Does risking 90% to 100% of your investment with passive investing make sense?

[Bryn Kaufman]

I was shocked to learn that I might lose 90% of my passive investment with Open Door Capital, run by Brandon Turner.

I did not realize passive Real Estate investing is so much riskier than the stock market.

I was foolish enough to think it was safer when I made my investment.

For stock market investing, one is always looking at the risk vs. reward for every investment, every trade.

In the stock market, if you lose 1%, or 10% or whatever percent makes you uncomfortable, you can always pull your money out and wait until conditions are more favorable, unlike passive Real Estate investing.

In the stock market, if you are in an index fund, you know it will eventually recover. Unlike a passive Real Estate investment that goes bad, there might be no hope of recovery.

Also, the risk-to-reward ratio of simply putting your money into an S&P index fund seems much better. As a comparison, even if you held on through the COVID crash, you lost 34% (not 90% or 100%), and 8 months later, you recovered.

Also, you can put in the exact amount of money you want, so things like dollar cost averaging can help mitigate risk if you think the market is high. Compare this to passive Real Estate investing, where your entire investment has to be made at one time.

Summary of passive investing: You can lose all your money, you can't pull out your money if you feel things are not going well, you can't control the size of the loss, your money is gone for many years with no access, you have to put in a large fixed amount of money at one time, and you are counting on perhaps one or two people, rather than relying on the strength of the best businesses in America.

So my question is, does passive Real Estate investing make sense with such a huge risk?

In my opinion, as I go through this experience, I would say no. I would never put money into a passive Real Estate investment again.

Maybe there are others who disagree, but that is my opinion.

[V.G Jason]

Quote from @Bryn Kaufman:

Quote from @Jules Aton:

I suspect we will see more of this in the near future. Despite how the pandemic era made it seem RE isn't easy or a sure thing. 

 "I suspect we will see more of this in the near future. Despite how the pandemic era made it seem RE isn't easy or a sure thing."

I would add "passive" in front of the RE. If you buy a property directly, the investment does not go to $0. Sure, you can lose money on it, but not 100%.

My points are all about passive RE investing, not active.

Passive is just that-- passive. You gave up all control. Couple it with the risk you can lose 100% and there you go. 

I'll say it again, the most money is lost when overleveraged meets illiquidity. You dealt with the latter directly, and bought into the former without fully understanding. 

Passive investing is a farce; you want to do strictly active investing and the way you make it somewhat not as "stressful" or "demanding" is defer the management but never ever the control. In this instance, you deferred the management but gave up complete control of your funds.