Best Passive Income Investments

Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

To the BiggerPockets community,

What have been your best passive investments? By passive I mean less than 1 hour of your time in total a month on the investment. What was the initial cost? How much time did it initially take you to set it up? What is the yearly cash on cash return percentage? And anything else you wish to share about it.

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

Index funds...took a week or two to learn a proper allocation and takes a little time each year to reallocate and tax loss harvest, if applicable.

Done correctly, there are no passive investments in real estate...there are just some that are less active than others...or they are very active in the building years and then can be systematized.

I only spend a couple of hours per month on my active investments now...doing bookkeeping but I spent substantial time in acquiring and rehabbing them and getting the right management solution in place. I don't spend any time on my passive syndication investments...but I spend a lot of time analyzing hundreds of deals to select them.

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Index funds...took a week or two to learn a proper allocation and takes a little time each year to reallocate and tax loss harvest, if applicable.
Done correctly, there are no passive investments in real estate...there are just some that are less active than others...or they are very active in the building years and then can be systematized.
I only spend a couple of hours per month on my active investments now...doing bookkeeping but I spent substantial time in acquiring and rehabbing them and getting the right management solution in place. I don't spend any time on my passive syndication investments...but I spend a lot of time analyzing hundreds of deals to select them.
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Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
8y
I can't agree with @Mike Dymski's comment more, even though I don't think this is what you were getting at @Shiloh Lundahl.
Initial Cost: $3k to open a USAA brokerage fund
Set Up: 10min
Yearly CoC: I'm on mobile and not my computer, buts its a roughly the average of the Dow and S&P's returns. Of course these returns are depended on the purchase price, but that's the benefit of Dollar Cost Averaging for people who don't want to spend 30 hours a week picking stocks.
Other info: Here are some folks talking about indexing.
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Michael Bishop
United States · Member since 2015 · 401 posts · 394 votes
8y
@Shiloh Lundahl, @Mike Dymski took my answer. Most of the top financial minds in the world recommend, for the average person, a "set it and forget it" approach with low cost index funds (Unshakeable by Tony Robbins is a great book that covers this if interested). This philosophy, by nature, requires minimal time and is the best way to keep up with the S&P, Dow, etc (depending on the index fund you choose).
Since my first answer was taken, I'll give my second. Commercial real estate syndication. There is some time put in up from with vetting Sponsors, due diligence on specific deals, etc., but after that it's as passive as you want it to be. CoC typically around 8-12%, IRR in the 15-22% range... these are just average projections, I know of several Sponsors out there far exceeding these projections. I just wrote a blog that provides a lot of insight to the topic if interested:
Top 20 Questions by Investors Interested in Syndication
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Mike Dymski I agree it does seem like in real estate there aren’t many truly passive investments. But what I am wondering about is for those investments that are more passive such as:
- performing notes
- syndications
- private money lending
- hard money lending
- turn key properties
of those types of real estate inventments, which ones have people here on BiggerPockets found to be best or most profitable.
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Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Shiloh Lundahl I have to agree with @Mike Dymski @Bill F. @Michael Bishop that there are no true passive income opportunities in real estate. Nonetheless, from the ones you mentioned, everyone has their own preferences based on their past experiences.
It's a matter of knowing the operators/managers as opposed to the strategy. Personally, for us, syndications have proven to be really lucrative. But we've also been riding the wave for the past 6-8 years. We will really know who comes out ahead once a correction makes its way through the major markets.
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Omar Khan I have wondered about that. Similar to what I’ve heard about horse racing. Do you bet on the horse or the jockey? It sounds like you bet more on the jockey.
480-206-1209 Podcast Guest on Show #287
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Originally posted by @Shiloh Lundahl:

@Mike Dymski I agree it does seem like in real estate there aren’t many truly passive investments. But what I am wondering about is for those investments that are more passive such as:
- performing notes
- syndications
- private money lending
- hard money lending
- turn key properties
of those types of real estate inventments, which ones have people here on BiggerPockets found to be best or most profitable.
I've done some lending. While it is passive once underwriting's complete, the tax burden is horrendous. Doing my taxes this year and not sure if it caused me to go up a bracket, but inputting my 1098, my fed taxes increased 70% of the interest amount. Yippy! Especially hard to stomach as a b&h that's been tax conscious my whole career.
I like stocks for passivity. Specific stars. Index funds in this environment seem like buy and hope. No control.
Syndications scare me. Every year at this time are a bunch of people screaming for k1s so they can pretty please do their taxes. Not all are like that, but goes to another lack of control issue.
TK? LOL Too many horror stories. Buying at retail with distance, property, unknown tenant and PM risk. Just to start.
Shouldn't we weigh passivity against risk, taxes and lack of control? What is the just right goldie locks balance? For me its been specific stocks at specific support levels. Good discussion!
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
Another couple of real estate passive investments might be:
- coconut farms
- tiki wood (I’m not sure if that is the correct name for the wood but I’ve heard of this specific type of investment recently).
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Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Shiloh Lundahl:

@Omar Khan I have wondered about that. Similar to what I’ve heard about horse racing. Do you bet on the horse or the jockey? It sounds like you bet more on the jockey.
In private markets, where information is scarce (or not available), I feel one should only bet on the jockey. Too many variables that an investor does not have direct of line of sight to. Hence, working with dependable, trustworthy sponsors with whom one has a solid relationship is key.
Nonetheless, I've been seeing an arms race when it comes to revenue growth projections (to make projects look more attractive). It becomes hard to explain to folks that a project with a higher projected return isn't necessarily better because the return is just a forecast. Sometimes it's better to go with a lower, but more realistic, return.
We'll really see who's swimming naked when the market goes through a correction. Doesn't matter what sector of RE one is in, everything is correlated.
3 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @Shiloh Lundahl:

@Mike Dymski I agree it does seem like in real estate there aren’t many truly passive investments. But what I am wondering about is for those investments that are more passive such as:
- performing notes
- syndications
- private money lending
- hard money lending
- turn key properties
of those types of real estate inventments, which ones have people here on BiggerPockets found to be best or most profitable.
Agreed, and I think it's a really good discussion because the allocation of our personal capital and our time are the most important decisions we make. And working long hours every week forever is not sustainable, without damage. The best replies will come from investors who have done many of these...and the rest of the replies will come from those who have strategy bias.
Aside from my active real estate, I do notes and syndications and prefer syndications due to the higher returns, I feel that money lending is a business, and I only invest in value add real estate; so, turn key will not fit my criteria (plus I'd need a ton of homes to meet my goals).
Syndication investing returns single and low double digit COC annually and mid to high teen IRRs (will vary based on market conditions and asset class). It also provides geographic and asset class diversification and is run by professional teams...on the flip side, you don't have control.
2 Reply
Scott Houin
Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes
8y
I bought this little property in a small town in the middle of Missouri. I bought this property about 3 years ago and when i did I had to rehab it, which took a lot of my time.(at least 10 hrs a week) However, after we finished the rehab and put a renter in the home I have not had to do a thing. I spend about two mins. a month reviewing the statement and depositing the check. I bought the home for 20k originally, put 12k into the rehab and cash flow $199/month.
Most of my time is spent up front on the properties i own. Once I own them and have them rented I really spend less then 1 hour a month on them. This is mostly due to a good property manager. Most of my time is spent doing the accounting and depositing checks.
On most investments if the proper time is put in upfront on education you will have to do less on the back end. I believe this goes not just for real estate, but other investments as well.
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Mike Dymski Yes. I agree that it would be helpful for people who have done a variety of the types of passive investments mentioned so that they can really compare and contrast their own returns.
So in your experience you did better with syndication over notes?
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
8y
Understanding that true passive investments are the ones in which the investor is giving capital and control to another investor, for instance, a sponsor or a rehabber.
Real estate, in my opinion, requires some attention.
3 Reply
Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
8y
Originally posted by @Shiloh Lundahl:

Another couple of real estate passive investments might be:
- coconut farms
- tiki wood (I’m not sure if that is the correct name for the wood but I’ve heard of this specific type of investment recently).
I think you are maybe referring to Teak? I worked with a guy who owned a whole bunch of land somewhere in Latin America and swears by it, to the point that he stopped contributing to his retirement and only bought land in Guatemala (I think). However, his competitive advantage was he spoke Spanish and was on a Southern Hemisphere focused OD-A. From what he said it comes down an understanding of culture and relationships to make sure your investment survives. If you find someone you trust, it is pretty much set it and forget it. Plus you can write off a weekend trip to "inspect it".
As for the others: - performing notes, - syndication, - private money lending, - hard money lending, to make those passive seems to depend a lot on experience and accumulated knowledge base you have. If you've been a mortgage underwriter for 15 years, buying performing or re performing loan loans won't take up a that much time. If you don't then you need to actively seek out knowledge to effectively invest. At a point most of these investment become passive, but they do not start out that way because all of them have a fairly high barrier to entry in terms of knowledge.
1 Reply
Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Bill F. Yes, Teak wood is what I was referring to.
So it seems like some real estate investments can become more passive over time after you have put up the up front time investment to learn. That makes sense.
480-206-1209 Podcast Guest on Show #287
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @Bill F.:

Originally posted by @Shiloh Lundahl:
Another couple of real estate passive investments might be:
- coconut farms
- tiki wood (I’m not sure if that is the correct name for the wood but I’ve heard of this specific type of investment recently).
I think you are maybe referring to Teak? I worked with a guy who owned a whole bunch of land somewhere in Latin America and swears by it, to the point that he stopped contributing to his retirement and only bought land in Guatemala (I think). However, his competitive advantage was he spoke Spanish and was on a Southern Hemisphere focused OD-A. From what he said it comes down an understanding of culture and relationships to make sure your investment survives. If you find someone you trust, it is pretty much set it and forget it. Plus you can write off a weekend trip to "inspect it".
As for the others: - performing notes, - syndication, - private money lending, - hard money lending, to make those passive seems to depend a lot on experience and accumulated knowledge base you have. If you've been a mortgage underwriter for 15 years, buying performing or re performing loan loans won't take up a that much time. If you don't then you need to actively seek out knowledge to effectively invest. At a point most of these investment become passive, but they do not start out that way because all of them have a fairly high barrier to entry in terms of knowledge.
I saw an offering a few months ago for Dorper sheep.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Forest lands are one of the more passive and treated me good all these years
check out this website
http://northwestforestproperties.com/oregon-forest-land-sale/blue-river-tree-farm-east-4200001/
going to south America or Central America in search of exotic timber is only applicable to a multi billion dollar corporation .
Warehouser tried this in Siberia and promptly lost about 1 B within 24 months.. and left ...
look no farther than the good Ole US of A for these types of investments.
there is a reason the number one and number two owners and financers of US timber lands are
John Hancock
and
the Harvard endowment fund..
I am too old now and I have a few development tracks that will ripen over the years that I will leave as legacies to my Grandkids and great grandkids.
But if I was in my 20s or early 30's I would include a nice NW timber track in my portfolio..
not only that you can camp on them hunt fish etc.. if there large enough you can put a cabin and now a days with the container homes you buy one of those and lock and leave.
There is a reason they were called Timber Barrons.. !!! Just like Railroad Barrons and Steel BArrons.

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Bill F.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
8y
@Jay Hinrichs where would you point someone who wanted to learn more about how to evaluate and buy timber tracks but had next to no knowledge on the subject?
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
I guess for me it would be index funds, because I'm not sure if my whole RE portfolio could meet that criteria. Some houses, yes - there are a few I probably didn't spend 4-5 hours on for the entire year - but others took more time, which probably makes the entire investment kind of a passive/active hybrid. My index funds I only even bother to check when I think about them and they did pretty good last year.
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Steve K.
Honolulu, HI · Member since 2017 · 247 posts · 315 votes
8y
Originally posted by @Omar Khan:

Originally posted by @Shiloh Lundahl:
@Omar Khan I have wondered about that. Similar to what I’ve heard about horse racing. Do you bet on the horse or the jockey? It sounds like you bet more on the jockey.
In private markets, where information is scarce (or not available), I feel one should only bet on the jockey. Too many variables that an investor does not have direct of line of sight to. Hence, working with dependable, trustworthy sponsors with whom one has a solid relationship is key.
Nonetheless, I've been seeing an arms race when it comes to revenue growth projections (to make projects look more attractive). It becomes hard to explain to folks that a project with a higher projected return isn't necessarily better because the return is just a forecast. Sometimes it's better to go with a lower, but more realistic, return.
We'll really see who's swimming naked when the market goes through a correction. Doesn't matter what sector of RE one is in, everything is correlated.
a friend and I have a saying, "trust the vendor, trust the numbers"
we cannot decide on an individual basis whether or not an investment makes sense, but we can as much as possible vet the people behind the investment, and if they have a good track record and seem to be on the ball about their projections (conservative forecasting, and concentrating on return of capital first and foremost) , we can trust the numbers they present to a degree
but syndication investing is still not truly passive, but it is the closest we come to it in REI
3 Reply
Chris Masons
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
8y
Closest I have come to truly passive in Real Estate is a contract for deed on a property I sold to my tenant. He is now responsible for any and all maintenance on the property.
I pay the quarterly taxes and insurance via his monthly mortgage payment to me which is electronically direct deposited into my checking account.
I probably spend 1 to 2 hours a month on book keeping on this property. COC return upwards of 18%
Chris
1 Reply
Tom Ott
Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
8y
Originally posted by @Shiloh Lundahl:

To the BiggerPockets community,
What have been your best passive investments? By passive I mean less than 1 hour of your time in total a month on the investment. What was the initial cost? How much time did it initially take you to set it up? What is the yearly cash on cash return percentage? And anything else you wish to share about it.
For passive, most investors probably go with Turnkey. A Turnkey Provider should own, renovate, and manage the property all in-house for you. You do not do any of the work, and they send you a check every month
Just make sure it is a TRUE provider and not just a real estate agent.
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
Thanks @Chris Masons that is exactly what I was hoping for. An explanation of how it is passive along with some of the numbers.
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Shiloh LundahlPro Member
OP
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
I know many people have their opinions of what is better as far as passive investing goes, but what I am really looking for is the numbers on the passive investment.
- How much time did it take to set up?
- What was the initial investment?
- How much time does it take to manage ongoing on average?
- What is the cash on cash return percentage?
Some people have shared that they have some index funds. I’m curious on what the real rate of return was on those. Not the rate that is sent to you in your statement, but the real rate which is the percent that it actually went up or down including any fees.
The same goes for notes that have servicing. What is the actual numbers on your returns when you subtract servicing fees?
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
I can't think of anything more passive than a Vanguard index fund tracking the S&P 500 or a Vanguard REIT.
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