Minimizing Your Risk With Structured Deals

Have you even invested and lost big — I mean really big? Most likely, anyone reading this piece today has had some downturns in their investment journey. The best way to ensure that you no longer sustain significant losses is by minimizing your risk with structured deals.

Ensure That You Are in a Position to Win With Your Investing

In January of 2021, I invited Hans Box to the show. When you finally find a great opportunity, you want to work toward making that investment pay off. Hans teaches a lot about ensuring that you aren’t in a position to take a major loss. In this podcast, you’ll learn how to protect yourself from deep losses.

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” —Ayn Rand

In this article, you’ll learn — as Ayn Rand says — how to be the driver in your investment deals. For example, Hans Box had an 800 multifamily housing units deal, and things started to go wrong. Nevertheless, he was able to take the investment from negative numbers to a 24% return.

Best of all — Hans is free in his detailed sharing of how being in danger with this high-risk investment gave him a brilliant, unique outlook on investing.

When You Invest in a Group, Sometimes the Subscription Docs Don’t Allow You to Run Things

“What gets measured gets improved. What doesn’t get measured doesn’t.” —Justin Donald

When looking at the subscription docs, you will want it written in the operating agreement deal that you can all vote to have someone else run things if things are not being handled correctly. The opportunity of replacing a sponsor in a deal is rare in an investment group — but being able to ensure that you have the chance to step up and save your money and that of the whole group if necessary is valuable. But, of course, you don’t want to have to do this — it’s a pain. Avoiding this very situation is what Lifestyle Investing is all about.

But Lifestyle Investing also means positioning yourself not to lose money so you can live the lifestyle of your choosing. 

Hans Box explains clearly the differing responsibilities of a deal’s sponsor. If you are working toward a clear Lifestyle Investment strategy, you will want to understand the players in a deal and how you will interact with them.

The Sponsor

Below is the description of the type of deal I like to make because you are not doing the work. You set up the deal and make sure that it’s correct, you check out and vet the sponsor, general partner, and operations team running your deal, and then you are set up to have a passive investment stream.

A sponsor actually is the person leading the deal, that’s putting the deal together; they’re driving the ship, as you put it. They will be asset managing the deal — not necessarily daily managing the apartment complex as we’re talking about. The sponsor will hire a management company to handle the deal, and then they’ll steer the ship.

And then, the LPs are the limited partners or passive investors or lifestyle investors that actually invest in the deal but are passive, meaning they don’t really have much say in what goes on day-to-day. They may have voting rights on more significant decisions that need to be made, like a refinance or a sale deciding to sell — but in general, they’re not dealing with the day-to-day issues — so they’re passive.

Make Sure You Have the Language in the Contract to Minimize Risk

Hans Box works to make sure that specific language and terms are in the agreements he makes so that if there is a worst-case scenario, he can protect himself, his deal, and his future. Hans likes to start with a team of limited partners and then keep these partners together for future deals because you have experience with them and you have built trust with these partners. I feel the same and run most of my investments in this same manner.

Here’s Your First Goal — Don’t Lose Money

 I invest and I’m kind of all about hitting singles and doubles and getting cash flow. I’d love to hit a home run once in a while, but I want to do that almost by accident. I want to protect my original principle. What happened in 2009 to 2012, is it shaped the way I look at my investment principle — and basically, I don’t want to lose money. That’s my first goal. —Hans Box

Seriously, this is brilliant! And I feel the same. You must protect your original principle and have “don’t lose money” as your first goal. I always like to get a home run with my deals, but I look to get a single or even a double, and I am satisfied. As Hans and I talked about — it’s essential to constantly work for risk mitigation in each deal.

Practice and Get Better at Your Deals

As you practice and get better at your deals, you will also get better at minimizing risk. I love to talk about this in my Lifestyle Investor Mastermind. You have to start building up your knowledge and have resources to help you invest. Hans Box is in my Lifestyle Investor Mastermind group — and what a valuable asset he is there. Hans is very giving and forthright with information that can help those in the Mastermind.

I’ve come to rely on Hans’s expertise in the area of real estate, syndicating and terms, and lending. He has a wealth of knowledge that he is always kind to share with us.

Conclusion

As Hans says, ” Many people will spend months trying to figure out what 55-inch TV to buy, but they don’t hesitate to throw in 25,000, 50,000 into a deal, instead of doing a very, very deep dive.”

You will want to listen to this podcast and up your knowledge and chances of minimizing your risk with structured deals.

Image Credit: Anna Nekrashevich; Pexels; Thank you!