Why real estate investors should invest in startup companies
Real estate investors should invest in startup tech companies. Typically, early stage angels and real estate investors never mix, because the real estate guys feel like they can’t measure the risk in startup investing. But there’s not that much difference. What’s really cool is that real estate and tech often run counter-cyclically, and investing in tech is a good way to keep money at work when there’s nothing to do in real estate. Many real estate investors have cash on the sidelines right now, because there are is a surplus of empty space. And yet they won’t participate in companies that could grow and fill their space. How short-sighted! [A Fast Company blogger] just finished participating in a real estate deal in which [she] was a small investor. In this particular deal, [she] was part of a consortium that raised money to buy some “finished lots.” Finished lots, in case you don’t know this jargon, are pieces of land that have been bought by somebody previously as raw land. That first buyer, who probably bought the land from a farmer, takes the land through an entitlement process (zoning) to find out how many homes can be built on the piece of land. The land is then subdivided into that number of lots, and the improvements are put in. (Water, electricity, telephone, sidewalks — whatever must be in a subdivision in that jurisdiction.) Land is bought for $x per acre. Let’s call that the seed money. As finished lots, the same land is worth 3-4x per acre. Let’s all that Series A. Homebuilders then buy the finished lots. Let’s all that Series B. They build houses on the lots. And the houses sell for 3-4x the price of the lots. So there you have it. A finished lot that costs $20,000 sustains a house that costs $120,000. The sale of the home is the exit for the homebuilder.