How the Urban Renaissance in Gateway Cities Creates Opportunities for Savvy Investors – White Paper

How the Urban Renaissance in Gateway Cities Creates Opportunities for Savvy Investors – White Paper

The best jobs are increasingly located in the largest city centers rather than in the suburbs. Young professionals are increasingly choosing to live in centrally located urban neighborhoods for a number of reasons: improved safety, access to parks and cultural institutions, and decreased reliance on cars and long freeway commutes in favor of public transit and walkability.

Where Should You Put Your Money These Days?

As stock markets around the world have gyrated recently—China scaring Europe and the U.S., and Europe and the U.S. then terrifying China, and so on—investors are going through their usual angst. As the song says, “Should I stay or should I go?”

Personally, I’m staying. Sort of. Wise investors tell you not to panic, and as a fund manager myself, I’ve learned the benefits of taking a longer view. But that doesn’t mean you and I should sit tight. I’m directing my own new investments away from Wall Street, and not just away from stocks. Why?

The stock market isn’t going to improve much.

The Dow and S&P are both down for the year. They may lose more. But there’s plenty of indication that the economy isn’t going to drive a big rebound. You may not lose your shirt in the months to come, but stocks may not do all that much better than your mattress over the next year or two.

Bonds look even worse.

The bond market is looking terrible, and the smartest, biggest investors—from Warren Buffett to Yale University—are shifting their portfolios away from bonds. Not to get too technical, but:

Suppose you have a portfolio of bonds yielding 3.5%, with an average maturity of ten years. Now suppose interest rates go up about 1.5% from their current very low levels—a reasonable assumption, given the signals the Fed has been making. That means similar, newer bonds yield 5%. Just that small change will cause your bond portfolio to lose almost 12% of its value. Ouch. You now need almost three years just to allow interest payments to make up your losses. So much for bonds.

The smart people are going in a new direction.

What used to be called “alternative investing”—such as private equity and real estate—doesn’t seem so alternative any more. Harvard has put more than half of its $36 billion-plus endowment in alternatives, with only 11% left in U.S. stocks.

Until recently, that would mean nothing to you and me. Federal law prohibited individuals from turning themselves into personal banks. But, thanks to the 2012 JOBS Act, it’s now legal for the rest of us to act like Harvard (with something less than $36 billion, presumably). Here’s what you can—and should—consider doing.

1. Invest in real estate.

Yes, real estate. Values have largely recovered, but there are still some attractive opportunities. Depending on where you live, there may be strong income (for example, in the Midwestern U.S.) or neighborhoods that are attracting lots of new investment and improving in major metro areas. Check out rental properties in your own community. Interviewing local Realtors is a good way to learn about how to buy a property and find a good manager. Rental rates are high, and they’re bound to go even higher in the next 5-10 years. That means income.

2. Be the bank.

Some of those opportunities entail not buying the real estate itself, but in being the banker. In other words, lending money to someone buying the property. Banks aren’t lending money as much as they used to. As a result, real estate investors and small businesses are having trouble getting loans.

You don’t have to make the loans personally—though you can, legally. But your first step might be to find a good lending fund manager open to new investors. Try focusing on firms in your own area by searching for “private money lenders” and “real estate lending funds.” You can also search using the same terms on Meetup and other event sites for local groups.

If you want to be a bit less passive, you can purchase loans from specialized brokers who help borrowers to finance their projects. Once again, searching online will help you find such brokers.

If you have the expertise and time, you can earn a bit higher returns by finding borrowers directly. To do this, networking is key. The best place to meet borrowers is events in your local area that attract real estate developers. One way to find such events is through the business school at your local universities. Specialized service providers can help you to document your loans properly and also arrange for servicing of the loan. This basically means collecting interest payments from the borrower and taking appropriate actions in case of a default.

Why should you be the bank?

Being a lender—or investing in a lending fund—insulates you from the rollercoaster ride of the public markets. You don’t need to worry about stock and bond prices, because your money generates income while you sleep. Your investment is secured by buildings and land that will be there even if the markets crash.

And here’s the really good part: You can earn a lot more income than most investors. We’re talking a reasonable 7-9% per year in the current market.

The Risks:

If  you lend too aggressively—putting up too much money relative to the value of the property—then you could lose principal if real estate values fall. And, of course, there’s the risk of fraud. The key is to find a good manager. For starters, check both your state real estate licensing agency and FINRA’s databases for the names of the principals of any fund, to see whether there have been any negative issues. Also don’t forget to do some online searching and to ask around among credible people you know. If you can’t find anyone who knows the company, don’t invest.

The Real Reward:

Besides being a good investment, being the bank lets you help your local economy. You jump start new businesses, help developers improve neighbors, and become a genuine job creator. You get some of your money out of Wall Street and onto Main Street. All while building the future for yourself and your kids. Win-win.


Jan Brzeski is Managing Director and Chief Investment Officer at Arixa Capital Advisors, LLC, a real estate investment manager and fund operator focused on balance sheet lending to developers who purchase, renovate and resell single family homes in California. He is the author of the upcoming book, Be the Bank: The Safe, Profitable Alternative to Stocks and Bonds.



In Search of Yield: Institutional Capital is Beginning to Discover Dark Corner of the Market

In January of this year, Los Angeles based firm Oaktree Capital Group LLC (OAK) committed $100 million to Genesis Capital, LLC, a Calabasas based firm in the business of originating private loans to people who fix and flip houses. 

Information about Trust Deed Investing

Learn how to take advantage of terrific income fund investments with capital preservation from the company that specializes in trust deed investments. Go to Also, read our FAQ at

New White Paper Available: The Great Housing Workout

The Great Housing Workout White Paper

Arixa Capital has released a new white paper focused on the U.S. housing market and single family homes as an asset class for investors to consider. The white paper is based on Arixa's concrete experience investing in this area in recent years, working with local operators who buy properties in a specific geographic area, renovate them, and either lease the homes or resell them.

The white paper explains various ways that investors can gain exposure to this asset class, which Warren Buffett recently endorsed as underpriced and attractive. The author explains the advantages and disadvantages of various investment strategies for both active and passive investors.

The white paper also explains that the activity of thousands of local operators is already helping to work through the backlog of foreclosed homes. Attracted by appealing profits, local operators will help the housing market to heal over the next several years. Policies that aim to solve the problem on a mass scale are neither needed nor advisable.

For a copy of our white paper, please click here.

Arixa Capital 2012 Spring Newsletter

First Quarter 2012 Newsletter
First Quarter 2012 Newsletter

This edition of Arixa's newsletter includes:

  • The growth of our investment programs and the launch of our second fund
  • Our annual panel discussion at UCLA in conjunction with the Ziman Center and the Anderson School
  • An update on Arixa's first assignment as a court-appointed receiver; and
  • Information on a new white paper by Jan Brzeski

Arixa Capital 2011 Winter Newsletter


Arixa's latest activities include:

  • The growth of our investment programs,
  • Upcoming events and Arixa's first assignment as a receiver for a shopping center in Phoenix; and
  • Information on our 2012 Real Estate Round Table Discussion

Jan's First Article for is Published is the online publication of the Chartered Alternative Investment Analyst (CAIA) Association. The CAIA is devoted to training investment professionals who focus on alternative asset strategies such as hedge funds, commodities, private equity and real estate. Jan is writing a series of articles about today's real estate investment environment. Because AllAboutAlpha attracts readers from Europe and Asia as well as North America, Jan will curate articles by real estate investment experts from outside the U.S. about which investment strategies are working and why in their respective regions. In Jan's first article, he discusses how yields are compressed for many popular real estate investment strategies, but remain attractive on a risk-adjusted basis for other, less well known strategies. To access Jan's article, "What Los Angeles Traffic Can Teach Us About Investing in Real Estate Today " please click here.

Loan Amortization Worksheet‚ My Pick for #1 Most Useful Excel Spreadsheet Ever

Nine years ago I began working full time in the real estate investment field. While I use an HP 12C calculator and I like it a lot, I find it cumbersome to use for common real estate calculations. With a little help from Google, I found the attached spreadsheet online which I have adapted for my own use. Perhaps you will find it useful, too. Please click here to download the excel file.

What is it good for? This spreadsheet comes into play when you are interested in determining the cash flow you will receive from buying income property and financing that purchase with a loan. To do this, it is really helpful to know the mortgage constant for the loan given the interest rate and amortization period. This spreadsheet gives you that information, and it shows you exactly where all the money goes (unlike the HP 12C which just gives you the amount of the payment, if you are able to remember the sequence of buttons to press correctly).

How it works On the tab entitled, "Worksheet," you enter the items in red. Specifically, you need the interest rate on the loan that you can obtain; and the amortization period. You can enter the actual loan amount, although I usually don't bother because I am interested in the mortgage constant, not the actual monthly payment.

Why does the mortgage constant matter so much? As a buyer of income property, investors should be very interested in the relationship between the capitalization rate and the mortgage constant on the loan they can obtain for the acquisition. We like situations where the cap rate is higher than the mortgage constant, because this means our cash-on-cash return will be higher than the cap rate. This situation is known as "positive leverage" in the world of income property investment.

If you are interested in learning more, please contact us and we would be happy to go into more detail on this subject. The topic is addressed in some detail in my book, which is available on Amazon (click here if interested).

How Risky Is Annaly Capital?

With a dividend yield of more than 14%, it is hard not to be interested in Annaly Capital (NLY), the largest mortgage REIT.  At Arixa Capital we manage a portfolio of real estate loans...a miniature version of a mortgage REIT.  In a two-part article for Seeking Alpha, Jan Brzeski applies his expertise as a real estate fund manager to analyzing the risks inherent in Annaly Capital's business model. To read part 1, please click here.

To read part 2, please click here.