Investing with a Vision: 4 Lessons Investors can Learn from Family Offices

Family offices are comprised of high-net-worth individuals or a consortium of families with at least $100 million in assets. While not every investor has the goal of ultimately becoming a family office, I believe there is still great value in understanding their strategies when working towards long-term wealth-building and successful investment approaches.

The largest family offices in the United States are some of the most powerful and influential financial institutions in the world. They have a significant impact on the global economy, and their investments can shape the future of industries.

Here are the top 10 largest family offices in the United States, ranked by their approximate net worth:

As you can see, the largest family offices in the United States tend to have a diversified portfolio of investments, with nearly all of them including real estate. It is important to note that these figures are just estimates, and the actual net worth of these family offices may be higher or lower. Additionally, the distribution of investments may vary depending on the specific family office.

These family offices, and many others, play a vital role in the global economy. They provide investment capital to businesses, support entrepreneurs, and create jobs. They also play a role in philanthropy and social impact investing. Given this, why not learn from them? Today, I'd like to share with you my observations of how family offices create successful real estate investment strategies, and what key lessons individual investors can learn from them.

Patient Capital: The Foundation of Family Office Investments

One common characteristic among family offices is their emphasis on patient capital. Some investors seek quick profits; however, family offices adopt a long-term approach, typically aiming for investment horizons of five, ten, or even twelve years. This strategy recognizes that building wealth requires time and a willingness to endure longer hold periods for potentially greater returns.

Focus on Internal Rate of Return (IRR) Over Immediate Cash Flow

While some individual investors prioritize immediate cash flow, family offices have a different perspective. Rather than fixating on short-term cash flow, family offices place greater importance on the Internal Rate of Return (IRR). IRR considers the time value of money, enabling them to evaluate returns relative to the duration it takes to achieve them. While cash flow is still important, family offices are willing to forgo immediate returns if the IRR demonstrates greater long-term value.

Build Long Term Relationships with Trusted Operators

Family offices invest considerable effort in vetting and selecting operators with whom they will partner. They devote ample time, resources, and due diligence to assess the track records, strategies, and integrity of operators. Once a family office establishes a successful partnership, they tend to maintain long-term relationships and continue investing with a small group of proven operators. This approach minimizes risk and maximizes trust, a crucial factor for family offices managing significant amounts of capital.

4 Key Takeaways for Investors:

While as an individual investor you may not have the resources of a family office, there are still several key takeaways that can help you shape your investment strategies:

1. Embrace Longer Hold Periods: Consider extending your investment horizon to at least three to five years or more, aligning with the patient capital approach of family offices.

2. Prioritize IRR: Shift your focus towards evaluating investments based on their Internal Rate of Return. Recognize that immediate cash flow is not the sole determinant of a successful investment.

3. Diligently Vet Sponsors: Dedicate time to research and vet sponsors thoroughly. Utilize online resources, such as Google, to gather information about sponsors' track records and investor experiences. Engage in direct conversations with sponsors and their investors to assess their communication and transparency during challenging times.

4. Cultivate Long-Term Partnerships: Consider investing consistently with a select group of reputable operators. This approach allows for greater trust and familiarity with the operators, minimizing potential risks.

As always, Be Bold, Be Great, and Keep Pushing Forward!

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About Ellie Perlman

Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Blue Lake Capital is the sponsor of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.

Ellie started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.