Struggling To Find The Path To Passive Income
Investor · Member since 2021 · 22 posts · 28 votes
Struggling To Find The Path To Passive Income
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Jim PfeiferBusiness Member
Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votesYou stated pretty clearly that you are looking for passive income - you got some great advice and most of it was to invest in real estate syndications. There really isn't another way to be a passive investor in real estate - owning property and being the asset manager is never passive, I agree you should look into syndications. How do you start? That is the one thing I did not see addressed. When I started investing in passive real estate syndications I listened to podcasts and read books in order to find quality sponsors. I would call them up and talk for 30 minutes and then they would send me a deal. I would review the pitch deck - not really understanding what I was looking at - and call the sponsor and ask a few questions. Next, I was expected to wire them $50,000. I had talked to them less than an hour and knew very little about them. Naturally, sending that wire was terrifying! I found some great sponsors that way, but I also found some lousy ones. It turns out that being a great podcaster and marketer does not always make you a great asset manager!
Now I do things differently - I use a Community to help me find sponsors and analyze deals. This is exactly what BP is to BRRR investors, flippers and others who are more active in real estate. There are also plenty of people who are syndication investors in BP and there are quite a few other Communities that are geared directly to syndication investors. Now, I don't invest in a new sponsor unless they are introduced to me by someone in my Community, who I know like and trust and that person has invested with the sponsor. I still do all of the same due diligence, but trust transfers - now I am a hundred steps ahead because I know this is a real syndicator and someone I trust has had some success with them. This doesn't mean that all of the sponsors and deals I invest in our homeruns - but I definitely rarely strike out anymore. The power of Community is real. I think from the feedback on this post that syndications is probably your best option, but if you really want to get the most out of it, I recommend joining a Community or several - it's the best way to leverage the knowledge and expertise of others!
32 Replies
- Investor · Ellwood City, PA · Member since 2019 · 93 posts · 124 votes4y
Quote from @Steven Rosenfeld:
I did W2 for 30 years as in corporate IT. Dabbled in real estate but never went for it big time - bought and sold a few primary residences and a couple of condos over the years. Now I'm 56 and hoping to never work for anyone again. I've got $2 million in an IRA (invested in mutual funds), $300K in investable cash, and $200K in reserves. I'd love to take that $300K and build up some passive income of $50-100K annually. I also got my real estate license during the pandemic but I am not into being a real estate sales agent. My wife has a great income and covers half our costs but we live in the NYC metro area, so expensive. Considering all of these variables, WHAT WOULD YOU DO IF YOU WERE IN MY SITUATION? Would you invest in some cash flowing (if they still exist) properties and start up the road of passive income from real estate? Is it too late for someone like me to make this happen?
Hey Steven
Just my 2 cents worth... if it were me, I'd personally be looking for private lending deals and performing notes with good quality borrowers.
I own more than 100 rentals now... its not passive. My lending investments by comparison take WAY less active management.
For arguments sake, I'd also throw syndications in the mix if you can find a GP/project you like.
And don't forget REITs... there are some good monthly income payers put there.
Good luckDG
- Investor · Member since 2021 · 22 posts · 28 votes4y
Thanks David - I do appreciate that owning and managing a lot of rental properties can be far from a passive income experience!
Private Lending and REIT investing seem not much different to me than stock/bond investing. What kind of ROI can I expect since I won't be able to leverage up? And then I'm not owning an asset that has tax advantages and can appreciate. I'm new to this so I've no doubt I'm missing something, but thats my initial reaction.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes4y
Try syndications. Direct owned real estate is not a passive endeavor...sure, it's about the return, but it's more about enjoying the hunt/process and that does not fit everyone's goals.
- Investor · Ellwood City, PA · Member since 2019 · 93 posts · 124 votes4y
Quote from @Steven Rosenfeld:
Thanks David - I do appreciate that owning and managing a lot of rental properties can be far from a passive income experience!
Private Lending and REIT investing seem not much different to me than stock/bond investing. What kind of ROI can I expect since I won't be able to leverage up? And then I'm not owning an asset that has tax advantages and can appreciate. I'm new to this so I've no doubt I'm missing something, but thats my initial reaction.
Hey Steven... you're absolutely right. In many cases, if you want 'passive' then there are tradeoffs. It's pretty difficult to find ALL the perks of RE (tax advantages, leverage etc. as you pointed out) while still being passive. I think the closest you'll come is investing in syndications as an LP.
DG
- Investor · Ellwood City, PA · Member since 2019 · 93 posts · 124 votes4y
Quote from @Steven Rosenfeld:
Thanks David - I do appreciate that owning and managing a lot of rental properties can be far from a passive income experience!
Private Lending and REIT investing seem not much different to me than stock/bond investing. What kind of ROI can I expect since I won't be able to leverage up? And then I'm not owning an asset that has tax advantages and can appreciate. I'm new to this so I've no doubt I'm missing something, but thats my initial reaction.
I will just add one more thing, Steven.
Diversify!
Invest in syndications.
Buy performing notes.
Do some private lending.
Buy a REIT or 2.
Being diversified is the best advice I never got, d learned the hard way what NOT being well diversified can do.
Good luck
DG
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes4y
Congrats on saving hard! With 2 million alone you can take a 4% withdrawal which is $80,000 annually. Realistically if doing buy/hold and do proper underwriting you can find 8-10% COC with 25% down deals. This would bring you in about $25-30,000 annually out of the $300k. Be careful of anyone who tells you higher lots of deals look better on paper but aren't properly accounting for bad tenants, turnover costs, etc. you get in lower class areas. The other way to scale is doing BRRR's. I have done one on a 4 unit which now brings in $1500 a month 3 years later with $0 of original money in it. Opportunities for these pop up here and there but are way harder to find now then a few years ago and I wouldn't make it your sole focus, rather focus on solid class B areas and shoot for that conservative 8-10% COC range.
- Investor · Member since 2021 · 22 posts · 28 votes4y
Thx Dave for all your inputs
- Investor · Member since 2021 · 22 posts · 28 votes4y
Quote from @Henry Lazerow:
Congrats on saving hard! With 2 million alone you can take a 4% withdrawal which is $80,000 annually. Realistically if doing buy/hold and do proper underwriting you can find 8-10% COC with 25% down deals. This would bring you in about $25-30,000 annually out of the $300k. Be careful of anyone who tells you higher lots of deals look better on paper but aren't properly accounting for bad tenants, turnover costs, etc. you get in lower class areas. The other way to scale is doing BRRR's. I have done one on a 4 unit which now brings in $1500 a month 3 years later with $0 of original money in it. Opportunities for these pop up here and there but are way harder to find now then a few years ago and I wouldn't make it your sole focus, rather focus on solid class B areas and shoot for that conservative 8-10% COC range.
Awesome analysis Henry and right to the point! Can you be my financial planner? Seriously, this is a good reality check and I am concerned about finding good deals now. I would really want to buy properties that I could sell after 10-15 years of nice appreciation, so its not all about cash flow for me. Perhaps some markets will turn as a result of the macroeconomic stuff going on and some better deals will start to pop up.
- Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes4y
@Steven Rosenfeld - you can also become a money partner. Ever since moving up into the $3M+ range on purchases I've started bringing in a couple money partners into the deals. They get equity, they're part of the new LLC (created specifically for that one property), they get quarterly member disbursements, tax benefits (which can be quite massive as we've started doing cost segregation studies right from the start - basically you get an accelerated depreciation schedule which offsets most if not all income the property throws off in the first few years), principal pay down on the bank loan and any appreciation (which on my deals I don't rely on market appreciation, I create it through forced appreciation - improvements, higher rents, lower costs etc). There are others like me out there you just need to find them. But it can be a way to get the best of both worlds. Passive income and the benefits of direct ownership.
- 4yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
Congratulations on being in such a strong financial position.
What attracts you about real estate? Are you looking to own individual units? Put another way, does "rolling up your sleeves" a little bit (even if using property management) seem interesting and something you're looking to do at this point? Or do you just want to shift into RE as an asset class for diversity's sake?
Another question - what markets would you be looking in? Are there markets in the US that you used to live in / know well / have a network in / visit often / visit kid(s) or family in? Does driving around on the weekends looking for properties sound interesting and fun?
I don't think it's at all "too late," but if you're not looking to make RE a full time job or something you put a lot of time into, it's going to be difficult to generate the net income you seem to be looking to add to your portfolio with your $300K.
Welcome and looking forward to continued dialogue. Lots of great advice and questions already in this thread.
- Investor · Member since 2021 · 22 posts · 28 votes4y
Quote from @Nicholas L.:
Congratulations on being in such a strong financial position.
What attracts you about real estate? Are you looking to own individual units? Put another way, does "rolling up your sleeves" a little bit (even if using property management) seem interesting and something you're looking to do at this point? Or do you just want to shift into RE as an asset class for diversity's sake?
Another question - what markets would you be looking in? Are there markets in the US that you used to live in / know well / have a network in / visit often / visit kid(s) or family in? Does driving around on the weekends looking for properties sound interesting and fun?
I don't think it's at all "too late," but if you're not looking to make RE a full time job or something you put a lot of time into, it's going to be difficult to generate the net income you seem to be looking to add to your portfolio with your $300K.
Welcome and looking forward to continued dialogue. Lots of great advice and questions already in this thread.
Nicholas thanks for your thought-provoking input. I'm definitely looking for more than just asset class diversification. I've always been interested in real estate but only did it on a very small scale in NYC and Las Vegas. Now that I'm off the corporate W2 treadmill, I am inclined to committing a serious chunk of my time to this business and hopefully get enough cashflow to be my main gig. Probably my biggest issue right now is identifying a market where decent deals can be found. I also do have a bit of an analysis-paralysis personality so I have to work on pushing through that. I have no trusted partners lined up so that is also an issue.
- 4yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
You qualify as an accredited investor. I agree with all of the posts that indicate start by joining a syndication (as a limited partner). Targeted annualized return is typically in the upper teens achieved over the hold. Look for a syndicator that has a track record of hitting their pro forma. Commitment can be as low as 3 years (maybe if you search hard you can find one shorter, but it would be rare). Very few are more than 10 years (3 to 5 years is common). They have many of the tax benefits of traditional RE transactions including being common to use accelerated depreciation to offset the gains from the exit of previous syndication. Let the General Partners do the heavy lifting (i.e. do the work).
I recognize that achieving returns better than high teens it easily accomplished in traditional RE investing, but the highest returns are via non-passive means. I typically have achieved infinite return on my BRRRRs, but BRRRRs are one of the least passive RE investment options. They can produce great wealth, but they take a lot of effort. Achieving returns of upper teens via traditional RE investing with as little effort as joining a syndication is historically not easy.
If you do a syndication or 2 and feel that you want more of a challenge or something to keep you busy, then you can do traditional RE investment but I suspect that will not happen. You will be content with the easy passive money achieved via syndication that you qualify for because you qualify as an accredited investor.
Good luck - Investor · Washington, IL · Member since 2017 · 51 posts · 21 votes4y
Diversification is an important part of any strategy as many have stated, but you can still be entirely passive (if that's your ultimate goal) and be diverse as well. Syndications offer great tax benefits in addition to passive income and the ability to diversify asset classes from multifamily to mobile home parks, self storage, RV parks and more. Returns can be better and more stable than stock / bond investing and the sponsors have a much higher level of control over the outcome of the project (and therefore the returns investors receive) than anyone can get from investing in the stock market.
- 4yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
Since you're a HNWI, you can see that basically everyone in this thread is recommending syndications. If that interests you, that's great. I do think based on your portfolio it sounds like you may have the time and funds to both find a syndication AND do something a little more hands on, like buying a property directly. But again, you should only do that if those are both investing paths that are of interest to you. If you don't want to be a property owner/ landlord, don't buy a property!
But if you do, I think there is tremendous value in finding a market you have ties to / you can drive to. For example, within 3 hours of you there are more affordable markets investors are having success in - the Lehigh Valley; Harrisburg; Danbury; etc. You could find an agent, plan a weekend trip, and go look at 20 properties. There are lots of threads on BP about these markets. Or if you have strong ties to an out of state market, go look there. I live in PA, but own a condo in Stamford. It's not appreciating, but it cash flows well and I have property management I'm very happy with.
All of this is going to come down to your time, goals, energy, desired results, etc. And there are lots of things you can do for free - go to REIAs, review syndications, talk to agents, talk to lenders, look at properties.
- Real Estate Coach · Robbinsville, NJ · Member since 2017 · 185 posts · 99 votes4y
It is never too late. 56 is still young. You have the capital to put to work. What would you get to cash flow for individual unit in your area? See the #'s on what you would need. You can also look at private non-traded real estate like BREIT from Blackstone. You look like you are an accredited investor and there are other non-accredited options.
- Investor · Member since 2021 · 22 posts · 28 votes4y
Thanks to everyone who has posted on my thread! You guys are awesome and I'm already seeing real value in being part of the BP community. I hope to pay that back someday :)
- 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
You stated pretty clearly that you are looking for passive income - you got some great advice and most of it was to invest in real estate syndications. There really isn't another way to be a passive investor in real estate - owning property and being the asset manager is never passive, I agree you should look into syndications. How do you start? That is the one thing I did not see addressed. When I started investing in passive real estate syndications I listened to podcasts and read books in order to find quality sponsors. I would call them up and talk for 30 minutes and then they would send me a deal. I would review the pitch deck - not really understanding what I was looking at - and call the sponsor and ask a few questions. Next, I was expected to wire them $50,000. I had talked to them less than an hour and knew very little about them. Naturally, sending that wire was terrifying! I found some great sponsors that way, but I also found some lousy ones. It turns out that being a great podcaster and marketer does not always make you a great asset manager!
Now I do things differently - I use a Community to help me find sponsors and analyze deals. This is exactly what BP is to BRRR investors, flippers and others who are more active in real estate. There are also plenty of people who are syndication investors in BP and there are quite a few other Communities that are geared directly to syndication investors. Now, I don't invest in a new sponsor unless they are introduced to me by someone in my Community, who I know like and trust and that person has invested with the sponsor. I still do all of the same due diligence, but trust transfers - now I am a hundred steps ahead because I know this is a real syndicator and someone I trust has had some success with them. This doesn't mean that all of the sponsors and deals I invest in our homeruns - but I definitely rarely strike out anymore. The power of Community is real. I think from the feedback on this post that syndications is probably your best option, but if you really want to get the most out of it, I recommend joining a Community or several - it's the best way to leverage the knowledge and expertise of others!
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes4y
@Steven Rosenfeld, I am a bit confused about your goals. You want passive income, or you are willing to work, just not for someone else?
As other's noted, you will not find investments in this market that generate 16-33% annualized cash on cash returns without relying on possible sale proceeds (which then means you cut the income stream) and typically even then you will be active.
Since you are trying to create income that sustains you, risk is a very real factor, as is level of involvement. Flipping can get you pretty significant returns, but you will be working full time as a project manager/GC and sourcing deals. As others noted, on a good deal these days for a rental, you might get 10% leveraged CoC, which will not hit your income goals. Private lending, you might be a little higher than that, but you need to build up a network of borrowers, and I have spoken to more than a few people that went this route and it was NOT passive. Late payments, non-payment, foreclosures, monitoring draw schedules and confirming progress, etc.
Then you get to syndications, which are passive, but likely only yielding 5-8%, so you are back at 15-24k/yr of income. When the sale happens, just like a rental or flip, you can push that much higher (hopefully) but then you cut the income stream.
If I were in your situation, I would assess my income goals and willingness to be active. More active means more income, typically. Income because your required rate of return is not likely available in the marketplace, and is certainly not available when factoring risk profile.
- Investor · NY · Member since 2019 · 171 posts · 80 votes4y
Syndication or being a private lender is probably your best bet. Lend to house flippers, you can fund the entire thing for say 50% of the profits and they do all the work, or a deal of similar type. You can try Airbnb but that only becomes passive once you have your systems in place.
- Investor · Member since 2021 · 22 posts · 28 votes4y
Quote from @Evan Polaski:
@Steven Rosenfeld, I am a bit confused about your goals. You want passive income, or you are willing to work, just not for someone else?
As other's noted, you will not find investments in this market that generate 16-33% annualized cash on cash returns without relying on possible sale proceeds (which then means you cut the income stream) and typically even then you will be active.
Since you are trying to create income that sustains you, risk is a very real factor, as is level of involvement. Flipping can get you pretty significant returns, but you will be working full time as a project manager/GC and sourcing deals. As others noted, on a good deal these days for a rental, you might get 10% leveraged CoC, which will not hit your income goals. Private lending, you might be a little higher than that, but you need to build up a network of borrowers, and I have spoken to more than a few people that went this route and it was NOT passive. Late payments, non-payment, foreclosures, monitoring draw schedules and confirming progress, etc.
Then you get to syndications, which are passive, but likely only yielding 5-8%, so you are back at 15-24k/yr of income. When the sale happens, just like a rental or flip, you can push that much higher (hopefully) but then you cut the income stream.
If I were in your situation, I would assess my income goals and willingness to be active. More active means more income, typically. Income because your required rate of return is not likely available in the marketplace, and is certainly not available when factoring risk profile.
Hi Evan - For sure I am a bit confused and hopefully some good ideas will surface from that confusion :) I see the limitations of the income stream I can achieve with the seed money I have by using totally passive strategies. Going active in real estate is seriously under consideration.
- Investor · Huntsville, AL · Member since 2012 · 50 posts · 50 votes4y
I know that this may sound really obvious , but in my humble opinion, you may not want to state your detailed, personal , money amounts on the internet. Something safer may be to speak in generalities such as, I am doing ok with my 401k and my investments are performing well, and I am pursuing passive income ( just to keep most people honest). With that being said, maybe bank notes would be worth checking out , although they could carry risk.
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
STR's
Logical Property Management4.9451 Reviews - Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes4y
Investing in syndications as an LP sounds like what you are looking for. It is a truly passive experience. I suggest connecting with a few different syndicators to learn more about what's out there.
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4y
Quote from @Steven Rosenfeld:
I did W2 for 30 years as in corporate IT. Dabbled in real estate but never went for it big time - bought and sold a few primary residences and a couple of condos over the years. Now I'm 56 and hoping to never work for anyone again. I've got $2 million in an IRA (invested in mutual funds), $300K in investable cash, and $200K in reserves. I'd love to take that $300K and build up some passive income of $50-100K annually. I also got my real estate license during the pandemic but I am not into being a real estate sales agent. My wife has a great income and covers half our costs but we live in the NYC metro area, so expensive. Considering all of these variables, WHAT WOULD YOU DO IF YOU WERE IN MY SITUATION? Would you invest in some cash flowing (if they still exist) properties and start up the road of passive income from real estate? Is it too late for someone like me to make this happen?
Hey Steven,
No, it is not too late. There are still plenty of deals to be had. I cold call daily and am finding deals that are cash flowing as well as appreciating. You should consider investing OOS here in Columbus or Cincinatti. The price to rent ratio makes for great investments. Not to mention our appreciation has been 8% higher then the US national average, because of the high demand for affordable housing.
- 4yAndrew HoganPro MemberRental Property Investor · Indianapolis, IN · Member since 2016 · 559 posts · 463 votes
Never too late @Steven Rosenfeld if you have set goals that you want to accomplish. If you don't want to work for someone else then try investing as hands off as possible so that you don't end up working for your residents/clients.
Best of luck!
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