Investing Tips You’ve Never Heard Of
Dear Rich Lifer,
Imagine losing $139 million because of a clumsy mistake at a party.
In 2006, casino magnate, Steve Wynn, put his elbow into Picasso’s painting titled “Le Rêve.” He had planned to sell the painting to a hedge fund manager for a cool $139 million, but the deal fell through after Wynn invited a group of friends over for one last look.
While chatting in front of the portrait, Mr. Wynn accidentally whacked the painting with his elbow, leaving a silver dollar-size hole in the masterpiece.
Seven years later, Wynn eventually sold “Le Rêve” to the same buyer for $155 million. Elbow or not, fine art appreciates – and that’s the point of this story.
If you’re looking for ways to diversify your wealth and are seeking alternative investments that don’t tend to correlate with the stock market, fine art can be one of them.
The good news is you don’t need to own a casino or have a million dollars in the bank to get started. An easy, low-cost way to invest in art is with a company like Masterworks.
Similar to crowdfunded real estate, Masterworks lets you buy a small stake in pieces of art. The company buys “blue-chip art” and then sells shares as low as $20. When the painting is purchased, an offering circular is filed with the SEC so you are protected by securities laws.
Masterworks charges a 1.5% management fee plus 20% of any future profits. They look to exit each holding after 7 years with 10 years being the max.
Of course, you can also take a more traditional route and go through an auction house or contact an art dealer directly. But if you are interested in a simple way to add art to your portfolio, this could be it.
Art is one of many alternative investments worth considering. Today we’re going to share six more offbeat investments you may or may not have heard of.
Ever seen the movie “There Will Be Blood” starring Daniel Day-Lewis? If you have, then you’re familiar with mineral rights.
Any time you own property that sits on valuable natural resources, you can sell the mineral rights to a company willing to extract those resources. While this is often referred to as ‘mineral rights,’ it can be anything from precious metals like gold, silver, and copper to coal, diamonds, and oil.
It may seem unlikely to be sitting on land with valuable natural resources, however, people who own mineral rights often look for buyers to turn their stream of income into one large payout.
If you have the means, you can buy a seller’s rights, start collecting payments, and earn a significant return on your investment. These types of deals can be very competitive so do your due diligence to know exactly what you’re buying.
Another alternative to mineral rights is extracting valuable resources above ground. For example, your land could double as a timberland investment which a Timber Investment Management Organization could log.
The possibilities are endless but the one commonality among these types of income-producing assets is real estate, which we’ll get into next.
Real Estate (Especially This Kind)
Arguably the most common alternative investment is real estate.
While it’s rarely negatively-correlated with the stock market, real estate is classified as an alternative investment because you don’t usually find it in a 401(k). Only recently, through REITs and mutual funds, has real estate become mainstream.
But we are including it here anyway because there is one subclass of real estate often overlooked, yet makes for a great long-term investment.
We’re talking about farmland. Traditionally, it’s been very difficult to invest in farmland. But more recently, a few companies have stepped up in the space and are making a lot of investors happy.
AcreTrader is one company that researches farmland, buys it, and creates a legal entity in which you can invest your money. When you invest, you become an owner of that farmland without leaving your house.
AcreTrader pays out 3-5% income for low-risk properties and charges a flat 0.75% fee on the farm’s total value, usually deducted from the income.
If you were to invest $10,000 in farmland in 1990, you’d have nearly $200,000 in the bank today. Not too shabby for a low-risk, high-reward investment. What’s interesting is farmland returns are relatively stable compared to the stock market.
You won’t see violent drops or spikes like you do with most stocks, so if you like boring but steady gains, farmland could be what you’re looking for.
Another company similar to AcreTrader is FarmTogether. The main difference is you must be an accredited investor, with a minimum of $10,000-$50,000 depending on the deal, to invest with FarmTogether.
Did you know most Italian wines are consumed within Italy? Even though Italy is synonymous with wine, very little of the stuff gets exported abroad.
This is why different vintages from different years appreciate over time. As more wine is consumed from certain years and batches, the supply dwindles further increasing the rarity and price.
But the challenge with investing in wine is storing it. Without proper facilities to keep your wine collection in exceptional condition, you risk spoiling your investment. The good news is companies like Vinovest exist, which make investing in wine more accessible to the masses.
Through their platform, you can buy wine and they will safely store it for you. If at any point you want to consume your investment, they’ll ship the bottle(s) to your home.
The minimum balance for Vinovest is $1,000 and you pay a 2.85% annual fee to cover labor, storage, authenticity guarantee, portfolio rebalancing, and insurance. You can lower your annual fee to 2.5%, and get one-on-one expert guidance with access to extra rare wines, if your minimum balance is $50,000 or greater.
A lot of industries rely on heavy-duty equipment to generate revenue. Think medical, mining, farming, construction. You can be of value to these companies if you lease them the equipment they desperately need to turn a profit.
Equipment leasing investing typically requires you to join a group of investors to create an equipment leasing fund. You will usually hold on to the equipment for 7 to 10 years before you sell it off at a depreciated value.
One advantage to leasing equipment is earnings can be tax-deferred until the equipment is sold off. How it typically works is a fund manager acquires the equipment and finds a renter.
Every month, investors in the fund receive a lease payment until the lease ends or the fund sells off the equipment.
What type of equipment your fund invests in really depends. Some equipment leasing investments are set up as a “blind-pool” where the fund manager can lease different types of equipment as trends and market demands change to avoid lull periods.
Like any investment, before you go all in, do your research and look at past investment records and industries to gauge potential returns.
A more indirect way to invest in equipment leasing is through a platform like Worthy Bonds. For as low as $10, you can earn 5% interest without having to pay any fees. Worthy Bonds works with small businesses and offers them loans to obtain equipment and inventory.
If you like the idea of investing in real estate without buying and maintaining property, you can collect interest payments as an investor in private mortgage deals.
As the investor, you act as the bank and lend money to a homeowner who needs a mortgage. Your investment cost is the debt for the mortgage and you collect interest payments as profit.
If the owner stops making payments, you can take possession of the property. Since foreclosure is a possibility with this type of alternative investment, you need to be in a financial position to bear this type of burden.
One platform that makes trading mortgage notes simple is Paperstac. Check out listings all across the U.S.
When you research mortgage notes, look for owner’s that are current on payments and have a first lien position – these tend to be less risky. Because having the first lien position entitles you to claim the first portion of the sale proceeds if you have to repossess the property.
This last one is tricky. Becoming a successful angel investor requires a certain degree of skill and luck. Would you have invested in Facebook or Uber if you’d had the opportunity early in their inception?
Venture capitalists have to be future-thinking and be extremely good at looking at an idea and knowing whether there’s a market to support often crazy-sounding business models. There are all kinds of ways you can invest in startups.
The old-fashion way is networking with entrepreneurs, but you can also visit websites like AngelList to see what companies need backing. You can also invest your money with a venture capitalist who finds deals for you. Of course, you’ll pay a management fee and percentage of the asset gains, but the trade-off is you get access to their deal flow instead of having to go out and find deals yourself.
These seven alternative investments are just the tip of the iceberg. We left out cryptocurrencies, precious metals, collectibles, settlements, tax liens, and dozens more. Once you begin researching offbeat ways to invest your money, you realize the possibilities are endless.
To a Richer Life,
The Rich Life Roadmap Team