Max return versus passive investing, thoughts?

Question

As investors, building your portfolios, at what point does being “hands-off” become more important than gaining every last percentage point of return? Curious how others think about the tradeoff between maximizing returns versus having a more passive investment.

G. Brian Davis · Answer

For me, it became more important as I started valuing my time differently. An extra point or two of return isn’t always worth the extra management, stress, and concentration risk. I’d rather earn a solid return across several passive investments than squeeze every dollar out of one that requires my constant attention.

Todd Dexheimer · Answer

I would agree with a lot of the replies so far. It really comes down to what your life is like and what you’re trying to achieve.

I think too often people think that you have to buy a single-family home or a duplex in order to invest in real estate, but that is an active investment. If you have a good job, run your own business, or just have a busy life, that may not be a great fit. Most people would be better of investing passively in a syndication, debt fund, or REITs.

Drew Sygit · Answer

It starts with properly pricing your time.

Then, you should outsource/handoff anything you can do so for an hourly rate cheaper than your rate.

Evan Polaski · Answer

It isn't about "maximizing return" today.  It is about minimizing risk.  And return on time.  I.e. on these forums, most people assume passive investing as syndications.  And many have lost money on syndications over last few years.  Most won't go back because they realize the risk wasn't worth the return (both financial and time savings).

I assume, based on what you do for a living, that passive investing to you is turnkey rentals.  I cannot speak directly about this, because I haven't invested in them.  To me, these are almost a lot of the worst issues with syndications mixed with the worst of direct ownership.  But I am naturally cynical.  I have to trust the house is good, the tenant is good, the management is good, which I have heard as many good stories as bad.  But I am also on the hook for securing the mortgage, inspecting the house, replacing management when needed, setting policies and procedures, and generally still pretty active in the process.  Plus I am paying a premium for a property that supposedly has a lot of this setup.

But there is no right answer.  I work in and spend most my time in the syndication space.  So, my passive investors have certainly moved from the "retail investor" that is accredited, but often times on the lower end of that definition, to the more traditional passive investor: $5mm+ net worth but more frequently the $10mm+ families.  Those that a $100k loss potential is nearly meaningless, and thinking more about portfolio allocation than chasing max returns.

Arman Ahmed · Answer

For me, it comes down to what your time is worth. Chasing every last percentage point can make sense early on when you’re building capital, but eventually I’d rather own a solid property with a reliable team than squeeze out a little more return while creating another job for myself. Especially with out-of-state investing, I’d take a slightly lower return with good property management, contractors, and systems over a “home run” deal that constantly needs my attention.

Max return versus passive investing, thoughts?

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