Like so many real estate investors, Patrick Grimes learned a lot of lessons the hard way in 2008 and 2009. Having begun investing in single-family homes in 2006, he found himself at the top of a market that (supposedly) had no top.
“I was a high paid high tech professional,” he told Michael Duncan of The Road to Financial Freedom. “I got some advice to invest in real estate. So I did … but at that point I wanted to double and triple my money every two to three years.”
“The market was never gonna go down, because this was 2007,” he said. “And then ‘08, ‘09, ‘10 happened … I [had] bought ’em in my own, brought the land in my own name, and I signed on the loan in my own name.”
Since all single-family loans are full-recourse loans, the banks came not just for the affected properties, but for all of Grimes’ assets. He lost everything. It took him years to recover.
“I learned that I was speculating on assets,” he said. “And if the music stopped and I didn’t have a seat, I would lose it all.” Which is exactly what happened.
From Single-Family Homes to Thousands of Units
Today, the situation is much different. As the founder and CEO of Invest On Main Street, he manages a portfolio of thousands of apartment units — all with the benefit of non-recourse loans and economies of scale.
As rising interest rates start to erode cash flow potential from his traditional menu of assets, Grimes’ 15 years of experience puts him in a privileged position to keep offering value to the accredited investors who depend on him for cash flow, legacy wealth, tax advantages, and shelter from the emotion-driven volatility of the public markets.
“Next year we have a diversified income fund in affordable housing,” he said. “Not workforce housing, like our multifamily. This is affordable housing. And in the year when, unfortunately, a lot of the deals are not cash flowing anymore in real estate … Our still our deals are still cash flowing strong cuz we were protected from rising interest rates, but a lot of them weren’t.”
Because it’s affordable housing, the 400 single-family homes already in the fund, diversified across numerous markets, enjoy government-guaranteed rents and government-guaranteed rent increases. It’s enough for Invest On Main Street to offer the deal with a 12.5% preferred equity position to investors — in an environment when traditional multifamily deals aren’t producing any cash flow at all.
“We’re Not In China”
Grimes isn’t stopping at real estate either — he also loves the energy market. Invest On Main Street also offers an energy fund, diversified to lower the risk profile of this volatile but always-in-demand asset class that enjoys its own, lesser-known sheath of tax advantages.
“I believe ‘essential needs’ is the theory there,” Grimes said. “And that’s housing, food, and energy. Those are the things that aren’t gonna go away.”
“And we’re not [in] China, where the government houses, feeds, and energizes everybody,” he said. “And so that allows for us to get into these assets where the IRS is like, ‘Yes, please invest. We need you to invest. So here’s all these tax advantages.’”
Alternative Investing When You’re Not Super-Rich
His fund attracts passive investors, many of them using qualified retirement funds that they only recently realized were available for placement in alternative investments like real estate and energy funds.
“They’re investing in the only things that they know,” Grimes said, “which are qualified retirement plans, maybe getting a financial planner and maybe trading in stocks. The majority of them don’t have any idea that you can take some of those qualified funds and invest them in alternative assets with self-directed variants of those plans.”
But as Grimes loves to point out, high-earners tend to be 25% invested in alternative assets, the ultra-wealthy 50% in alternative assets. Compare that to only 8% for the middle class.
Grimes is on a mission to change that — even for investors who fall below the accredited threshold that would qualify them to invest in his funds.
“I do know others that structure these deals differently for non-accredited investors,” Grimes said. “So if you’re … they’re not accredited investors, reach out. Either way, I’ll forward you one to other investors that I know that are structuring investments that help individuals like yourself take that leap forward.”
