I really like the idea of passive investing via syndications or crowdfunding, but to jump in on a deal now feels risky, as I have little to no experience in REI. Sure, I'm reading as much as I can about deal analysis and due diligence, but is it foolish to start out without any hands on experience buying, managing, and selling my own properties?
Listening to the BP podcasts, it seems like a lot of successful, experienced investors are now offering opportunities to put money into their deals or funds. If someone has a successful business model that would take me years to emulate, why shouldn't I take advantage of their expertise? They can probably get higher returns than me, and I would gladly take a lower rate of return in exchange for not having to put in the work of finding the deal and managing the property and eventually putting it up for sale.
What do you think is the minimum amount of experience needed to be able to successfully vet deals and sponsors? Can I do it just by reading and learning without any hands on experience? Or would I just be gambling?
I can tell you depending on how it is set up that you need to be an accredited investor.
I am doing a Retail investment fund soon but my buy in minimums will be in the 6 figures per investor.
The reason is too many investors for investing 25,000 etc. It's better to have a group that you keep syndicating with that has substantial liquid cash.
In this way instead of having to new investors each time they already know me and I know them. Each time you do a syndicate you do not want to re-invent the wheel each time.
I have had a couple of friends invest in syndicates and they have done well passively. The operator you go with is critical for a chance of success.
Those are some good questions that you asked. I have actually been a passive investor in these types of opportunities for over 13 years (the cash flow actually got me out of the corporate world 8 years ago!) and I can definitely understand your concerns. For what it's worth, I learned via "opportunity exposure", meaning that I read a lot of opportunities over time to learn what deals do and don't make sense. I have actually been in the midst of creating a book / course (ongoing now for several years, as I'm too busy investing!) to help people understand and analyze these types of opportunities, as no other book / course exists that helps investors with that as far as I am aware. For now, thanks to crowdfunding, you're able to review many opportunities (if you're an Accredited Investor), which makes the learning process a LOT easier than what I went through, as I had to create a large network to find a good volume of opportunities.
I think you're being very smart in not jumping into anything before you fully understand it, as there are always many risks to consider and in the end of the day it's imperative to know whether you're invested in an opportunity that has a fair (or perhaps favorable!) structure for investors.
Feel free to send me a private message (and anyone reading this is welcome to do so as well), as I would be happy to schedule call to help any way that I can. I typically speak with several new investors each week due to my large network and I am always happy to help, as I was in your shoes many years ago.
On a final note, I can tell you that passive cash flow can change your life, as it definitely changed mine in many positive ways. But please keep in mind that it's a very dangerous time to invest right now from a valuation perspective, given where we are in the real estate cycle and economic cycle right now, so be sure that you fully understand and are fully comfortable with any opportunity that you're considering (I am NOT a financial advisor, etc, this is just my perspective as an investor). Also, I would say the next most important thing to consider when it comes to passive investing is WHO you're actually making a bet on. I think one of the biggest mistakes people is not putting enough emphasis on the Managers in their analysis. I would say that the most important role I have as a passive investor is doing a gut check on who I am investing in (for me that includes background checks, phone calls with the Managers, and in-person meetings with the Managers). I always like to use the following example: "You can buy the best building that is fully occupied on 5th Avenue in NYC or on Rodeo Drive in Beverly Hills but if you make a bet on the wrong person and they run it into the ground then ultimately you will lose your building to the bank and it didn't matter that it was the best building when it was acquired". So be sure to keep that in mind if you're considering passive investing.
I hope this was helpful.
Good luck to everyone,
I have struggled with the same thing. I think both are really a bet on people at the end of the day if you are investing out of state. If you invest in a turnkey it is really a bet on the provider and their management company. Also, the more you know the harder it is to buy into something that will have a low probability of working out no matter how you choose to invest in RE so I would definitely try and learn as much as possible either way.
was also very helpful to me in talking over these types of opportunities even though I had a background in crowdfunding previously (just not related to RE).
These are really great questions. A couple of the big things I look for when evaluating passive deals is-
1. Is the sponsor invested themselves? If they are, the have some skin in the game to make this project a priority. For example, we are currently raising seven figures for a lucrative project we have coming up, but my partners and I also have 6 figures of our own money invested.
2. What is the worst case scenario? is there an exit strategy? I basically want to see what the worst case is. Ex, on our projects, our investors will know where their lien position is (1st or 2nd). We are also very conservative in evaluating numbers... we contingency plan with a quick exit in case markets change or decrease anticipated value. We are generally very conservative with our projections to mitigate risk.
At the end of the day, yes, our investors bet on myself and my partners. But there are definitely questions to ask before getting involved with a project. Please feel free to message me if you'd like to talk further!
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