Transcription
Hey there, Justin here again and I'm looking forward to spending some time with you today.
Over the last few weeks, I've been laying out the three major shifts happening in how wealth is built. The move from public to private markets, from investment advisor to family office paradigm, and from net worth to cash flow. And if you've been following along, you might be thinking, "Okay, Justin, I get it. Private deals, cash flow, family office approach, but where do I actually find these opportunities?" And it's a fair question, and the honest answer might frustrate you at first. The best deals, you're not seeing them, and that's by design. So, let's talk about why the best deals are invisible.
Here's something that most people don't realize. The best private deals are never publicly announced. They're filled before they ever reach any sort of platform or newsletter or public offering. The operators and sponsors doing the best work, they don't need to advertise. They can fill their entire raise with existing investors. Their reputation precedes them. Their investors from their last deal want in on their next deal. So, they go to people that they trust, people who have already done business with them, and the deals close before most investors ever hear about them.
So, here's the uncomfortable truth. If you're finding deals on the open market, especially in the private space, you're getting what institutional capital doesn't want. And I'm going to say that again here because it's one of the most important things that I can tell you about deal flow. If you're seeing a deal that looks like it's a great deal, but for some reason it's on the open market, there's a reason for it. The institutional investors have passed on it. And it's just important to know that.
Many people have an investment advisor or money manager, and I want to talk about the hidden conflict in your advisor's deal flow. So, you might be thinking, "Hey, Justin, my wealth manager shares alternative investments with me. Doesn't that count?" Let me tell you something that might be hard to hear. The reason alternative investments are becoming more mainstream in wealth management shops is because they need to offer them to compete. But here's what nobody talks about. They're all getting kickbacks. Why does one deal make it onto a platform and another one doesn't? It's not because it's the best deal. It's because that deal has the best terms for the advisor. The affiliate fees, the broker commissions, the rev sharing. I've had many people say over the years, "Oh, my advisor doesn't like this deal or they don't like that deal." Well, probably not because they're not being compensated on it. They're pushing this deal because this deal pays them. There's a structural conflict of interest and most people never even think to ask about it.
Let's talk about invisible deals here for a moment. So, what am I actually talking about when I say invisible deals? I'm talking about private placement offerings, credit funds, real estate syndications, off-market businesses, deals that never get sold to the public. Sometimes it's a deal that's truly off-market, a business or a property that was never listed where the seller just wants to move on and the buyer found them through a relationship just at the right time in the right place. Sometimes it's data or trends suggesting that something isn't mainstream yet, but it's about to become mainstream. I call that following the invisible. When I invested in mobile home parks, people told me I was crazy. But the data suggested it was a good asset class. When I got into single family home rentals early, that wasn't even a recognized asset class yet. There was no such thing as SFR as a category. But I knew after the global financial crisis that that's where things were heading. It's not that these opportunities were hidden in some vault. It's that they weren't mainstream and by the time they became mainstream, the best returns had already been captured.
Let's talk about the real access problem. These invisible deals are reserved for insiders, for family offices, sophisticated networks, or accredited investor groups with existing relationships. The only way in is through a network that already exists. And that network takes years to build unless you join a room where that network already exists. I was talking to one of the members in our community recently and he built a family office for clients over 20 years. He said something that really stuck with me. He said almost all the deals we did were off-market. They weren't published deals. Then he said this, "You make your money on the buy side. There's a lot of due diligence, a lot of work has to be done and investigating any opportunity, and you should expect to turn down most of them." That last part is key. Finding invisible deals isn't about saying yes to more things. It's about having access to enough opportunities that you can be selective, that you can say no to 90% of them and still have a pipeline of great options.
But access isn't enough. Here's the thing. Access to deal flow is necessary, but it's not sufficient. Just because a deal is a private deal doesn't make it a good deal. Just because it's off-market doesn't mean it's safe. I've seen plenty of private deals that were absolute disasters. Our COO, Ryan, often tells a story about joining another investment group before ours. Within the first week, he got five direct messages pitching deals. He sent one of those deals to our investment team, a multifamily deal that looked good on the surface. Our analyst emailed him back in 40 minutes, "This is an awful deal. Not even a chance."
So, what's the point? Well, when you're new to alternative investing, everything looks like a good deal. And that's exactly when you're at the most risk. So, next week, I want to give you something practical. The five filters that I use to evaluate any deal that comes across my desk. It's the framework that helped us say no to the 90% and then find the 10% worth doing.
If you're enjoying these videos, please share them with a friend, a colleague, a community who would find value in them. I love connecting with new people and deepening the impact of what we do at Lifestyle Investor. And if you have any specific questions or thoughts, comment below and let me know. I read every response and it shapes what I write about in future issues.
Thanks and we'll see you again next week.