Best Passive Income Investments
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votesBest Passive Income Investments
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Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8yIndex 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.
102 Replies
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes8y
To be clear, any REI, even the most passive is going to take at least an initial due diligence period of some hours or days before jumping in. Then when that is done the 1 hour or less a month is doable in my view and experience only on the most passive investments - private lending & syndications for example. Here's an article I wrote on BP about Three Key Routes for Passive Real Estate Investing
In order of most to least passive:
1. Stocks/Index/ETFs (FTEC, HDV, MCHI, AAXJ). The initial due diligence was substantial, researching and reading financial statements. Returns were attractive in 2017, but I expect 2018 will be a different story.
2. Fundrise. 2017 return was close to 9%-10% after fees and discounting my initial time spent on due diligence.
3. Crypto. Lowest initial cost ($0) and riskiest. A couple of years ago, we mined one of the top 5 coins in my college’s computer lab. Bought the graphics cards for ~350 each and resold them for a small profit when we graduated. All gains are unrealized. Currently spending 5-10hrs/week on keeping up with regulation and research. Looking to exit, due to the volatility, market manipulation, and current regulation (lack of).
4. Coin Op Laundromat. Did Owner Financing on a dirstressed laundry. Rehabbed the property and equipment, added other services (wash and fold). 10hrs/week. COC ~18%.
5. Real Estate (buy & hold). COC return of ~22% on average. Bought SFRs in the wrong neighborhood (E. Nashville) at the right time. E. Nashville and Inglewood was highly undesirable several years ago, but I grew up there. I used OPM and sourced deals by going door to door and networking. Initial legwork was the highest. The appreciation has been great, due to gentrification and hipsters with range rovers moving in.
Returns would be higher if I self managed.
Currently spending ~20hrs/week on REI: learning (taking a class on RE Project Management), networking, going to trustee/sheriff auctions in Seattle, and managing my Property Managers.
@Shiloh Lundahl Definitely not happening for me as an active investor doing buy and holds with over a decade of experience. Though, others investing in REITS and lending money as private lenders may be more hands off. Good luck in your search!
- Lewisville, TX · Member since 2015 · 344 posts · 264 votes8yI have a small fund of passive investments & most of the work is either raising capital, funding the best ones out of thousands of different opportunities where comparing returns isn’t apples to apples or necessarily simple or doing the due diligence once you find them & then executing & keeping up with them. I try to put in at least 20 hours per week whether the payoff is immediate or not or even apparent.
- ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes8y
Excellent thread, @Shiloh Lundahl, thank you. All my Index Funds are with Charles Schwab. Across the board, they have the lowest fees for the Index Families. The management fee (Net Expense Ratio) is mostly around 0.03 percent. Yes, you read that right. The lowest in the industry. (I think they are adding a few new Index Funds, Large Cap, Mid Cap, and the fees might be 0.04 or 0.05, but still killer!). A well balanced portfolio is the order of the day. Real Estate, Index Funds, I just started investing in precious metals, albeit slowly. Definitely keep following @Jay Hinrichs, the gentleman is a wealth of information. BTW, @Jay Hinrichs, you are not getting old! Some of my patients are 80, 90, and 100! Ha!
Best of profits to you, @Shiloh Lundahl!
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Daniel F. Harb:
Excellent thread, @Shiloh Lundahl, thank you. All my Index Funds are with Charles Schwab. Across the board, they have the lowest fees for the Index Families. The management fee (Net Expense Ratio) is mostly around 0.03 percent. Yes, you read that right. The lowest in the industry. (I think they are adding a few new Index Funds, Large Cap, Mid Cap, and the fees might be 0.04 or 0.05, but still killer!). A well balanced portfolio is the order of the day. Real Estate, Index Funds, I just started investing in precious metals, albeit slowly. Definitely keep following @Jay Hinrichs, the gentleman is a wealth of information. BTW, @Jay Hinrichs, you are not getting old! Some of my patients are 80, 90, and 100! Ha!
Best of profits to you, @Shiloh Lundahl!
Hey Daniel have not talked in a while.. my point with Timber is that it makes 12 to 16% return COC year in year out and has for the last 200 plus years.. why because it grows in volume and takes zero to maintain.. of course you can do some pre commercial thinning etc.. but if you get a nice 30 YO stand its pretty painless.. you can invest in companies that hold timber for these reasons this is why insurance companies own so much of it.
For me I only want something I can spend NOW.. not in 30 years. or 50 years.. I already have some of those with long term land holdings on the edge of the urban growth boundries in CA and Oregon .. once those mature my grand kids and great grand kids will be quite happy with their grand dad.. :) but this is all speculation and such that is so looked down on on this landlord site.. :)
- ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes8y
Hi @Jay Hinrichs!
Great to hear from you. I've been buried in work the last few months. But, a good burying. :) Wow, that 12%~16% CoC return is really amazing, good for you. Really interesting investment. Your grand~kids and great~grandkids will smile on your expert business acumen. Lucky them!!!
Hope you and your wife, and family are well! :)
~Daniel F. Harb
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Daniel F. Harb:
Hi @Jay Hinrichs!
Great to hear from you. I've been buried in work the last few months. But, a good burying. :) Wow, that 12%~16% CoC return is really amazing, good for you. Really interesting investment. Your grand~kids and great~grandkids will smile on your expert business acumen. Lucky them!!!
Hope you and your wife, and family are well! :)
~Daniel F. Harb
those returns are enjoyed by ANYONE who buys timber land in the right growing regions of the Pac north west nothing special other than you need some cash.. and if you happen to get a nice patch of Cedar you can easily double those returns. and if Japan ever comes back like in the 90s when I had my land and timber company and was exporting to Japan.. those numbers go WAY up .. it was the ULTIMATE BRRR you think that Is cool with rental properties. think about me buying a 100 acre timber tract Menasha pre paying for the logs on a timber deed.. at NO points and NO interest.. me delivering the logs in 60 days us making 200 to 300k on the logs NET in our jeans and then owning the 100 acres free and clear and then using the skid roads and landing zones as our building site then doing a 4X split and selling off 4 25 acre homes sites for about 75 t0 100k each.. that is what I did for about 10 years and when anyone ask me what is the favorite thing I did in real estate it is that.
Well like all great things it came to screeching halt about 97 ish... Japan economy cratered they were no longer paying premium for our logs Menasha stopped front on the logs and I had to go get a real job.. that's when I stepped back into court house steps developing subdivisions in town and ultimately a HML company.. but nothing beats being out in the woods smelling those fresh logs .. watching that truck drive off with 10k of logs you know is going to turn into cash in 3 days.. :) oh I swell up thinking about it.
So for all those kids out there in their early 30s late 20's especially if you have 100 or 200k in a roth.. man I would be buying a timber tract and when your my age early 6o's it will come into production value will be in the millions and it will be all tax FREE.... but maybe I need to do a pod cast on that subject... but its not rental houses so I doubt many will do it.
I did have one bp member buy me lunch last fall who hit a nice one up in WA his logs paid for his dirt and he made a BIG hit.. you would need to own 20 rentals for 10 years plus to make what he did on that one job.. all in less than a years time.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
Originally posted by @Paul B.:
But researching those stocks isn't very passive, right?
Not difficult at all. I have my 5 faves. I set my buy limits at historical support, sell limits at resistance and let them go. I have other plain vanilla MFs and ETFs of course, but buy specific stocks with the bloated dry powder fund. A couple buys triggered during the 800 point mid day drop the other day, but mostly they are cash right now. I want a deal!
- Scottsdale, AZ · Member since 2014 · 8 posts · 12 votes8y
Income doesn’t happen without leverage - so the argument is how much effort is considered ‘passive’? Niche software and information products are as passive as you can get. Both cost either your time or money upfront to create but you only have to manage piecework/updating content. Both allow you to scale while decreasing your commitment. Otherwise, nothing is passive - value has to be created by someone at some point.
- Rental Property Investor · Chicago, IL · Member since 2015 · 275 posts · 271 votes8y
I still think a good passive investment is real estate rentals if you have a good management team in place. Depending on how many and where and how you buy once you set them up properly the risk reward ratio is very high with good rental properties. I am totally biased because that is where I invest a lot in the Chicago market. Best is a subjective term depending on the individual and depending on the understanding of your investment strategy and the risk. Just my two cents.
- Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes8y
All of these responses have been great and really helpful for me to read. What I am gathering is that there is really few if any investments that are truly passive. And even with traditionally considered passive investments, wise investors still do their own due diligence with the particular company, or stock (mutual fund, etc.), or syndicator, or specific investor when lending private money, etc. Sometimes the upfront time can take a considerable amount of time, but then, things can be pretty passive after that.
Since passive investing is primarily giving your money to someone who will invest it for you, I like what was stated a few times about the importance of getting to know the person who will be investing it or watching over it and vetting them maybe even more than the investment itself.
Also, I liked hearing about the other, non-traditional style of investments mentioned by @Jay Hinrichs about investing in timber. In 2022, I may look to diversify my portfolio into many areas of more passive investments so this discussion is very useful to me.
Thanks again for everyone's input thus far.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @Michael Bishop:
@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:
Fortunately, the Stock Market never crashes. ;-)
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
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.
For sure the jockey. You want to plug into a system and team that has an established, tested, and proven track record.
- Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes8y
@Grant Rothenburger What constitutes an “established, tested, and proven track record” to you?
- United States · Member since 2015 · 401 posts · 394 votes8y
Originally posted by @Account Closed:
Originally posted by @Michael Bishop:
@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:
Fortunately, the Stock Market never crashes. ;-)
Fortunately, bears always turn to bulls ;) . Best way to lose your money is to bet everything on a handful of companies, or to pull everything out at the first sign of trouble. Hence the "set it and forget it" strategy with low cost index funds that hold positions in a large number of top companies.
If the stock market completely crashes and never recovers for the first time in history, the world economy will crumble and we're all screwed anyway so your individual investments really don't matter.
- Rental Property Investor · Justin, TX · Member since 2017 · 134 posts · 57 votes8y
Some people, like Mike Burry in the Big Short, have been investing in almond farms as an indirect investment into water and real estate. Water is a commodity that is taken for granted and is a scarce resource that is inelastic, so it will be interesting to see how the water industries change as global populations grow and fresh water becomes even more scarce.
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
Originally posted by @Shiloh Lundahl:
@Grant Rothenburger What constitutes an “established, tested, and proven track record” to you?
Good question. At least a couple deals under their belt, or someone on the team with a couple deals experience. What returns were they projecting in those deals? What did they actually return (if they haven't exited yet, what are they on track to return and what have they been paying investors while holding)? What was their business plan? Did they execute their business plan? What is their communication with investors like?
Those would be the main questions and points. Ideally they would have more than a couple deals, but everyone has to start somewhere. I'd want to see that they exceeded, met, or got really close to meeting their projected returns in past deals. I'd like to see that they had a solid business plan going into deals, and were able to execute their plan. Obviously the biggest concern when investing with someone is "how are you going to pay me back?" To me, these are some of the most important factors in deciding if they are capable of paying me back.
Sometimes you'll find someone just starting out, but has an experienced syndicator on the team. I'd invest with them too as long as the experienced guy/gal has a solid record. They wouldn't put their name and reputation on the line for a deal they didn't believe in.
I feel obligated here to mention that I've never invested passively with anyone. But I know I will invest in a syndication and this would be my criteria, along with some other questions once they have met my standards with what I mentioned above.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @Michael Bishop:
Originally posted by @Account Closed:
Originally posted by @Michael Bishop:
@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:
Fortunately, the Stock Market never crashes. ;-)
Fortunately, bears always turn to bulls ;) . Best way to lose your money is to bet everything on a handful of companies, or to pull everything out at the first sign of trouble. Hence the "set it and forget it" strategy with low cost index funds that hold positions in a large number of top companies.
If the stock market completely crashes and never recovers for the first time in history, the world economy will crumble and we're all screwed anyway so your individual investments really don't matter.
It took 25 years from the Stock Market crash of 1929 to recover in 1954. Do you want to wait 25 years to break even?
Originally posted by @Michael Bishop:
Best way to lose your money is to bet everything on a handful of companiesyeah, don't be stupid and only invest in one company
;)
- Rental Property Investor · Nevada City, CA · Member since 2017 · 74 posts · 70 votes8y
@Jay Hinrichs Really interesting read on your timber investments! I'm curious to know why the gains were all tax free? Always looking for ways to avoid taxes!
- United States · Member since 2015 · 401 posts · 394 votes8y
Originally posted by @Account Closed:
Originally posted by @Michael Bishop:
Originally posted by @Account Closed:
Originally posted by @Michael Bishop:
@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:
Fortunately, the Stock Market never crashes. ;-)
Fortunately, bears always turn to bulls ;) . Best way to lose your money is to bet everything on a handful of companies, or to pull everything out at the first sign of trouble. Hence the "set it and forget it" strategy with low cost index funds that hold positions in a large number of top companies.
If the stock market completely crashes and never recovers for the first time in history, the world economy will crumble and we're all screwed anyway so your individual investments really don't matter.
It took 25 years from the Stock Market crash of 1929 to recover in 1954. Do you want to wait 25 years to break even?
You're right, everyone should just be pessimistic in anticipation of the next crash and keep their money stashed under their mattress, letting inflation beat them.
By no means am I saying to put ALL of your money in to index funds or the stock market in general, I'm simply saying that low cost index funds are the safest and most passive bet IF you are in the stock market. After all, the post was about passive investment options and not all of the horrors and past failures of the stock market.. some folks just can't help themselves.
Originally posted by @Grant Rothenburger:
Originally posted by @Shiloh Lundahl:
@Grant Rothenburger What constitutes an “established, tested, and proven track record” to you?
Good question. At least a couple deals under their belt, or someone on the team with a couple deals experience. What returns were they projecting in those deals? What did they actually return (if they haven't exited yet, what are they on track to return and what have they been paying investors while holding)? What was their business plan? Did they execute their business plan? What is their communication with investors like?
Those would be the main questions and points. Ideally they would have more than a couple deals, but everyone has to start somewhere. I'd want to see that they exceeded, met, or got really close to meeting their projected returns in past deals. I'd like to see that they had a solid business plan going into deals, and were able to execute their plan. Obviously the biggest concern when investing with someone is "how are you going to pay me back?" To me, these are some of the most important factors in deciding if they are capable of paying me back.
Sometimes you'll find someone just starting out, but has an experienced syndicator on the team. I'd invest with them too as long as the experienced guy/gal has a solid record. They wouldn't put their name and reputation on the line for a deal they didn't believe in.
I feel obligated here to mention that I've never invested passively with anyone. But I know I will invest in a syndication and this would be my criteria, along with some other questions once they have met my standards with what I mentioned above.
preferably, you'd like to see that the sponsors have been through the last downturn
it's easier to have good returns in an upswing
the longer the track record of the promoter, the better
mostly, you need to see that their numbers are conservative and make sense
some of them even do a sensitivity analysis, but at least they should have a best-middle-worst case scenario described
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