An Ignoble Experiment: One of the Biggest Risks in ANY Real Estate Investment

2023/12/19

One of the Biggest Risks in ANY Real Estate Investment

Dear White Coat Investors,

What's the biggest difference between rookie investors and seasoned investors?

It's how they think about risk.

In The Road Less Stupid, author Keith Cunningham says (paraphrasing):

Rookie investors ask: "How much can I make?"
Seasoned investors ask: "How much can I lose, how could I lose it, and can I afford that loss?"

By way of disclosure, we have an advertising relationship with Wellings Capital, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. You must be an accredited investors to invest.

We believe the best investors think about risk more than return.

As educators to thousands of white coat investors, we constantly assess risks. We have written about this often. When considering investments, it's important to not look just for reasons to invest. Rather, evaluate risks… always looking for reasons to say NO.

What is a significant risk for passive real estate investors that is rarely talked about? Is it...

Risky debt levels and debt structure?
Lack of sponsor skin in the game?
Lack of track record?
Lack of a capable, cohesive team?
Location?
Bad underwriting?
Poor property managers?

These are all huge risks! Each of these can be deadly in private real estate investing or when investing on Wall Street.

But the significant risk we want to discuss today is...

FRAUD

Sometimes, it's blatant fraud, like when someone at a title company wired millions in investment funds into their own bank account, skipped town, and lawyered up to defend themselves.

But more often, the fraud is subtle. So subtle you might never even know about it. This undetected fraud might result in you receiving 11% rather than 15% annual returns. And the perpetrator gets away with it.

Even when everything listed above goes perfectly well, just one fraudulent player can ruin an entire deal. We (Jim and Brett) have both been victims of fraud at some point during our investing careers.

It should go without saying: White Coat Investor carefully selects the investments that we introduce our readers to.

Wellings Capital's investors look to them as a due diligence partner to provide a margin of safety plus solid cash flow and appreciation to investors…and to protect against fraud.

What Does Wellings Capital Do to Protect Investors Against Fraud?

Create as much diversification as possible within their Fund (ten different operators and dozens of properties currently)
Third-party net operating income audits
Deep background checks on operator principals and key staff
Background checks on other parties (like lenders and property managers) in the deal
Reference checks
Gut checks based on in-person interactions in different scenarios
...and much more

After all, Wellings Capital has a lot to protect. Your hard-earned capital. Our hard-earned capital. Our reputation…and our partners' reputations.

By the way, the Wellings Real Estate Income Fund (WREIF) projects 12% to 15% total annual returns. Wellings Capital has never delayed or lowered a distribution in their five income funds. In fact, they recently raised distributions in their current fund in which I'm (Jim) an investor.*

Check out the Wellings Real Estate Income Fund today!

Thanks for your time. As always, your feedback is welcome and appreciated.

Jim and Brett

James M. Dahle, MD, FACEP
Founder, The White Coat Investor

Brett Stevens, MBA
COO, The White Coat Investor

*All investments are subject to risks, including the loss of all principal invested. Past performance is no guarantee of future returns and the investment objectives of WREIF may not be achieved. Please read the offering memorandum before investing so that you fully understand the risks and consult your tax or advisor before investing. Wellings Capital and The White Coat Investor are not affiliated.