Diversifying Your Portfolio Across Asset Classes & Markets
Recently, we had the opportunity to sit down with Matt Shamus, who is an experienced real estate investor and a former tech industry worker. He is also one of the founders of Driven Capital Partners, which is a private equity firm that is headquartered in San Francisco. During the conversation, Shamus discussed how his personal investment experiences have emphasized to him the importance of diversifying your portfolio. Because of those experiences, his “best ever” advice is to diversify your portfolio across markets and asset classes.
Shamus started investing in real estate many years ago when he was still working at Facebook in San Francisco. He initially got interested in real estate after he sold his mother’s house and turned a large profit. Shamus saw how lucrative real estate could be, so he was inspired to buy older and rundown homes, fix them up and run them as long-term rental properties. Over time, several other people asked him to invest their money in a similar fashion, and this was how Driven Capital Partners was established.
While some investors focus on fix-and-flip deals, Matt Shamus is a long-term investor. His goal is to build a huge portfolio of solid commercial real estate projects that can take him to and through retirement. Even though he is only 35 years old, he is building a portfolio with retirement in mind.
Passion for Deals
Shamus has admitted that he and his partner at Driven Capital Partners initially focus on finding deals that they are excited about and that they will devote their own funds to. When they find a deal that they like, they will then offer it to their clients as a passive investment opportunity. However, he and his partner may be passive investors when they are breaking into a new market that they have no prior experience in.
Matt Shamus does more than advise others to diversify their portfolios. He lives by that advice. Through his private equity firm, he controls approximately 700 multifamily units as well as a mixed-use development project and roughly 105,000 square feet of commercial real estate. Because he has extensive experience with a variety of commercial real estate property types and has the confidence to look at opportunities in other markets, he has been able to convert an office building in downtown Santa Barbara into a multifamily project.
This specific property was originally constructed decades ago as an apartment building, and it was later converted to offices to meet the city’s needs. Now, the city has a strong demand for apartment units again. With this in mind, the framework is in place for an easy conversion, and the zoning was already set up before Shamus offered the deal to the investors at Driven Capital Partners. Specifically, Shamus estimates that approximately 20 to 25 passive investors contributed to the deal. Because Shamus values integrity and knowledge, the investors were aware of the risks as well as the potential return for contributing their funds upfront.
Leaving Your Comfort Zone
Shamus’s advice for diversification extends beyond property type. He recommends diversifying into different geographic markets and pooling together different teams strategically. Through diversification, he has access to more lucrative deals and is able to assemble stronger support teams when he ventures outside of his comfort zone. However, this does not mean that Matt Shamus jumps into every deal that is thrown his way. In fact, he states that diversification has enabled him and his partner to be very selective. Because they are investing their own funds into every deal and because they intend to hold properties for years or decades, they make sure that the fundamentals are in place.
Asking the Right Questions
While Matt Shamus and his partner actively rely on the support teams that they assemble, they do not rely solely on a single answer to their questions. Whether they are vetting a market, a team, or a specific property, they always do their due diligence. Through their diverse range of experiences, they know which questions to ask. They often ask multiple sources to provide answers so that they can develop a well-rounded concept of where the answer actually sits. Adding onto this point, Shamus emphasizes the fact that he needs to feel confident in his team as well as in his partner. In fact, he believes that having a solid, trustworthy partner is the foundation of his success.
Learning from Mistakes
Upon reflecting on past mistakes, Shamus described a nightmarish plumbing issue that he attributed to a lack of due diligence and a lack of understanding. At the time, he said that cast iron pipe was increasingly being used in residential projects. One of his first few residential investments used this type of pipe as well, and Shamus seemingly went along with the flow. He closed on the deal without getting a plumbing inspection. Within a few weeks after closing, however, the tenant contacted him to say that sewage water was backing up into the house. This issue may have been avoided if Shamus had simply spent more time understanding the situation and researching the condition of the property.
Notably, Matt Shamus is most proud of his current development deal. He had the foresight to identify a solid investing opportunity upfront. Because of his extensive experience with commercial investments, he and his partner have taken time to study and research the best use of the property. They still have not determined what that use will be. However, because the property was undervalued and has extensive potential, Shamus is confident that this will be a lucrative deal.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.