Opportunity Zone Pitch Day - March 23rd
Buy & Hold Real Estate Strategies, With Kira Golden
Many value-add real estate investment strategies focus on the exit, but some sponsors take a more long term approach. Kira Golden, the CEO of Direct Source Wealth, joins the show today to discuss why her long term, “buy and hold” philosophy resonates with so many accredited investors.
Click the play button above to listen to the conversation.
- Why a long term, “buy and hold” approach resonates with so many RIAs, wealth managers, and High Net Worth investors.
- Three key aspects to a successful value-add deal (including two keys that are often overlooked).
- How a “contrarian” bent can end up being profitable for real estate investors.
- Several tax mitigation strategies that Direct Source Wealth employs in its investment offerings.
- Details on an upcoming webinar where investors can learn more about Kira’s latest offering (a multifamily property in Dayton, Ohio). Investors can learn more about the webinar and reserve a seat by visiting multifamilyinvestor.com/kira.
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Featured On This Episode
Direct Source Wealth helps investors build wealth using commercial real estate and note-lending as their primary vehicles. The company specializes in a passive turnkey model that generates cash flow, tax advantages, and equity growth.
- Direct Source Wealth – Official Website
- Direct Source Wealth on Facebook
- Direct Source Wealth on LinkedIn
- Direct Source Wealth on Twitter
- Kira Golden on LinkedIn
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.
Andy: Welcome to The Alternative Investment Podcast. I’m Andy Hagans.
Jimmy: And I’m Jimmy Atkinson. Joining us today from Palmas Del Mar, Puerto Rico is Kira Golden, CEO of Direct Source Wealth. Kira, welcome to the show.
Kira: Hi. Thank you, guys, for having me.
Jimmy: Thanks for coming on, Kira. Pleasure spending some time with you again. And Kira, one of the things that stands out about you is your long-term real estate investment strategy. Can you tell us more about your philosophy and why it resonates with your investors?
Kira: Sure. I think it’s born… It’s sort of out of the nature of how I became a “real estate syndicator.” I didn’t even know the term when I syndicated my first deal. I was just buying real estate with friends and family. And it was my seller that actually said, “Oh, she’s a syndicator.” I was like, “No, I’m not.”
And then I had to google it and I’m like, “Oh, I guess technically I am.” But I really relate to building my real estate portfolio more as finding partners with shared sense of values and ideals, and building a portfolio that, you know, my grandkids and their grandkids can manage for cash flow.
So, we take a very long-term perspective. Part of that is informed by my belief that the transaction costs of buying and selling can really chip away. And unless you have what I call, like, a Taj Mahal offer, just like such a good offer you should sell, or a property that has fundamentally changed in the demographics and is no longer a good long-term buy, unless that’s really changed from what your original strategy was, you know, you’re better off buying and maintaining and keeping assets.
It leads to better stewardship. We make better long-term CapEx decisions when we know we’re going to hold an asset. And ultimately, I feel like once you get to know an asset, relate to them all like my children. One is the redheaded stepchild and the other is my straight-A student, but, like, I love them all. And once I know them and I know how to interact with them, I know how to get the best out of them and how to optimize them.
So, I feel like just getting those chips on the table and buying long-term, there’s not a lot of opportunities for passive investors to do that. Generally, you have to do that with your own money and do it long-term. So, I think we’ve met a place in the market where people are like, “Yeah, I still just want to be an LP, but, yeah, I mean, your grandkids and my grandkids run real estate together. That sounds great.”
So, you know, we’re just taking that perspective as if we were operating more like a collective family office.
Andy: I think that’s just a great philosophy and, frankly, I wish we had a little bit more of that in the corporate world, a little bit more long-term vision and long-term thinking. So, Jimmy and I, we interact with a lot of opportunity fund sponsors, typically ground-up development.
And I understand, you know, your firm specializes more in value-add, you know, on the buying side. So, could you talk a little bit about, you know, what you look for in a value-add acquisition and some keys to success there?
Kira: Yeah. So, I like low hurdles for high profit. So, typically, what we’re looking for are places where a property hasn’t been optimized in three places. Number one, your standard. You can improve the rents by improving the cabinets or the flooring or putting in new blinds, you know, doing some CapEx.
But candidly, I think that’s the hardest part, right? Because you have to spend real money to get a fair bit of it to create more cash flow. And we do that. It’s not that hard, but it’s the hardest of the three. The second that I look for is under-optimization from an owner in terms of market presence. So, I really love it when I walk at a property and I’m like, “Wow. This is a great property. Why does it have a two-star CoStar rating? Or why is the last online review from, like, 10 years ago?”
Those are low-cost, high-impact things that can be improved, and surprisingly not done that often. I was surprised how hard it was to find someone who could call CoStar and understand their rating system and explain, you know, why it’s a two versus a four. And, like, they have a formula.
And so when you make those property improvements, if you can call CoStar, you could have them come back out and take your property from, like, a two to a three or a four, and then that generates more traffic and raises rents and literally it’s like a phone call. So, that’s what I think of as, like, a low-cost, high value-add. And then the third piece of it is I think of this like the old school mining towns. My real estate is an anchor, it’s a hub, but I want properties where I can also add value by adding ancillary services to the property.
So, we might be able to be the internet service provider, do valet laundry, valet trash, provide work from home opportunities. So, I actually like properties in areas that maybe your traditional syndicator or investor thinks, “Well, maybe the economics aren’t good. Maybe there’s mass…”
What’s the opposite of migration in? Migration out or, you know, people…unemployment is too high. I love those opportunities because we can come in and we can provide employment opportunities to our tenants, which make our rental income stronger, our collections better and actually make a difference in the communities we’re investing in.
So, I typically have a slightly different thesis than the rest of the market and I think that also translates to us being able to buy in at more competitive cap rates.
Andy: Interesting. So, having a different thesis is obviously important, especially in the value-add space where, you know, these days in 2022 now, we’re speaking in Q2 of 2022, there’s a lot of competition out there and we’ve seen cap rates compress over the past 18 months to almost crazy numbers, crazy town as I would see it. Has that been a challenge for your company as the cap rates have compressed so much?
Are you still able to find attractive acquisitions?
Kira: I wouldn’t say it’s much of a challenge, but I also would say we haven’t done as much buying. So, kind of circling back to our opening line, we’re a long-term buy and hold firm and we make long-term investment decisions. So, on the one hand, what that means is if an asset is strategic for us, I’m not as concerned that the cap rate might be compressed because I know I can come in and I can layer on additional value, which means I have more flexibility and more margin in competitive markets.
The second thing is we’re very relationship-driven. So, I would say 95% of what we’ve purchased comes from a seller we’ve bought from before and have a working relationship with. And they’re typically aligned in our values and, you know, what we’re trying to accomplish. And so we oftentimes are getting first calls or buying off-market and so that aspect is not as relevant. But also when we don’t see an opportunity, we don’t do a deal.
So, one of the other things that was really important to me is that a lot of people who get into this business, as they start to scale, they have staff and payroll and they have to do deals to make money. And I always wanted my real estate to make the money. I wanted to be a genuine co-investor with my partners, not seen as somebody who had to, you know, push the numbers and make them work just to do a transaction.
And so if we have to wait five years to do a deal, we’ll wait five years to do a deal. That hasn’t happened, but, you know, there’s not really a compulsion to buy, and so it doesn’t feel “hard.” But I would say we’re certainly doing more in Puerto Rico, we’re doing more outside of the U.S. because that’s where we see more opportunity.
Andy: Absolutely. And the willingness to walk away. So important in deal-making and striking attractive deals. I wanted to ask briefly. So, a lot of our viewers and listeners at AltsDb are high net worth investors or they are IRAs or wealth managers. And of course, they need to put tax mitigation front and center with all of their investments, especially alts.
I mean, honestly, that’s part of the reason that they’re looking at alternatives. So, what tax mitigation strategies do you typically employ with your investment offerings?
Kira: Yeah. I appreciate you bringing that up. So, I mean, multi-family and especially value-add are great candidates for cost seg. So, you know, when appropriate, we pursue that. That passes through some higher early depreciation. And again, as a buy-and-hold investor, we don’t have to be as worried about depreciation recapture.
So, that allows us to be a little more aggressive. Obviously, real estate itself is just structured in a way where partnership returns and K1s and pass-through depreciation are sort of natural benefits of real estate as long as that’s the way it is. But so far, we’ve been able to protect that. And we’re also doing opportunity zone deals. And then we also try to structure our deals with multiple share classes.
So, if people want to use, for example, qualified money and do a higher preferred return, and then non-qualified money in a different share class with maybe a lower pref, but that gets depreciation and stuff, we’ll actually structure the deals in a nuanced way that allows people who don’t necessarily need the tax benefit in a particular bucket to choose which bucket fits their strategy.
And I’m super excited to hear your market demographic being advisors. I attended my first ADISA conference a couple of years ago and I was like, “Oh, my God, I’ve found my people. I found my tribe. I’m not just like alone on an island. I’m on an island, but I’m not alone. There’s others that believe that alternative assets can build diversified portfolios and can be properly structured. It’s not just a, you know, little kind of funny, quirky thing you do to talk at a dinner party. You can build a fully diversified portfolio with alts.”
And it’s so exciting to see more and more advisors move in that space, more IRAs and broker-dealers take on some of the regulatory questions about, you know, how do you balance the portfolio if you’re in a 30-year illiquid, you know, alt investment and you’re taking an IRA fee? These are nerdy, fascinating questions to me. And we’ve expanded from just being a sponsor to also I’ve opened an IRA and own an interest in a broker-dealer and we’ve actually started doing more and more of our relationships and investor management through partnering with advisors because I think they play such an important role, especially in, I would say, like, legitimizing, might not be the right word, but, you know, making sure that people don’t make catastrophic mistakes with alts.
They are a great investment vehicle, but when you’re new, you can make catastrophic mistakes and advisors are so critical in making sure that doesn’t happen. So, I’m excited to see that demographic growing.
Jimmy: Yeah. I think that’s a great thought there, Kira. We just started becoming involved with ADISA ourselves. Just about a year ago, we’ve been partnering with ADISA on their last three conferences and we’re looking forward to their big annual conference coming up in the fall here in Las Vegas and maybe we’ll try to get you out there for that one, Kira. But I think you’re absolutely right.
I think advisors have been a crucial part in maybe not legitimizing, I don’t know what the word is, either maybe normalizing or…
Kira: Normalizing is great.
Jimmy: Yeah. Normalizing alternative investment strategies and making sure that investors are on the right side of things. So I think that’s really important as alternative asset classes become more and more important and grow in popularity over time. A few things that you mentioned earlier about, you know, having to come in with a different investment thesis than a lot of other value-add investors and being really cognizant of tax mitigation strategies kind of strikes me as almost a form of contrarian investing.
Do you have any other examples of any other successful contrarian investing strategies that you’ve been involved with? Am I characterizing that properly? Would you say that you’re a contrarian investor in some ways?
Kira: I mean, I feel like I have to say no I’m not a contrarian because it’s so in my nature to argue that…but yes, I am a contrarian. You nailed that. Yeah. I mean, one of my early investment successes was straight out of college investing in Europe when the euro was new and hotly debated whether it would be successful or not.
And I orchestrated some deals, bought property there in three different countries, all sort of in various stages of joining the European Union and participating in the euro and bought futures in the euro to hedge my deals. And that was really successful. I had a very, like, long position on the euro.
And I thought if I could layer that… Again, going back to this idea of layering my assets, real estate is just the anchor, it’s the core. But in that case, currency hedging was where the real profit was made on the real estate, right? Like, our returns more than doubled with the… Our real estate returns were 2X by the currency benefit, right? So, that’s an example.
I moved to Puerto Rico in 2014, you know, when everyone was saying the U.S. is just skyrocketing and I’m saying, no, you know, I think that there’s more opportunity elsewhere. And I’ve done, you know, a fair number of deals down here and I think in some ways, that’s contrary and it’s becoming mainstream now. But I was here a long time before that happened. So, it’s definitely part of my philosophy.
Jimmy: Yeah. I’d say you were ahead of the curve there on Puerto Rico, for sure. Okay, Kira. Well, I’m co-hosting a webinar with Scott Hawksworth at our sister site, multifamilyinvestor.com, next Wednesday, May 11th. And we’re going to be showcasing your multifamily value-add property in Dayton, Ohio. For our viewers and listeners out there, you can learn more about the upcoming webinar with Kira and you can reserve your seat at it by visiting multifamilyinvestor.com/kira.
That’s K-I-R-A. Kira, why don’t you tell us more about this value-add property in Dayton, Ohio, the project that you’re raising capital for? Maybe you can give us a sneak preview of what we’re going to be discussing on the webinar.
Kira: Sure. So, kind of thematically as we’ve talked about, you know, the property itself is a very straightforward multifamily 315 units. It’s actually three phases. So, phase 1 was 116, phase 2 is 103, and this next phase is 96. Each one has its own separate property, all part of the gated master-planned community.
And to our discussion earlier about being buy and hold and also creating various share classes to give investors and advisors flexibility to decide, you know, what’s the most appropriate way to hold the real estate, I think the most important and interesting thing we’ll be talking about is how we’ve used various share classes to allow investors to optimize their personal strategy, so, whether that’s, you know, long-term buy and hold or more of a shorter horizon, higher preferred return, or maybe something in between, in the hybrid.
And so we’ve got multiple different classes of investment on the same asset. So, I think to me, that’s the “sophistication” that makes it more interesting. I mean, obviously, we’ll go through the property. But to me, all these properties are sort of…they’re kind of the same, like, trying to say that one’s more do whatever than the other. I don’t think they are.
I’ve been doing this too long. So, you know, talking about short classes will be exciting and fun. And then also just going through and looking at how we make a social impact with our investment as well because I want to kind of emphasize some of the programs and things that we’re doing there on that property, which I’m really excited about.
Jimmy: Awesome. Well, I’m looking forward to it. I’m looking forward to co-hosting that webinar at multifamilyinvestor.com next week. Kira, it’s been a pleasure speaking with you today. Always great getting your insight. Before we go, where can our listeners go to learn more about you and Direct Source Wealth?
Kira: Yes. So, we have a Direct Source Wealth Facebook page. They can come join our community there and connect. And we actually have two. So, we have one that is public-facing, and then when someone becomes an investor, they get access to our private site, and that’s where investors share network ideas and everything.
But the Direct Source Wealth site is public. And then directsourcewealth.com is also our website and they can connect with us there.
Jimmy: Fantastic. So, to recap, you can visit directsourcewealth.com to learn more about Kira’s business. And again, to register for our upcoming webinar featuring Kira’s value-add property in Dayton, Ohio, please visit multifamilyinvestor.com/kira. And of course, for our listeners and viewers out there, if you want links to all of the resources we discussed on today’s episode of The Alternative Investment Podcast, you can access the show notes at altsdb.com/podcast.
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