How to Diversify Your Investments Away from Wall Street
Diversification is a fundamental principle of investing that ultimately helps you to optimize your return while mitigating risk. Many investors focus heavily on Wall Street investments, such as stocks, ETFs, and mutual funds. While it is important to diversify your investments across these assets, it is equally important to have a broader look.
Alina Trigub is Managing Partner and Founder of SAMO Financial. This is a boutique equity firm based in New York City that actively helps high earners invest passively in commercial real estate. She spoke with Joe Fairless about how she helps investors expand outside of the stock market to reap rewards from diversification.
Starting with Syndications
Trigub’s professional career was originally rooted in tax accounting. Because of this, saving money on taxes is understandably at the forefront of her mind. At the same time, she works to preserve wealth despite stock market crashes. Initially, Trigub dabbled in syndication several years ago. Through her personal experiences with syndications, she realized that she could preserve her wealth, invest heartily, and reduce her tax liability all through commercial real estate investing.
She was so passionate about syndication through her personal experiences that she launched her own company, SAMO Financial. SAMO Financial’s mission is centered around helping others enjoy the benefits of passive real estate investing while saving money on taxes and preserving their wealth. Rather than give outright advice, she shares her knowledge with her clients and supports them in making educated decisions.
Managing the Ups and Downs of Investing
Notably, Alina Trigub has passively invested in the same real estate projects that her clients are invested in. This includes apartment properties and other asset classes. As a result, Trigub is as exposed to the ups and downs of real estate investing as her clients are. While they are passive investors, they are still impacted by the same factors that general partners in a syndication may be exposed to.
For example, Trigub talks about one of her investment properties being fined because the tenants decided to use a hole behind the multifamily property as a dump. The town fined the group hundreds of thousands of dollars, and this impacted the property’s cash flow for several quarters. In addition to missing out on revenue for those quarters, Trigub learned a valuable lesson.
From that point on, she has learned much more about the property management company in place before committing to a project as a limited partner. In addition, she asks about how frequently the management company and the managing partners will interact about on-site, relevant factors.
Mitigating Risk Through Diversification
As is the case with many first-time commercial real estate investors, Trigub initially chose to invest in apartment properties because they were relatable to her on a personal level. However, simply diversifying away from Wall Street and into apartment complexes was not enough for her or her clients. They wanted to break into new markets, explore differences between D+ versus B-class properties, and even invest in other real estate assets classes.
Today, Trigub and her clients are invested in a variety of properties that range from mobile home parks and self-storage properties to more than 1,200 multifamily units. Through such diversification, she has been able to further mitigate risk.
For example, self-storage units are sought after by those who are downsizing in a recession. While the profitability of other investments may wane in such market conditions, self-storage rental income holds steady or even increases. She also states that mobile home parks generally have long-term tenants, and this is particularly true if the park only owns the land, and the tenants own their own homes.
Considering Potential Complications
While Trigub sees the benefits of diversification into multifamily and other real estate asset classes, she is aware of the risks and downsides.
For example, she states that the upkeep and management efforts for an apartment complex are substantial. Whether a property is self-managed or professionally managed, there is a need to closely oversee the property on a daily basis. If you hire a professional property manager, someone needs to be in close communication with the property manager to ensure that he or she is doing a good job.
If you diversify your investments into self-storage units, the demand for those units can wane in a good economy. With a mobile home park, mobile homes lose their appeal after a few decades. There must be a solid strategy for dealing with older mobile homes that the park and the tenants no longer want.
If she was presented with three projects from those asset classes, she would not lean heavily on a specific property type. Instead, she would deeply look at the sponsor’s experience and track record. Likewise, she would review the location of each property in its market and market conditions.
Because Trigub focuses on diversification to preserve wealth and to mitigate taxes, she also would determine which property is better positioned to absorb stress in a recession. While asset appreciation is important, she wants to see that the property would continue producing a profit even if a recession were to hit tomorrow.
Going forward, Alina Trigub sees the continued benefit of education for herself and her clients. Just as she serves clients by educating them about their options, she takes the time to educate herself in the same way.
She has personally experienced financial loss by not doing her due diligence, and she learned the value of education first-hand as a result. In addition to learning as much as possible about a property and the partners ahead of time, she sees the incredible value of learning lessons from each project that she participates in.
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.