Real estate investing is a great way to diversify your portfolio, and it can get even better when your capital gains can grow tax-free. In this webinar, Chris Palmisano, Rocket Dollar COO/CRO and angel investors sat down with Matt Silk, real estate investor and fund manager, to discuss real estate investing in Austin. They dig into expected returns and why they expect the Austin market to be profitable in the coming years. Matt also shares his experience as a Rocket Dollar customer and how he uses his Self-Directed account to invest.
What do you think about adding real estate into the retirement portfolio and how do you think through that? And do you have investors that are doing that and what was their thought process?
Of all the places that you can put some of your assets, we think that that strategy is a great place because you're betting on capital appreciation. That's something that you're parking funds for the long term. Within your retirement account, as you were saying before, you can only invest a certain amount each year based on the guidelines. It's not an option that you can, oh, I want to put a million more into my retirement account.
You can't do that. I think doing very risky investments in your retirement account is probably not the best of ideas. I mean, startup investing, I love it and I'm obviously doing it as part of my overall portfolio for TMW Capital, but it might not be the best strategy within a retirement account unless you really know that company and strongly believe in. People do say 9 out of 10 startups fail.
Unless you can pick that one startup that's going to take off every time, start up investing in your retirement account is a little bit riskier. I've actually done it. I don't necessarily keep may own advice but I think it's something that you want to think through. Again, practice good asset allocation and diversification and make sure you're making smart bets thinking through your investment goals.
With my retirement dollars, I like real estate as an option because I think it's a more capital appreciation play. For things that are a little bit more risky, it's probably not necessarily capital that you want to do from that particular place. On the flip side, investing in a startup in your retirement account, if you do pick that one or two that is successful and you don't have to pay capital gains on that cause it's tax deferred, it can be a great way to invest. There's the flip side of every every discussion or every opinion.
Primarily when you make contributions to a retirement account, you can take a tax deduction at your marginal rates whereas there's very few other opportunities to take such a large deduction and to save so much in taxes. Why do you think real estate investors sometimes overlook this?
I mean, I think it really comes down to investing out of your retirement accounts is not something that everyone knows about. I've absolutely loved the Rocket Dollar story since you told me about it and I actually have a Rocket Dollar account, two of my investors in fund one opened Rocket Dollar accounts specifically because they wanted to invest in my fund. When you first approached me you were telling me about this great new company that you were thinking about joining.
I was at the same time looking at other options for my investors to unlock their retirement accounts. You hit me at the perfect time because I needed that solution, but I didn't know that it was out there and everyone else I saw in the market just didn't look like they were good quality solutions or they looked like a registered investment advisory firm that slapped a page up and said they could do this.
I think people just don't know about solutions like Rocket Dollar and people don't really necessarily know and understand. It's an education scheme. I really look at it as this is back, obviously, I worked at ETRADE for seven years. I feel like that same educational process needs to happen to let people know that there are self-directed options to put their retirement assets to work outside of stocks, bonds, and mutual funds.
Putting money into alternative assets is something that it's hard to do and you don't move your retirement dollars very quickly, you think very wisely about what should I do with my account? It takes a few weeks to get that roll overdone from your previous provider. Most people forget about a few of their orphan 401k's. I think it's an education challenge and I think it's a great opportunity for Rocket Dollar.
How do you think about the split between cash flow profits versus property value appreciation?
It's a fair question, and again, it's probably one that's a much longer conversation. But the quick answer Joel would be we look at our buy and hold strategy as a capital appreciation play. I think you're hitting the nail on the head with this strategy. We're not expecting a massive amount of cashflow. We're looking at probably about a 2% to 3% free cash generated with our portfolio and then we're banking on the capital appreciation. It's not a huge cash flowing strategy and each strategy has its pros and cons.
What type of returns should investors expect from real estate investing or from investing in a fund? If it's a 10 year fund cycle, what are your thoughts on that and how should someone plan for that?
Again, it's going to depend on the particular strategies. My investors are looking at our strategy, the 2% to 3% in free cashflow. We're banking on a 5% ish appreciation per year. Without accounting for the renovations, the market doing really well. My team and I are picking better than average Joe. We feel pretty confident that our portfolio is going to deliver 8% plus on an annualized basis. It's a conservative strategy. I think there's plenty of other plays that are much more cashflow intensive or cashflow focused within the real estate world and that's why you really have to look at where do I want place my dollars when I'm investing, whether it's real estate or other asset classes.