an IPO. “The company that owns the property must go through a registration process with the Securities and Exchange Commission,” Clinton says. “It’s less involved than a full IPO, so the SEC caps how much companies can raise this way at $50 million.”
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Even if the new crowdfunding environment proves turbulent, real estate may serve as a port in that storm.
“Historically, real estate has generally been a very stable investment,” says Allen Shayanfekr, CEO and co-founder of Sharestates, a real estate crowdfunding platform in Great Neck, New York. “Like all investments, real estate is cyclical in nature, but generally less volatile when compared to other investment classes.”
It need not be much of a gamble, either. If a hot property in an urban metropolis starts in the six digits, investors can get started on Sharestates for $1,000 (less than a well-appointed doghouse in the Hamptons). The Sharestates website looks much like a variation of a personal finance portal, as investors can look at color-coded, horizontal-line graphics that report the risk rating of each featured property, from A-plus to D-minus.
This could well appeal to land investors looking for alternative ways into the market due to factors that predate the JOBS Act.
“Prior to the financial crisis of 2008, levels of bank lending were high and developers had plenty of access to capital to fund their projects,” says Slim Feriani, executive vice president of ROI Land Investments, an international firm headquartered in Montreal. “This has changed since then where today, it has become extremely difficult for developers to obtain loans from traditional banks and lenders.”
Anyone can invest in ROI, though the company is still finding its way. Since its over-the-counter listing went live in late 2012, the stock is down 81 percent to 19 cents a share. But flash back to August, and the stock had nearly tripled from its initial asking price of $1.01 per share to $2.95. That could represent the kind of seesaw action some real estate companies face as major projects come and go — or, in a general sense, the challenge of solidifying company leadership and market share.
ROI’s business model is based on a developer-centric approach: That is, the company locates land free of zoning restrictions, secures permits and outsources construction. It then sells subdivided units to large regional developers with a technological twist. ROI leverages a database of potential buyers in the market for specific types of land.
It’s not the kind of make-or-break real estate flip that typified the mid-2000s. Just landing the municipal permits can take as long as two years. The search for opportunities also funnels down to a micro level that isn’t so obvious as beachfront property, gentrifying a Silicon Valley enclave — or, on the snake-oil side, selling the proverbial Brooklyn Bridge.
Ever heard of Kitimat or Terrace? These sleepy towns in Northern British Columbia might even evade your GPS. But ROI has locked in on strong housing demand there — fueled, if you will, by construction of one of Canada’s largest natural gas pipelines. Should opportunities like that mature, ROII could easily rebound in value.
Meanwhile, land investing still boils down to timeless basics, no matter how sophisticated the strategies, tactics and technologies get.
“The most important thing investors should do is to conduct their own due diligence, regardless of who they’re working with,” Feriani says. “Research the background of whoever you’re investing with and check out the property site, whether it’s in person or via Google maps.”
[Read: 4 Tips to Make Your College Grad an Investor.]
And if the housing market crash knocked you down and broke your spirit, it’s time to take heart and take stock. And while you’re at it, cue up some Gene Autry, starting with this: “I’m back in the saddle again.”
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Real Estate’s New Land of Plenty originally appeared on usnews.com
