Getty Images
By Steve Dinnen
A friend of mine bought into a racehorse. It won some money. Then he bought into another horse, and it’s earned serious money. Now he owns parts of 10 horses and has turned a hobby into an interesting and sometimes profitable alternative investment beyond stocks and bonds.
With this, his first foray into investing beyond Wall Street, he expects one or two to really succeed, three to retire, and four to maybe break even.
“Horses are like investing,” he said. Some stocks do well, and others falter. “We have a home run in (one horse) that pays for two that did not make it.”
There are tons of alternative investment opportunities. River barges, for instance, come with hefty depreciation schedules. Oil and gas wells come with tax breaks that can amount to more than the cost of drilling them.
Here in Iowa, of course, farmland is a popular investment opportunity. In 2022, Iowa State University researchers estimated that nearly one quarter of all farmland being sold was to investors. A 2023 report by Erin Jordan in Midwest Investigates figured that an investment arm of the Church of Jesus Christ of Latter-day Saints, often known as the Mormons, has purchased 22,000 acres of Iowa farmland.
“Iowa farmland is regarded very highly among the investors because those are the assets that don’t depreciate much,” Cornell University assistant professor Wendong Zhang told Jordan. Zhang is the former lead researcher of Iowa State’s farmland ownership survey.
Microsoft co-founder Bill Gates owns just 552 acres in Iowa, although he and ex-wife Melinda Gates are believed to own 242,000 acres nationwide. Clearly, they see this as a smart alternative investment.
Also sharing Iowa farmland, for a time, were two fish farming operations that caught the attention of alternative investors. VeroBlue in Webster County became a dominant force in raising barramundi, while Eagle’s Catch in tiny Ellsworth, alongside Interstate 35, built a tilapia farming business with funding from more than 50 investors. Both fish farms went belly-up — VeroBlue declared bankruptcy in 2018, with an astonishing $98 million of debts — showing that alternative investments carry their share of risk.
Besides farmland, commercial and residential real estate is the biggest alternative investment for most individuals. The market is huge: Across the United States, nearly $2 billion of commercial real estate transactions take place every day.
Builders of strip malls and office parks aren’t picky about where their money comes from, and institutional investors and individuals stand equal in funding. The return on investment (ROI) for commercial real estate averages around 9.5%.
Interestingly, the ROI rises to 11.3% for real estate investment trusts (REITs). And here’s where stocks come back into play, as an estimated 200 REITs are publicly traded. By law, they must pay at least 90% of their after-tax income to investors, which can add up to some decent dividends.
There are REITs that specialize in cellphone towers, server farms, medical offices, warehouses, even office buildings and malls — you name it. You can also invest in REIT exchange-traded funds (ETFs), which diversify risk and might make things seem a little less like a horse race.
Be careful: Alternative investments carry risks, too
Some alternative investments don’t work for valid reasons. An oil well finds only water, a race horse breaks its leg, or a bolt of lightning burns down your timber land. Others fail because they’re just bad ideas — or the targets of thieves.
Take the case of an oil well promoter named John G. Westine Jr. He and his people reached out to me in 2013 about wells they were acquiring in Kentucky. These were “stripper wells” that produced just a few barrels of oil a day and had been abandoned by their original owners when oil prices fell. When prices recovered, capital from guys like me could restore those wells to working order and pump out some new wealth. I had prior experience in the oil patch, having put money into a drilling program in Texas that sort of worked and sort of didn’t. So I sent him a check. Not a big one, but enough to see if I could find more fortune than in Texas.
I could not. Westine and his partners lied all the way through the process, crafted fake leases and drew up phony maps. Their promise of a quick return dragged out for weeks, then months. There were production delays, then equipment breakdowns, then a problem with trucking the oil to a pipeline. I lucked into one royalty check, for $2.13. Then they ghosted me. Turns out that they were all in jail, as authorities had gotten wind of their shenanigans and locked them up.
I got a letter last month from the U.S. Justice Department, advising me that 77-year-old Westine is now due to be released from prison in October 2047. He was convicted in 2015 of 29 counts of mail fraud, laundering, conspiracy and more. The judge enhanced his sentence to 40 years after noting that when Westine swindled me and 240 others, he was still on parole from a 20-year stint he did in Ohio for an oil well scam there.
Some people never learn. But hopefully, I have.
