204: Empire Capital Fund—What is a Hedge Fund and Why Would I Invest in One

Episode Transcript

00:01

Welcome to episode four of season two of the Growing Empires Show. Today our topic is hedge funds. Should you invest and why? Stay tuned.

00:11

Welcome to Growing Empires, hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:30

So what is a hedge fund? A hedge fund is an alternative method for investing that uses pooled funds and employs different strategies to earn attractive returns for investors. Hedge funds usually have the ability to generate much higher returns because of the amount of money that's being invested. And the reason that we decided to start the Empire Capital Fund is because we wanted to give our investors an opportunity to invest using different strategies. Goes back to that old saying you don't always want to have all your eggs in one basket. Well, I believe that that's true for investing in general. But I also think it's great to employ different strategies with your money. Because the more that you invest in, the more you hedge your risk with any one investment. You can certainly invest in stocks, mutual funds, real estate, and many, many other things. And of course, you're going to want to talk to your investment advisor about what strategy is best for you. And I'm certainly not saying throughout this podcast that I believe that hedge fund investing is right for everybody because it's certainly not, but some of the people that are attracted to hedge funds are people that don't really want to own the real estate, they want to shield themselves from risk. And the risk could be, you know, somebody tripping and falling, you know, out front of their property the risk could be the risk of fire, the risk of being sued, you know, and some people just don't want to have any involvement in the day to day operations.

02:07

Hedge funds are typically for wealthier individuals. And some hedge funds you can only invest in if you're an accredited investor, which means that you make above a certain threshold. And then there's other hedge funds that allow for accredited and non accredited investors to invest. And that's exactly what we did with Empire Capital Fund. So to be an investor in Empire Capital Funds, you do not have to be an accredited investor. And the reason that we did this is because we are going to generally start small, we're going to invest up to $5 million in real estate related entities, we are not going to invest money or do any kind of lending. We are going to strictly invest in real estate holdings. Now how this employs a different strategy than you may be used to with investing in real estate and it's a question that I get asked often, our fund is not going to be competing with our clientele base.

03:00

And the reason that it's not going to be doing that is because one, I don't want to compete against clients but two, the fund is going to be sourcing deals in a very different way. So because we're a large organization, we have the ability to capture opportunities that most people could not capture on their own. For example, in our municipalities, our local areas, there's things called blighted lists. And blighted lists are usually only given to contractors or developers. They are lists of properties that have been taken back and are usually in very distressed states. And in some cases, those homes are even torn down. But prior to making the decision whether to tear down a property and disrupt the overall neighborhood, if the property can be rehabbed or rehabilitated, I find that the town's really like this because the more money that's invested into the town, the better the overall appearances and the better the overall appearance, the more the values of homes rise in any given area. We've been fortunate enough to secure our place with these blighted lists. The other thing that we're going to do is we're going to utilize foreclosure sales, sheriff sales, tax sales, to accumulate properties, we're going to go direct to the consumer and buy their properties all cash before they hit the market. And that strategy works not for everybody, but works for some because some people just don't have the time the energy or the ability to list their house on the open market for sale. Some are not worried about getting top dollar, they're worried about getting out of whatever their situation is. So not only are we able to provide great investment opportunities for the investors that are part of the hedge fund, but we're also helping the general population deal with financial struggles and other things that may be stressing them out.

04:53

So let's talk about what our mission is. The Empire Capital Fund’s mission is to capitalize on market opportunities by targeting distressed properties in B & C class neighborhoods in the Lehigh Valley that show consistent population and economic growth. We're going to utilize the existing resources to purchase properties at favorable prices and add value through strong management improvements to properties to drive our appreciation, generate profit and manage risk. So what does that mean? What are B and C class properties? It's your workforce housing. B and C class neighborhoods are typically inner city, they are generally lower valued properties. And in most areas, those properties tend to come with a lot of deferred maintenance. So we're targeting two types of distressed properties. First, we're targeting properties that either exhibit poor management or have a history of vacancy problems. And these properties are exemplified by deferred maintenance or neglected capital improvements and generally are in need of major cosmetic upgrades. And secondly, we're going to target owner distress properties. Owner distress can happen from a loss of job, foreclosure, death, divorce, serious health conditions, and other life changing events. Our asset class that we're targeting are anywhere from single family homes, up to large multifamily buildings, maybe 50 units in nature, or small mixed use properties. Our deployment strategy is going to be in two phases. Our goal is to raise capital only as fast as we can deploy it. And if we need to generate quick cash for an investment strategy, we may implement our buy fix and flip strategy on small multi-families or single family homes. Ultimately though, the fund is going to look to deploy capital for buy and hold strategies that meet our long term objectives for the fund. Our desired marketplace is the Lehigh Valley and we've dedicated over 10 years to developing, streamlining, and capitalizing on our favorable geographic location. With steady population growth and the need to provide housing for the ever increasing demand in the area we feel that the Lehigh Valley is the most ideal location to target for the fund.

07:07

The episode will continue in just a moment.

07:11

As a real estate investor, understanding the nuances of the market is critical to sourcing the right property for your portfolio. Knowing what the market will support in terms of lease ability and potential rental income is a vital part of that equation. You want your property to be in good condition and in a location that's attractive to high quality tenants. If you wish to acquire a property that becomes the gem of your portfolio, you're going to need help to do it right. The good news is you have a great resource who can help you slice through the challenges of finding your ideal property, and that's me. So whether you're just getting started and are unsure of which market to start with, or whether you know the market but can't find the right property, I can help. Visit GrowingEmpires.com and schedule a call with me today. One simple conversation can help you avoid wasted hours, days, and weeks and also help you avoid costly mistakes that will weaken your portfolio. Schedule that call with me today at GrowingEmpires.com, that's GrowingEmpires.com. And I'll make sure that I help you find that home run property to add to your portfolio.

08:13

So here's just a little bit about the financial considerations for the investor. We will acquire properties with a goal of long term returns to the investors. Investors are going to receive 60% of all the profits. And how this plays out is the investors will obtain a preferred return of 8% on invested capital, on a cumulative but not compounded basis. Investors will receive this amount before we receive any shares in the profits or gains from the sale of the property. Our goal is for the investors to consistently and predictably receive returns of 12% or more per year with steady growth as our portfolio ages and grows. We will make distributions annually with at least 45% of all taxable income distributed to the investors. If you want to find out more about the revenue sharing and distribution you can contact me to receive a copy of the private placement memorandum. So here are some questions that I wanted to share from some of our investors. Is the manager putting any skin in the game? Yes, as the promoter and sponsor, I'm going to be making a cash contribution into the fund. Why should investors rely on our strategy for income protection and investment returns? Well, I can tell you, as I stated earlier, we have spent over the last 11 years developing, maintaining, and executing a strategy that has provided great wealth for the investors that we have represented throughout the years. And we're going to use a lot of the similarities in this investment strategy here because it works. We thoroughly analyze all of our investments to increase the accuracy of our prediction of the cash flow. We carefully select acquisitions by evaluating the underlying properties and purchasing them at favorable prices. And by doing so we have a much higher probability of achieving our investment goals.

09:55

So how does the economy impact the strategy? Well, turbulence in the economy affects people good and bad, and sometimes it affects consumers more harshly than others. However, these irregularities and anomalies create favorable opportunities for us. We analyze each level of distress that the property owner is suffering so that we can make investment decisions on the property that we think have the highest potential upside. And because we're investing in the Lehigh Valley, and purposely going after B and C class neighborhoods, we can be assured that the economy is not going to have an impact on our strategy. Because no matter what happens in the world, housing is still required. Everybody needs to have a home, everybody needs to have a roof over their head. So how you're going to get your money back? Well, we're going to liquidate the fund after five years. Our strategy is a five year hold period. And at the end of that five years, we are going to sell all the fund’s assets and distribute the profits accordingly. What's the hardest part of executing our strategy? Well our most difficult task is identifying the asset that can be liquidated at the highest return and the lowest risk. In particular, we have to identify the amount of invested capital that's needed to restore and upgrade the property, as well as how we're going to increase the value from the result of the rehabilitation. And once we've identified properties that will work, we have to act quickly to acquire the asset before others recognize the same opportunity, because we certainly don't want to be in a position to competing on price, which is another reason why we are not competing against our own investors. We are strictly sourcing deals that are off market, but just because they are off market doesn't mean that nobody has access to them. We're trying to provide investment vehicle options for people that maybe also have their money in real estate and own the assets directly.

11:47

I certainly don't suggest that this is the only opportunity for you to invest. And I do think that you need to talk to your investment council, an advisor, to make sure that the fund is something that your investment advisor thinks is a great investment vehicle for you. With any investment there are risks associated. And the risk in the fund for you as the investor is that you don't own the assets specifically you own shares, you won't have control over how your money is invested. In some cases, people think that hedge funds present a higher risk. And in other cases, people believe that hedge funds diversify risk. And I think both can be true. But without risk, there is no reward. So if you'd like to learn more about investing in Empire Capital Fund, please don't hesitate to reach out and I'll be happy to get you the documents to review. Or we could discuss your investment objectives and see if this is the right fit for you. Until next time, take care.

12:44

For more information about how Jennifer can help you plan, develop, and manage a strong real estate investment portfolio, visit GrowingEmpires.com.

Season 2JENNIFER DEJESUSSeptember 17, 2020Comment