169. Avoiding Rookie Investing Mistakes feat. Steve Suh
Jul 25, 2024
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Steve Suh, a founding member of Left Field Investors with 15 years in private syndications, shares invaluable lessons from his book on avoiding rookie errors. He emphasizes the importance of operator communication and thorough due diligence. Suh highlights the critical role of diversifying investments and suggests focusing on reliable asset classes. He discusses the significance of building a supportive investment community and offers key resources for enhancing investing strategies, urging new investors to learn from seasoned peers.
Consistent cash flow from stable asset classes like multifamily housing reduces investment risk significantly compared to high-risk development deals.
Effective communication with general partners and engaging in educational communities are vital for making informed investment decisions and avoiding mistakes.
Deep dives
The Importance of Cash Flow in Reducing Investment Risk
Receiving cash flow on a monthly or quarterly basis is essential when investing in syndications, as it helps to de-risk the investment. Each dollar returned decreases the overall risk associated with the initial investment, making it vital for investors to ensure consistent cash flow. For instance, if a $50,000 investment returns $20 in the first month and $30 in the following month, the investor reduces their risk with each payment received. This approach contrasts sharply with development deals, which may not yield returns for years, thereby increasing the risk factor significantly.
The Shift from High-Risk Investments to Stable Asset Classes
Investors often chase high-risk, high-return opportunities, such as development deals or exotic resorts, but this approach can lead to substantial losses. A shift towards more stable asset classes like multifamily housing, self-storage, and mobile home parks is recommended to mitigate risks. Such investments typically provide regular cash flow and are less susceptible to dramatic market fluctuations, as seen in many development projects during economic downturns. Focusing on these 'boring' asset classes becomes increasingly important for investors at any stage of their investment journey.
Invest in Yourself Before Diving into Syndications
Before committing capital to syndications, it is crucial for investors to educate themselves thoroughly about the market and the nuances of passive investing. Rushing into investments, particularly after a liquidity event, can lead to costly mistakes that could have been avoided with proper research and participation in educational communities. Engaging with seasoned investors offers valuable insights and potential shortcuts to avoid rookie errors. Taking the time to understand the risks and processes surrounding syndications will ultimately lead to more informed and successful investment decisions.
The Value of Communication and Community in Syndication Investing
Effective communication with general partners (GPs) is paramount in the world of syndication investing, as initial communication patterns can predict future interactions. Investors should be wary of GPs who demonstrate poor communication during the investment phase, as this often continues once investments are made. Furthermore, being part of a knowledgeable community allows investors to share experiences about various sponsors and seek advice, enhancing transparency and trust. Maintaining a network can significantly improve one’s ability to identify reputable operators and avoid costly missteps.
With 15 years of experience in private syndications, Steve Suh, Founding Member of Left Field Investors, reveals lessons in his book, "Avoiding Rookie Errors as a Left Field Investor." He highlights the value of operator communication, thorough due diligence, and investing in reliable asset classes, providing essential tips for all investors.
This podcast is sponsored by Aspen Funds which focuses on Private Credit, Industrial Real Estate, and Oil and Gas offerings for accredited investors: https://aspenfunds.us/