Outside the Box Investment Strategies

May 13, 2013 1 Comment »
Outside the Box Investment Strategies

Think Outside the Stock Market: 4 Alternative Investment Strategies to add to Your Portfolio

The markets appear to be cooling off after the recent run-up that sent the Dow and S&P 500 to record highs. But that doesn’t mean you need to sit on the sidelines or hold on to excess cash. Indeed, investors today have more choices than ever before as more and more investment vehicles pop up to compete for capital.

We’ll explore three relatively new investment strategies you might consider adding to your portfolio. These carry varying degrees of risk and liquidity, and can be a savvy way to diversify your holdings.

1. Next Generation Real Estate Investments

The real estate market is back in a big way, but I’m not talking about buying rental properties. The upfront costs are very high, your cash is tied up for years, and there is always the pesky issues of dealing with tenants and repairs.

Instead, I want to call your attention to a new company called Realty Mogul. Realty Mogul takes the crowdfunding model and applies it to real estate. The company partners with seasoned investors on the ground to source profitable deals.

You can buy shares of a property rehab loan for as little as $5000 and get paid interest quarterly. Then, everyone is cashed out once the property gets flipped or is refinanced at the end of the (usually) 12-month term.

The upside here is low investment threshold, low headache factor compared with traditional real estate investing, and short-term payback period.

The risks are relatively low as the loans are personally guaranteed by the borrower and use the property as collateral.

 The downside to Realty Mogul is that due to SEC regulations, they are currently only open to accredited investors; those with incomes over $200,000 a year or net worth in excess of $1,000,000.

Expected Returns: 8-10%

Liquidity: 6-12 Months

Risk Level: Low – Mediu 

2. Peer to Peer Lending

Peer-to-Peer lending is another excellent opportunity for asset growth and cash flow investing. The two major players, Lending Club and Prosper, both have seen record months in terms of funding in the early part of 2013.

With each month and year that goes by, the platforms mature and the data improves. This goes to reduce risk and allows investors to make better lending decisions. Naturally, the riskier the borrower profile, the higher the expected return.

Each platform allows investors to filter available loans based on their desired criteria and appetite for risk. The minimum investment is just $25, though most lenders will help fund several different loans to make sure they are diversified within the marketplace. 

With peer-to-peer lending, your cash is tied up for 3-5 years depending on the term of the loan, but your investments will spin off cash each month which you can either stock up or reinvest. (Both Lending Club and Prosper use FolioFN to facilitate a loan aftermarket if you need to cash out earlier.)

Expected Returns: 5-15%

Liquidity: 3-5 Years

Risk Level: Low – High

[Related: Peer to peer lending - an alternative to bank CD's.]

 

3. Digital Assets

On the cutting edge of investment strategies is the purchase of digital assets such as domain names, websites, and mobile apps. These can be acquired as purely speculative investments or as cash-flowing online properties.

The major marketplace for existing websites is Flippa.com. The site acts as a central brokerage for buyers and sellers. Prospective investors can pore into the available data, including traffic and earnings history to arrive at their best valuation estimate. 

A typical website on Flippa may sell for 6-24 months earnings, which would pencil out to a 50-200% return on investment.

Similarly, Apptopia.com is a marketplace for smartphone and tablet applications which are essentially micro-businesses with income streams from customer purchases, advertising sales, or in-app upsells. Like Flippa, Apptopia is attracting outside investors looking to generate monthly cash flow and strong valuation returns.

 However, these marketplaces are not without their downsides. First, many of the digital assets for sale will require some sort of technical or marketing expertise to manage, maintain, and operate to their full potential. Or, there will be an additional cost to pay an expert to help you with those functions.

Second, the market is quite volatile. For instance, a website that ranks well in Google today could be gone tomorrow with a simple change in their algorithm. Some of that volatility is worked into the pricing but this is certainly a riskier asset class.

These digital assets are similar to real estate in that they can produce a series of monthly cash flows, but you’ll have to sell the property to cash out it’s full value. The sales process is not inherently complicated when facilitated by these marketplace sites, but is more difficult than simply putting a sell order on a mutual fund. 

Expected Returns: 30-200%

Liquidity: 1-5+ Years

Risk Level: Medium – High

 

4. Angel Investing in Start-Ups

Microventures.com lets you play Venture Capitalist without needing millions of dollars to start with. Optimistic investors with an appetite for risk can help fund early stage start-ups in exchange for equity in the company.

If they succeed, you can earn a healthy payout. But if they fail, your investment is worthless. 

The Microventures model is similar to peer-to-peer lending, except instead of debt you get equity, which has the potential to massively appreciate in value over time. The upside is owning private stock in the next big thing, but the fact is there many failures for every Google or Facebook that hits it out of the park.

With these investments, it’s purely a capital appreciation play, and your money could be tied up for years until the company is bought out, brings in bigger outside investors, or goes public. But if you have an eye for picking winners or have always wanted to be an angel investor, Microventures is a good a place as any to start.

 Expected Returns: 0-1000+%

Liquidity: 2-5+ Years

Risk Level: High

 

The stock market isn’t the only game in town. Have you had success with any non-traditional investments?

Do you have any other alternative investment strategies to share?

Bio

Nick Loper is an author, entrepreneur, and a lifelong student in the game of business. As Chief Side-Hustler at Side Hustle Nation, he’s dedicated to helping an army of part-time entrepreneurs turn their business dreams into reality. His latest book project, Treadmill Desk Revolution, extols the benefits of using a treadmill desk at work for general health and weight loss.

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