How to Think Differently About Real Estate

Moses Kagan flipped the Real Estate Private Equity model on its head–then taught you how to do it yourself.

Author

Tom Harari
August 26, 2022

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  • The Kagan Method of Real Estate Private Equity

  • SMB Twitter people to follow

  • Quick Hits

  • Meme of the Day

The Kagan Method of Real Estate Private Equity

One of the forefathers of #RETwit (that's real estate twitter) is Moses Kagan. 

He's been writing online for the last decade sharing his journey, his wins, and his struggles.

One of the things we love about Moses, besides that epic manbun and charming smile, is his unorthodox take on structuring real estate deals to both (a) use OPM and (b) buy and hold forever.

Most of the real estate world boils down to 2 camps.

Do everything yourself, save money, invest, get some bank debt, and hold.

Become a "sponsor" (fancy term for the person doing the work) and get money from "LPs" (limited partners, i.e. people with money who don't want to do the work). 

The second one sounds attractive tbh.

Put some sweat equity in, raise money from fat cats, and get a share of profits without putting in much of your own money into deals.

The problem with this approach is that investors will want something called a hurdle rate.

That's just a fancy way of saying a guaranteed interest rate on the money they're giving you.

What ends up happening is you as the "sponsor" need to buy properties, do work to fix them up, increase rents, and then sell (at a higher price than you bought it–because, you know, you did stuff to improve the building) and then hopefully have enough to pay back the bank, pay back the "LPs" their investment + their hurdle, and only then split profits.

Here's why that stinks:

Real Estate is a buy and hold forever type of asset.

Here's Kagan's playbook in a nutshell:

  • Use LP cash to buy a property ALL-CASH

  • Fix it up ALL-CASH

  • Refinance property and return ALL THE CASH invested back to LPs

  • Sit on that sucker forever - automatic ATM printing cash every month

Why we love this?

It's creative, its LESS risky for investors, and it capitalizes on the core tenet of Real Estate:

Real estate is for buying, not selling!

SMB Twitter people to follow

SMB Twitter is absolutely wild these days. 

Everyone it seems is buying a landscaping company and then selling courses on how to do it.

There are some really good accounts to follow though if you want to learn from others in the game:

Quick Hits

Meme of the Day

Airbnb Passive Income is great but some of you are going too far!