Sarah is a very smart lady with great real estate experience and significant funds to invest. So, why was Sarah in such angst?
She was on the phone with me, pondering how to improve her investment results. The market in her region was not great, and we were discussing how she could invest in a different location.
The Struggle (to Succeed Independently) Is Real
She was struggling through all of the logistics of finding a Realtor, finding a property, and managing it, plus collections, vacancy, and what happens when a tenant trashes the unit and skips town.
“It’s hard enough doing this in my own backyard. With the crazy prices here and now this rent control thing, I have to invest in a different state. I’m not sure where to go from here.”
Sarah didn’t want to spend every waking minute consumed with all of these details. Though the thrill of chasing the acquisition was exhilarating, the rest of the work involved is frankly not always that fun or profitable—regardless of what we’ve all seen on HGTV.
We discussed what it would look like for her to invest passively instead. She thought it would be great to expend less effort and make the same (or better) returns.
There Is a Better Way to Build Wealth
That’s when the lightbulb went on for Sarah.
With excitement, she said, “Why should I work harder than I need to… to make less than I could?”
Sarah realized that she could invest in commercial real estate that works for her. That is the beauty of passively investing with professional operators in a diversified fund.
Consider Investing in Commercial Real Estate
Now, I realize this won’t apply to many of you BiggerPockets readers. You are going at this full time, and you have the skills, experience, and resources to do this on your own. So, if that’s you, you can ignore this or read on. But please don’t shout me down.
This may apply to those of you who…
- watched the flipper shows on HGTV and believe it’s really that easy.
- have got the real estate bug but are tied down to a daily 9 to 5 (for now at least).
- have a high-paying job and could make far more staying there and investing passively.
- are spending almost every spare moment chasing elusive deals in this overheated market.
- have a property and are working for under minimum wage to rehab it in your spare time.
- have tried to build a portfolio of rental houses and found it’s much harder to manage than you thought.
- fear a recession and realize that the deals you’re looking at will be in trouble when it hits.
For decades, investing in a portfolio of commercial real estate assets was considered the playground of the wealthy. Average investors like us couldn’t get access.
A great majority of The Forbes 400 wealthiest Americans invests in commercial real estate. This is how many of them obtained their wealth, and this is how others accelerate its growth.
And their friends in Congress have made real estate a taxpayer’s dream. After all, it’s widely known that commercial real estate provides powerful opportunities to force appreciation and expand wealth–with limited risk–in a way that I haven’t seen anywhere else in my 30-plus years in business and investing. The tax advantages really are powerful.
Why Commercial Investing Is No Longer Reserved for the Rich & Powerful
As a result of the JOBS Act, the online revolution, and a variety of other developments, the doors are wide open for the masses to invest in these commercial real estate opportunities. Crowdfunding sites, individual syndicators, and funds provide unprecedented access to a wide array of opportunities. And through a direct ownership structure, investors get all of the tax deductions they would get if they owned and operated these assets as a solo investor.
Here’s the thing: By investing with an ethical professional operator—one whose track record precedes the Great Recession—investors can usually make better returns, accelerate their wealth creation, and enjoy the same tax benefits. And after a strenuous vetting process up front (don’t skip this!), a passive investor’s effort really will consist of walking to the mailbox to collect their quarterly distribution check.
Like Sarah said, “Why work harder than you need to… to make less than you could?”
“Hold on, Paul. If this is so easy and profitable, why doesn’t everybody do it?”
Great question. I have a short list of potential answers:
- Many don’t know about this opportunity. Or they haven’t taken a careful look.
- Many investors love the thrill of the chase and the joy of doing this on their own—even if it is less profitable. (I get that.)
- Some investors don’t know who to trust. They’ve been burned before, and they feel they need to stay in control of their cash and their deals. (I understand this, too.)
- You’re not an accredited investor, and most of the best deals are limited to them.
- A few of you (very few) have the experience, risk tolerance, resources, and deal pipeline to go this alone. So, you don’t see the point of sharing your profits with someone else.
If you’re a part of the first three groups above, I would encourage you to take another look at the potential of investing passively. Many investors have discovered that the joy and profitability are unsurpassed. This path is not for everyone, but I venture to bet this is the most profitable path for the vast majority of investors.
If you’re in group No. 4—you’re not accredited—there are some crowdfunding opportunities that you should look into. Some of the crowdfunding portal deals and individual syndication opportunities are outstanding.
I’m in a mastermind group with a bunch of sharp syndicators and fund managers. We all provide our investors deals like this. Many of us are seeing returns of 15 percent or more annually. Some deals have much higher returns than that and are geared to be recession-resistant.
You can’t trust everyone. But if you decide to invest passively and you have carefully vetted someone you trust, I would venture to say that you will end up with the highest predictable, risk-adjusted, tax-advantaged returns per unit of effort available in the investing world today.
My Experience as a Commercial Real Estate Investor
I’m not touting something that I don’t do myself. I have been directly involved in real estate investing for almost two decades. I have written three books on real estate investing and have been a guest or host on over 300 podcasts. I could continue to acquire, own, and operate my own deals.
But when this lightbulb went on for me a few years ago, I began vetting operators whose teams had decades of experience and acquisition pipelines I could only dream of. I recently sold a pricey piece of real estate, and I invested all of the proceeds in a portfolio of deals that I don’t operate directly. And I couldn’t be happier or more thrilled with the results thus far.
My company has reinvented itself to vet operators and invest passively with them. We get the peace of mind of knowing that our assets are managed by a team of professionals who have been doing this since before the Great Recession and who are investing alongside us investors. But we let the professionals do the heavy lifting.
Let’s face it. We can’t all be experts in everything.
I was on the phone with an oral surgeon recently. He was building a portfolio of 20 single family rental homes to provide for his retirement. But it was driving him crazy.
“I’m on the phone with painters between surgeries. And the vacancies take time to fill. I was planning to buy 20 of these. I’m only on number three, and I’ve had it! There’s got to be a better way!”
I asked him the same question I asked myself—which is the same question I’m asking you…
Why are you working harder than you have to… to make less than you could?
Let’s talk in the comment section below.