Best Passive Income Investments

General Real Estate Investing
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Best Passive Income Investments

Shiloh LundahlPro Member
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
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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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @James Wise:

    My most passive investments have been my higher end rental properties. We've got hundreds of properties with rents in the $500-$900 range. Obviously the lower the rent the more management intense they are. However I have a handful with higher rents. Two that come to mind is a multi unit medical building with some rents as high as $4k/mo as well as some higher end single homes renting for $1,400/mo+. Note that these rents may not seem very high to some folks but that's very high for the Cleveland market.

    I don't know what your talking about  Morris on his pod cast says that high end A class rentals are more work than low class Ds and low Cs because the tenants are more sophisticated and therefor more needy.. I am not sure who to believe here.. ??   I like Trees  they don't talk back they don't clog a toilet they just silently sit there are grow and grow and grow  .. but of course its a niche and unless your really in the know.. its too foreign a concept and one that frankly I don't think people believe it real.. other than Harvard endowment and John Hancock.. :)  but back to those rentals... let me know what you think  your thought on higher end easy or lower end easy like Morris touts. 

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  • Rivy S.
    Silver Spring MD · Member since 2015 · 198 posts · 116 votes
    8y

    @Shiloh Lundahl My best cashflowing investment is also my my most passive one. 

    It's a turnkey rental in Indy.  

    All in cost is 27k (100k purchase price, 25% down)

    CoC is about 13% per year (after reserves of 10% each for management, maintenance and capex, and 8% for vacancy)

    I spend about an hour per month looking over statements and updating spreadsheets.

    (As a bonus, this particular property has also appreciated at least 30% since I bought it two years ago)

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @James Wise:

    My most passive investments have been my higher end rental properties. We've got hundreds of properties with rents in the $500-$900 range. Obviously the lower the rent the more management intense they are. However I have a handful with higher rents. Two that come to mind is a multi unit medical building with some rents as high as $4k/mo as well as some higher end single homes renting for $1,400/mo+. Note that these rents may not seem very high to some folks but that's very high for the Cleveland market.

    I don't know what your talking about  Morris on his pod cast says that high end A class rentals are more work than low class Ds and low Cs because the tenants are more sophisticated and therefor more needy.. I am not sure who to believe here.. ??   I like Trees  they don't talk back they don't clog a toilet they just silently sit there are grow and grow and grow  .. but of course its a niche and unless your really in the know.. its too foreign a concept and one that frankly I don't think people believe it real.. other than Harvard endowment and John Hancock.. :)  but back to those rentals... let me know what you think  your thought on higher end easy or lower end easy like Morris touts. 

     We'll have to ask Clayton how many times he's walked into an A-Class $250,000+ house & saw a toilet that looked like this.

    Myself, i've only ever seen this stuff in the "hood" 🤣🤣🤣

    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    Wow, what happened there? ⬆️⬆️ ⬆️⬆️ ⬆️ 

       
    0Reply
  • Jad Boudiab
    Real Estate Broker · Cleveland, OH · Member since 2015 · 255 posts · 248 votes
    8y
    Originally posted by @James Wise:
    Originally posted by @Jay Hinrichs:
    Originally posted by @James Wise:

    My most passive investments have been my higher end rental properties. We've got hundreds of properties with rents in the $500-$900 range. Obviously the lower the rent the more management intense they are. However I have a handful with higher rents. Two that come to mind is a multi unit medical building with some rents as high as $4k/mo as well as some higher end single homes renting for $1,400/mo+. Note that these rents may not seem very high to some folks but that's very high for the Cleveland market.

    I don't know what your talking about  Morris on his pod cast says that high end A class rentals are more work than low class Ds and low Cs because the tenants are more sophisticated and therefor more needy.. I am not sure who to believe here.. ??   I like Trees  they don't talk back they don't clog a toilet they just silently sit there are grow and grow and grow  .. but of course its a niche and unless your really in the know.. its too foreign a concept and one that frankly I don't think people believe it real.. other than Harvard endowment and John Hancock.. :)  but back to those rentals... let me know what you think  your thought on higher end easy or lower end easy like Morris touts. 

     We'll have to ask Clayton how many times he's walked into an A-Class $250,000+ house & saw a toilet that looked like this.

    Myself, i've only ever seen this stuff in the "hood" 🤣🤣🤣

    Investing in rough neighborhoods for "passive income". LOL.

    But the medical building sounds like a great setup, it's hard to find a more passive investment property unless you go the NNN route.

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  • Bo S.
    Seattle, WA · Member since 2016 · 46 posts · 14 votes
    8y
    Originally posted by @Tyler Gibson:

    @Mike Dymski or @Bill F. I have been hearing about the power of index fund investing but admit I know little about it. Could either of you recommend some resource that would help me learn more and get a solid foundation on the subject? Any books you would recommend would be great. 

    The Intelligent Investor by Benjamin Graham (mentor to Warren Buffet).

    Contents of the book apply to general investing, in the stock market or real estate.

    Best $4, in overdue library fines, ever invested when I was starting out.

    You're welcome.

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    8y
    Originally posted by @Jad Boudiab:
    Originally posted by @James Wise:
    Originally posted by @Jay Hinrichs:
    Originally posted by @James Wise:

    My most passive investments have been my higher end rental properties. We've got hundreds of properties with rents in the $500-$900 range. Obviously the lower the rent the more management intense they are. However I have a handful with higher rents. Two that come to mind is a multi unit medical building with some rents as high as $4k/mo as well as some higher end single homes renting for $1,400/mo+. Note that these rents may not seem very high to some folks but that's very high for the Cleveland market.

    I don't know what your talking about  Morris on his pod cast says that high end A class rentals are more work than low class Ds and low Cs because the tenants are more sophisticated and therefor more needy.. I am not sure who to believe here.. ??   I like Trees  they don't talk back they don't clog a toilet they just silently sit there are grow and grow and grow  .. but of course its a niche and unless your really in the know.. its too foreign a concept and one that frankly I don't think people believe it real.. other than Harvard endowment and John Hancock.. :)  but back to those rentals... let me know what you think  your thought on higher end easy or lower end easy like Morris touts. 

     We'll have to ask Clayton how many times he's walked into an A-Class $250,000+ house & saw a toilet that looked like this.

    Myself, i've only ever seen this stuff in the "hood" 🤣🤣🤣

    Investing in rough neighborhoods for "passive income". LOL.

    But the medical building sounds like a great setup, it's hard to find a more passive investment property unless you go the NNN route.

     Yes, the medical building is a sweet setup. As I recall you're brokerage is about to be one of the newest businesses in there. Same building.

    1Reply
  • Darrin CareyPro Member
    Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
    8y

    @Shiloh Lundahl

     My best passive investments have been 1st position notes to landlords and investors,
    followed by rental properties managed by a property manager.

    Looking at the further posts on this thread:

    1. Creating the note to yourself, then selling it, looks like deception/dishonesty. As a lender and investor, I would rarely, if ever, take on a 2nd position note as you've described. And I love passive with double digit returns.
    2. If your notes were a stellar deal at 11-12% Experienced passive investors would be beating down your door to get them.
    3. The notes you are creating should NOT be targeted toward newbies. Newbies typically don't understand the risk they're taking, especially in second position. They don't know what they don't know.
    4. From personal experience, and from many friends, I know 90%+ of Lease Options fail.
    5. From your own example, the bank would only lend you 60k or so on the 100k house, but you are financing it for 75-80k using a newbie in second position. That screams OVER-LEVERAGED among other issues.
    6. You no longer have anything at risk. That concerns me.

    I'm not saying what you are doing will fail, but it is absolutely VERY HIGH RISK for the Newbie investor.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Darrin Carey:

    @Shiloh Lundahl

     My best passive investments have been 1st position notes to landlords and investors,
    followed by rental properties managed by a property manager.

    Looking at the further posts on this thread:

    1. Creating the note to yourself, then selling it, looks like deception/dishonesty. As a lender and investor, I would rarely, if ever, take on a 2nd position note as you've described. And I love passive with double digit returns.
    2. If your notes were a stellar deal at 11-12% Experienced passive investors would be beating down your door to get them.
    3. The notes you are creating should NOT be targeted toward newbies. Newbies typically don't understand the risk they're taking, especially in second position. They don't know what they don't know.
    4. From personal experience, and from many friends, I know 90%+ of Lease Options fail.
    5. From your own example, the bank would only lend you 60k or so on the 100k house, but you are financing it for 75-80k using a newbie in second position. That screams OVER-LEVERAGED among other issues.
    6. You no longer have anything at risk. That concerns me.

    I'm not saying what you are doing will fail, but it is absolutely VERY HIGH RISK for the Newbie investor.

    Darrin,

    I have seen this play before... although I am sure Shiloh was unaware of the abuses this model had in years past.

    but you and agree .. as a note investment this is NOT.. its partnership with Shiloh and should be treated as such.

    and like you like I said I have had less than 5 Lease to own ever buy.. so to base an exit on that strategy again is wishful thinking

    and by someone who is not experienced and that's OK they just don't know as you said as they are rookies at this.

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  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Darrin Carey Which part of the model concerns you the most, the idea of the second position, the property being at 75-80% leveraged, the fact that I haven’t done the lease option model long enough to see how many optionees will exercise the option, or that I don’t have much skin in the game? Or is it a combination of the things mentioned above?

    Please don’t say all of it. That won’t be helpful. When the true concern is isolated it can be worked through. There are examples of any and all of the above mentioned possible concerns that have worked out really well, but as you are a lender, you may have a different and valuable perspective. Please share what concerns you the most.

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  • Darrin CareyPro Member
    Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
    8y

    @Shiloh Lundahl My biggest concern is your target market for the second position notes. Newbies are unsophisticated, and don't understand the risks. The other items amplify that primary concern by makign it even riskier, or they are confirming the risk it already carries.

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  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Darrin Carey  thank you for your response. As you and I both know, learning about notes is an involved and sometimes lengthy educational experience to become good at it.  It can also cost money as well as the time that it takes to learn about how to find good notes in preferable markets, find a servicer that will manage the note well at a low expense, and organize a team in the area where the note is in case it becomes non-performing. And all of this is done usually for a high single digit return of 8 or 9% on the note that is usually at a higher buy in price of $50,000 plus.

    Many people put forth the time and money it takes in order to become educated on how to buy notes correctly and manage their risk by buying notes with enough equity that in case they became non-performing they could spend the money it would take to rehab the property and sell it or find a property management company to watch over it as a rental.

    Then there are those people who have high-paying jobs who do not want to put forth the effort right now to learn how to invest in real estate or notes. They want to be part of it without spending all of the time and effort and money that it takes to learn the process. They are also looking for good rates of return that are an alternate investment strategy than the stock market.  These are the type of new be investors that work well for these second position notes of between $10,000-$40,000.

    As you and I know, the risk of being in second position is if the first position stops getting payment and they start the foreclosure process, then the second position can be wiped out. The way that I lesson that risk to the second position note buyer is I send mortgage payment statements to the second position note holders showing that the  first position note is being paid on time. Secondly, because of my profession, I need to be honest in my dealings with the community.  Otherwise, they could complain to my licensing board which may put a risk on me being able to keep license which would substantially negatively affect my income levels. So it is important and necessary that my dealings with the public are 100% honest. The notes are also being guaranteed by me, not the tenant in the property.

    I hope this may have helped lesson that concern. I would be happy to address any other concerns that you may have.

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  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    8y

    @Shiloh Lundahl if funds per investor is limited how about fractional ownership on 1st liens to eliminate the need/risk of 2nd position liens?

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  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Gautam Venkatesan the first position loan is held by one of the banks that we work with at a low interest rate 4.69%. So the numbers wouldn’t work very well to eliminate that first lien.

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  • Brent Sutherland
    Investor · Pittsburgh, PA · Member since 2015 · 12 posts · 13 votes
    8y

    I wouldn't really consider any type of stock/bond or index investing strategy as an effective means to generate passive "income", unless you're investing to specifically target high-yielding securities.  Otherwise, your income (not appreciation) on these investments is going to likely be in the paltry 2-3% range.

    Some better options that are fairly easy to get into and generate true income (7% plus) that is passive in nature:  Crowdfunding, Turnkey Real Estate, Syndications.

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  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    8y
    Originally posted by @Brent Sutherland:

    I wouldn't really consider any type of stock/bond or index investing strategy as an effective means to generate passive "income", unless you're investing to specifically target high-yielding securities.  Otherwise, your income (not appreciation) on these investments is going to likely be in the paltry 2-3% range.

    Some better options that are fairly easy to get into and generate true income (7% plus) that is passive in nature:  Crowdfunding, Turnkey Real Estate, Syndications.

     The IRS disagrees with you. Capital gains and dividends from equities are, by definition, income. It does not get more passive than a quarterly dividend checks in the mail and @Ben Leybovichwith plenty of stocks having divided rates in the 4-6% range its an option for some folks. They are also far more accessible than Crowdfunding, Turnkey, and Syndication (which broadly speaking, is available to about 8% of the US). Not saying those aren't great investment vehicles, but they do give up some of their passive nature for increased return and risk. 

    Ben Leybovich has a good article on his site about Earned vs, Passive, and Portfolio income. 

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  • Amit P.
    Ooltewah, TN · Member since 2017 · 75 posts · 38 votes
    8y

    @Jay Hinrichs you should definitely do that podcast on Timber, I am sure there'd be a bunch of folks that would love to learn more :)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Amit P.:

    @Jay Hinrichs you should definitely do that podcast on Timber, I am sure there'd be a bunch of folks that would love to learn more :)

     Thanks however on BP I don't think that plays very well to at all..   accrued cash flow is not anything that most want, like or would invest in..

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  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    8y
    Originally posted by @Amit P.:

    @Jay Hinrichs you should definitely do that podcast on Timber, I am sure there'd be a bunch of folks that would love to learn more :)

     I'd listen to it. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Bill F.:
    Originally posted by @Amit P.:

    @Jay Hinrichs you should definitely do that podcast on Timber, I am sure there'd be a bunch of folks that would love to learn more :)

     I'd listen to it. 

     Well that makes two.  Lol 

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  • Mel Hayes
    Investor · Los Angeles, CA · Member since 2016 · 256 posts · 111 votes
    8y
    Without question its my Rockwell debt free property. I spent time on the paperwork and I flew to Arizona to meet the guys and view the building. I put in 200k I get 7% return I spend 0 time per month. its more passive than my mutual funds because I actually check those 2 to 3xs a week.
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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Mel Hayes, We've had several clients go that way both US citizen seeking passive  and Foreign nationals wanting to avoid the stress of a FIRPTA issue.  

    The current performance of Rockwell is steady.  But the debt free aspect of those whether Rockwell's or some of the debt free DSTs we're seeing is what's really comforting.  With no debt  A downturn would have to be very severe to impact these products too badly.

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  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    8y

    Great thread thus far @Shiloh Lundahl thanks! @Jay Hinrichs your position on high end rentals is interesting to me. I personally am not interested in rentals unless I'm able to invest on higher end ones. I'm curious why you think higher end renters would be more problematic than lower end. I thought it was relatively well established that low income renters are more problematic than middle class income renters and by extrapolation higher end renters should be the best. Sure they might know a bunch of lawyers and whatnot but I would think that would be a bigger problem for people holding a note on a high end property versus a rental with a high end borrower who I would expect would be more inclined to pay for potential issues they encounter with their property (especially if it's SFR) over reaching out to the landlord than a lower income renter.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Odie Ayaga:

    Great thread thus far @Shiloh Lundahl thanks! @Jay Hinrichs your position on high end rentals is interesting to me. I personally am not interested in rentals unless I'm able to invest on higher end ones. I'm curious why you think higher end renters would be more problematic than lower end. I thought it was relatively well established that low income renters are more problematic than middle class income renters and by extrapolation higher end renters should be the best. Sure they might know a bunch of lawyers and whatnot but I would think that would be a bigger problem for people holding a note on a high end property versus a rental with a high end borrower who I would expect would be more inclined to pay for potential issues they encounter with their property (especially if it's SFR) over reaching out to the landlord than a lower income renter.

     you have it backwards the ONLY one I know who thinks that way is Clayton Morris.

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  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    8y

    Ah my apologies @Jay Hinrichs I think I missed your initial sarcasm in your response. 

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