Real estate investing can be a strategic benefit to many portfolios – but whether it’s seamless or stressful can depend on the approach you take. “The concept of buying a property and having your mortgage payment covered with a little income and equity over time is pretty appealing, but there’s a lot that goes along with being a property owner that many investors don’t consider upfront,” said Chris Daugaard, a partner at Sioux Falls-based Ernst Capital Group. “A common approach is to invest in a Real Estate Investment Trust, or REIT, but most if not all of that investment goes to properties elsewhere. It doesn’t go to your community. With our approach, you can invest in your own backyard and allow us to take care of everything that happens behind the scenes to succeed in real estate.” As a Sioux Falls-based firm dedicated to real estate investing, Ernst has become a regional leader in the field, recently closing an $16 million capital raise for a fund that included multiple large apartment complexes and retail centers in Sioux Falls. As many investors are discussing, there are multiple benefits to this passive investing approach.
Ernst handles everything. The idea of buying a home, duplex or small multifamily property to generate real estate income might not sound too complicated, but there’s a lot to consider. First, the market is exceptionally tight for single-family homes. “It’s very difficult to buy a home at a competitive price where then turning it around and renting it out is a compelling investment,” Daugaard said. “Let’s say you’re buying a $200,000 home. There are a lot of people who are super active in that market, and some are willing to write a $200,000 check with no financing, inspection or other contingencies.” Even once you secure a property, you still have to keep it leased. “And that means you’re competing with property managers and apartment communities that offer a ton of amenities and a streamlined experience,” Daugaard said. “They have a team of leasing professionals, websites, payment portals, contactless move-ins, virtual showings. So there are hurdles and challenges.” With Ernst, qualified investors simply write a check when investment opportunities are available and a good fit, and then wait for Ernst to send a monthly check or direct deposit with their earnings. Along the way, Ernst and its partners are involved in the development, construction, financing, property management, bookkeeping, tax returns, asset and performance management, lease and property sales. “There’s a lot that goes into managing a real estate asset throughout its life cycle that you never need to worry about when you work with us,” Daugaard said. “And while we’ve experienced significant demand from investors, at a high level we are able to have conversations with potential additional investors as we’re working on opportunities for 2021.”
You can receive regular, simple payments. This is going to sound a little “too easy,” but it’s true. When funds are making distributions, Ernst Capital investors generally receive distributions monthly, paid by check or direct deposit, providing steady cash flow. “Investors who are in, say, five of our funds might get five direct deposits each month,” Daugaard said. “They have the flexibility and cash in their pocket, so they then can decide how they want to manage their money from there.” “It’s not guaranteed, as each of these is an investment. If someone is telling you an investment is guaranteed, you should quickly head the other direction. However, we’re looking to buy and build properties that we think will have a high likelihood of paying that distribution regularly and hopefully each month from ongoing cash flow.”
You can sleep through the night. You know that vision of owning a rental property? Does it include getting woken up in the middle of the night because the furnace isn’t working? That’s reality for landlords, who find themselves juggling maintenance and leasing needs large and small. “With our approach, you’re not the one trying to find a plumber at a moment’s notice or making the trip to the hardware store to figure out an issue yourself,” Daugaard said. “The leaking faucets, bad water heaters and broken air conditioners aren’t your problem. And you won’t find yourself before the planning office or city council needing to get your property zoned or up to code.” And don’t forget: Just because you own real estate doesn’t mean someone always is renting it. That makes for sleepless nights too. “Your property might go vacant for a few months, and without that income, you’re having to write the check for the mortgage and cover the utility bills for things otherwise covered by the renter,” Daugaard said. “Those become your worries very quickly.”
You’re not the one guaranteeing the loan. One of the lesser known pieces of different real estate investments is loan guarantees. “It’s not uncommon for real estate investors to have to personally sign for some, if not all, the loans to buy or build their projects,” Daugaard said. “If a deal doesn’t go as well as you hoped, you’re on the hook for loan principal or making payments.” Ernst Capital and its development partners guarantee any financing that is in place, if required by the bank. “So your risk is really limited to your investment and not to the guarantee of a loan or the performance of the loan, which is a big deal,” Daugaard said.
You’re investing where you live. Ernst Capital investments are everywhere you look in Sioux Falls and increasingly throughout the region. “A lot of our investors and our team appreciate that the work we do is dollars being invested back into our community, building both housing and business opportunities and growing jobs,” Daugaard said. “So there’s a lot closer payoff.” With investments across the city, including in the core, Ernst investors can drive by and see their investments as they’re being built or operating. “It’s a real tangible piece to what we’re doing instead of national investments with assets you’ve never seen and likely don’t know much about,” Daugaard said. “We have investments all around our community. We just made our first investment in Harrisburg, and as the communities around Sioux Falls continue to grow, we expect to continue investing in our area’s growth. As an individual investor, it would be very hard to diversify like that and even harder to invest at scale, for instance, in a 300-unit apartment building.” Bottom line: You don’t have to become a landlord or invest out of state to become a real estate investor. “The way we approach this is seamless, successful and a lot of fun for investors,” Daugaard said. “People like investing back where they live. If they can get great investment returns while investing close to home, it’s the best of both worlds.”
The information contained in this article is not an offer to sell securities. If an offering is made it will be through a Private Placement Memorandum, which will contain details of the offering, including a discussion of risk factors. An investment decision should be made only after a careful review of the Private Placement Memorandum. Ernst Capital is used in connection with several entities owned and controlled by Todd Ernst, Rick Martin, Nick Gates and Chris Daugaard, including Ernst Capital Group LLC, Ernst Capital Securities LLC, Ernst Capital Partners LLC, and Ernst Capital Holdings LLC.