{"id":175385,"date":"2024-07-17T13:42:01","date_gmt":"2024-07-17T19:42:01","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=175385"},"modified":"2024-07-17T13:42:03","modified_gmt":"2024-07-17T19:42:03","slug":"passive-real-estate-investments-im-investing-in-right-now","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/passive-real-estate-investments-im-investing-in-right-now","title":{"rendered":"These Are the Passive Investments I’m Most Excited About Right Now"},"content":{"rendered":"\n

As an <\/span>expat<\/span><\/a> and recovering landlord, I love hands-off investing. I\u2019ve invested in over two dozen real estate syndications as a limited partner (LP). I effectively become a silent partner and fractional owner in a large property, getting all the benefits of ownership\u2014<\/span>cash flow<\/span><\/a>, <\/span>appreciation<\/span><\/a>, and <\/span>tax advantages<\/span><\/a>\u2014without becoming a landlord. <\/span><\/p>\n\n\n\n

But syndications aren\u2019t the only way to invest passively in real estate. I\u2019ve also invested in <\/span>most of the<\/span> major<\/span> real estate crowdfunding platforms<\/span><\/a>, including Groundfloor, Fundrise, Streitwise, Ark7, Arrived, and more. Some I like. Others, not so much. <\/span><\/p>\n\n\n\n

Even the ones I like still don\u2019t offer exciting returns, however. <\/span>I invest a little money <\/span>with<\/span> them for diversification<\/span>, and to have<\/span> firsthand experience when I write and talk about them.<\/span> <\/span><\/p>\n\n\n\n

So, as a passive real estate investor, what am I excited about investing in right now? <\/span><\/p>\n\n\n\n

Why We Like Private Partnerships<\/span><\/h2>\n\n\n\n

My co-founder at SparkRental and I organize an investment club for passive real estate investors. <\/span>Every month, the Co-Investing Club gets together<\/span> to discuss and vet different passive real estate investments.<\/span> <\/span><\/p>\n\n\n\n

Often, that means <\/span>real estate syndications<\/span><\/a>. But we look at everything\u2014including partnering with private real estate investors on their deals. <\/span><\/p>\n\n\n\n

We\u2019ve been working with a private real estate investor in the Midwest for almost a year <\/span>now<\/span>, getting to know him and the kinds of investments he makes. Next month, <\/span>we\u2019re planning<\/span> to partner with him on a few of his flip deals. <\/span><\/p>\n\n\n\n

He\u2019s not a syndicator or public figure, so I\u2019ll call him Casey to preserve his privacy. Casey and his team of five employees have done hundreds of <\/span>house flips<\/span><\/a>. His win ratio is 93%, and his average cash return is 25% to 30% on short-term <\/span>flips;<\/span> higher for his long-term flips. <\/span><\/p>\n\n\n\n

When he brings in partners to provide the bulk of the cash, he pays them a cut of the profits. <\/span>Nothing<\/span> unique there<\/span>\u2014but<\/span> where it gets interesting is<\/span> that he also offers a return \u201cfloor\u201d for partners.<\/span> He signs <\/span>both<\/span> a corporate and personal guarantee that he\u2019ll pay partners a minimum return of 6% to 8%. On the rare flip where he earns less than that, he eats the loss as a cost of capital. <\/span><\/p>\n\n\n\n

Good luck finding a real estate syndicator willing to do that. <\/span><\/p>\n\n\n\n

Oh, and <\/span>one other<\/span> thought:<\/span> These private partnerships allow <\/span>non-accredited <\/span>investors<\/span><\/a>,<\/span> since <\/span>they\u2019re not registered<\/span> with the SEC. <\/span><\/p>\n\n\n\n

Private Funds<\/span><\/h2>\n\n\n\n

Some private equity funds that are never advertised work similarly, just on a larger scale. These word-of-mouth funds let investors buy into a pool of single-family rental properties operated by a small, highly experienced team. <\/span><\/p>\n\n\n\n

We\u2019re looking to invest with one such team later this fall, where they specialize in lease-option partnerships. They find a renter-homebuyer first, and a property for them to move into second. They buy the property, the client moves in <\/span>and<\/span> pays rent, and then buys <\/span>the property<\/span> within three years for a predetermined price. <\/span><\/p>\n\n\n\n

Again, there are occasional misses and losses. But the longer this small company has been in business, the fewer and farther between those <\/span>have been<\/span>. They\u2019ve done hundreds of these <\/span>deals,<\/span> in many different market conditions. We\u2019ll go in with them on a pool of dozens of properties, and I\u2019m confident the profits from the wins will more than offset the inevitable loss here or there. <\/span><\/p>\n\n\n\n

That\u2019s one example of many private, unadvertised <\/span>funds that are word-of-mouth only<\/span>.<\/span> I consider it my job to find <\/span>all<\/span> the most reputable and experienced <\/span>of these<\/span> private citizen investors, in addition to having relationships with the 50 or so syndication sponsors worth knowing.<\/span> <\/span><\/p>\n\n\n\n

Low-Risk, High-Interest Private Notes<\/span><\/h2>\n\n\n\n

Don\u2019t think low-risk, high-return investments <\/span>actually<\/span> exist? You haven\u2019t been in the game long enough. <\/span>In fact,<\/span> there\u2019s a term for them in finance: asymmetric returns. <\/span><\/p>\n\n\n\n

The first time I lent a <\/span>private note<\/span><\/a>, it<\/span> was to a friend who earned money almost as fast as he blew it on fancy dinners and cars.<\/span> For collateral, I demanded he sign over the rights to repossess his 1957 Porsch<\/span>e\u2014a<\/span>long with the keys.<\/span> He paid me back, if a little later than promised. <\/span><\/p>\n\n\n\n

More recently, our Co-Investing Club<\/span> lent a private note at 10% interest (paid monthly) and a rotating six-month term.<\/span> We can terminate the note <\/span>at<\/span> any <\/span>time,<\/span> with six months\u2019 notice. <\/span><\/p>\n\n\n\n

I realize<\/span> 10% may not sound impressive, but the risk was asymmetrically low. To begin with, we got both a personal and corporate guarantee from a professional real estate investor who owns 112 rental properties. He also secured the note with a first-position <\/span>lien,<\/span> at<\/span> under 50% <\/span>loan-to-value ratio<\/span><\/a> (LTV). <\/span><\/p>\n\n\n\n

The only downside is that in the unlikely event of default, <\/span>the onus would fall on us<\/span> to hire a foreclosure attorney to recover our money.<\/span> But I <\/span>have no doubt<\/span> that we<\/span> would, along with any legal expenses. <\/span><\/p>\n\n\n\n

A Surprise About Syndicators<\/span><\/h2>\n\n\n\n

Over the course of<\/span> several dozen real estate syndication deals, our Co-Investing Club has found something surprising: The sponsors with big brands and reputations have <\/span>largely underperformed<\/span> the <\/span>smaller<\/span> mom-and-pop sponsors. <\/span><\/p>\n\n\n\n

When we first started networking with sponsors to find the most promising ones to invest with in our investment club, we asked around among other passive investors. Often, the same names popped up <\/span>again and again<\/span>: sponsors who had done dozens of deals and enjoyed sterling track records and reputations. <\/span><\/p>\n\n\n\n

Then, interest rates surged in 2022 <\/span>and disrupted<\/span> the entire real estate industry.<\/span> <\/span><\/p>\n\n\n\n

The two worst deals we ever invested in were with big-name sponsors. You\u2019d know their names if you\u2019re in the syndication space. We\u2019ll never invest with them again. <\/span><\/p>\n\n\n\n

Meanwhile, the smaller syndicators we\u2019ve met and invested with over the last few years have performed significantly better. <\/span><\/p>\n\n\n\n

Why is that?<\/span><\/p>\n\n\n\n

The Risk of Big Brands<\/span><\/h2>\n\n\n\n

In my experience, the big brand-name sponsors focused too much on scaling and <\/span>branding,<\/span> and <\/span>not enough<\/span> on operations.<\/span>  <\/span><\/p>\n\n\n\n

Many of them run training programs for novice sponsors. They earn millions by selling five-digit courses and programs. <\/span>Know what<\/span> they\u2019re <\/span>not <\/span><\/em>focusing on while they\u2019re running their high-profit training programs<\/span>? Operating<\/span> their existing properties and delivering returns for their investors.<\/span> <\/span><\/p>\n\n\n\n

The mom-and-pop sponsors we\u2019ve invested with <\/span>mostly<\/span> raise money through word of mouth among friends, family, and other small sponsors. They aren\u2019t interested in buying $100 million apartment complexes. They know their narrow niche well and how to earn consistently strong returns <\/span>in it<\/span>. <\/span><\/p>\n\n\n\n

Rather than spending the bulk of their efforts marketing <\/span>or<\/span> raising money<\/span><\/a> or selling educational programs, they focus largely on finding the right deals and then executing <\/span>on<\/span> operations. They earn money for their investor<\/span>s\u2014m<\/span>any of whom are immediate family and friends.<\/span> <\/span><\/p>\n\n\n\n

Big<\/span> Returns with Smaller Investors<\/span><\/h2>\n\n\n\n

It\u2019s <\/span>a lot<\/span> harder to find small operators who spend little or no time marketing<\/span>, <\/span>but <\/span>who<\/span> are open to taking money from partners and investors.<\/span> It\u2019s even harder to vet them. Unlike big-name sponsors, you can\u2019t get instant feedback from other investors on <\/span>forums like BiggerPockets<\/span><\/a> about them. <\/span><\/p>\n\n\n\n

But those partnerships are pure gold once you establish that the investor knows what they\u2019re doing and will reliably grow your money. In some ways, these bring you full circle back to smaller properties, including single-family homes.<\/span><\/p>\n\n\n\n

Sound<\/span> like<\/span> a lot of work?<\/span> It can be. But it\u2019s still far less work than building a side business to buy properties yourself. And you don\u2019t have to do it yourself, either\u2014you can always join an investment club.<\/span><\/p>\n\n\n\n

Most people think of private equity real estate syndications when they think of passive investments. I like syndications, but they\u2019re simply one of many types of passive real estate investments you can make. Consider going beyond the obvious big-brand syndicators as you explore passive investing.<\/span><\/p>\n\n\n\n \n

\n \n\n
\n \n\n
\n
\n \n\n

Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n

Step #1: Use Agent Finder to match with top investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n

\n Find an Agent<\/a>\n <\/div>\n\n <\/main>\n <\/div>\n\n
\n \n <\/div>\n <\/div>\n<\/div>\n\n <\/div>\n \n\n\n
\n \n
\n \n\n
<\/div>\n\n\n\n
\n \n\n
\n
\n \n\n

Join the community<\/h3>\n\n\n\n

Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n

\n Sign Up<\/a>\n <\/div>\n\n <\/main>\n <\/div>\n\n <\/div>\n<\/div>\n\n\n
<\/div>\n\n\n <\/div>\n <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

With so many ways to invest in real estate today, finding the right path for you can be tough. Take a look at what Brian is considering.<\/p>\n","protected":false},"author":158586,"featured_media":175097,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7363],"tags":[],"class_list":["post-175385","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-reits-passive-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175385","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=175385"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175385\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/175097"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=175385"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=175385"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=175385"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}