Our Journey: Traditional retirement and financial independence is an elusive goal for most. Even high earners who save diligently find it increasingly challenging to build substantial wealth in the face of the soaring cost of living. Many of us face a disheartening choice between downsizing our lifestyle or retiring with the hope that our savings outlast us. These are terrible choices.
The stark reality is most of us will end up working far longer than we had hoped, relinquishing control over our financial destiny to others. We reject that narrative as well and advocate for an alternative path: accelerating our financial goals by making our money work much harder for us.
My wife and I reached this conclusion years ago. After years of diligent saving and entrusting financial advisors to grow our stock and bond portfolios, we found ourselves with a mere 4% annual return. We were essentially treading water, losing ground to inflation. I believed there had to be a better way.
So we embarked on a journey into real estate investing, inspired by its wealth-building potential. After consuming thousands of hours of podcasts, poring over dozens of books, and holding countless discussions with experts, we took the plunge. We ventured into various real estate niches, including single-family homes, small multifamily properties, short-term rentals, commercial office, industrial assets, and apartments. There was a lot of trial and error.
Recently, I conducted an audit of our annual returns over the past decade since we started investing in real estate. Conservatively, we achieved a 27% annual rate of return, with a significant portion of that benefiting from tax advantages. Granted, some of this success can be attributed to the recent residential market upswing. Realistically, I consider 12-18% a more achievable target. Nevertheless, this far surpasses the average stock and bond portfolio, especially when factoring in taxes, and provides lower volatility.
This isn’t a new concept. The ultra-wealthy have allocated a substantial portion of their wealth to real estate for decades, if not centuries. According to Knight Frank’s 2023 Wealth Report, ultra-high-net-worth investors (with over $30 million in net wealth) allocate more capital to commercial real estate (34%) than stocks (26%), not even accounting for primary and secondary homes (32%). The smart money invests much more in real estate than the rest of us.
When was the last time your financial advisor recommended increasing your real estate exposure while decreasing your stock and bond holdings? Probably never. It’s because they don’t benefit from it. Or at best, they don’t have the expertise.
So, why now? Accessibility is one of the key factors. Historically, real estate deals were reserved for a select group of well-connected investors. This paradigm shifted with the 2012 Jobs Act, which allowed real estate investment firms to offer shares of properties to a broader audience. The era of fractional real estate and crowdfunding was born.
Today, the issue is less about accessibility and more about awareness. Many people are unaware of their ability to participate in larger real estate ventures, or they lack guidance on how to get started. They mistakenly believe that “active” investing, such as buying and managing individual properties, is their only option. Furthermore, a large crop of inexperienced operators have jumped into the space over the last few years. It’s harder for investors to pick out the gems from the duds.
Clara Investment Group was established to provide “clarity” on the often opaque realm of private real estate, guiding others in their journey through this asset class. To be clear, we are not financial advisors. We believe all investments should be made in the context of your overall financial picture, including your individual risk tolerance. We believe in the power of real estate and will leverage our experience and analytical tools to assist others in making informed decisions.
Another reason for our timing is our belief that the upcoming year holds great potential in the commercial real estate sector. In hindsight, the optimal moment to enter the single-family home investment market was in 2012 during the Great Financial Crisis.
The second-best opportunity may very well be today…this time in the commercial realm. The commercial real estate market, including apartments in some cases, faces significant challenges due to rising interest rates and stricter lending standards. With over $500 billion in loans maturing by mid-2024, market distress is likely and opportunities will become available. Patient investors equipped with “dry powder” should benefit.
Our Investment Framework: What Do We Seek?
- Experienced Operators: We exclusively collaborate with seasoned real estate operators and developers with a proven track record of success. Our partnerships are exclusively with top-tier professionals with sterling reputations and consistent history of delivering returns.
- Quality Business Plans: We meticulously assess project business plans, ensuring they are rooted in conservative assumptions and prudent debt strategies aimed at mitigating execution risks.
- Prime Assets & Locations: Our focus zeroes in on class A and B properties located in desirable neighborhoods experiencing robust population and job growth.
- Value-Enhancing Opportunities: We actively seek unique prospects for value enhancement, whether through value-added renovation strategies, tax considerations, or acquiring properties below market value, all of which can optimize overall returns and minimize investor risk.
- Rigorous Underwriting: Each potential investment undergoes meticulous underwriting, subjected to our stringent criteria, and must demonstrate resilience in worst-case scenarios. Only a select few opportunities pass through our rigorous screening process.
Our Typical Investment
Our typical investment strategy centers on the acquisition of multifamily assets located in stable, landlord-friendly markets. We believe multifamily apartments have strong fundamentals and can add diversification to a traditional stock portfolio or alternative real estate assets like single family rentals. We target properties with 100 or more units, as they generate consistent cash flow and offer ample opportunities for value enhancement.
Our investments typically aim for a minimum projected return of 100% over a 5 to 6-year holding period, annual cash-on-cash returns exceeding 6%, and Internal Rates of Return (IRR) ranging from 12% and 18%.
Ready to Learn More? Get in Touch!
To delve deeper into our offerings and stay updated on investment opportunities, we invite you to visit our website and join our investor list. When promising prospects arise, we’ll make sure you’re the first to know. Alternatively, you can reach out to us directly at TylerM@clarainvestments.com, and we can schedule a conversation to discuss your goals.
