Transitioning from Active Investments to Passive Investments

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

6y

Good on you! Many tired landlords are finding that syndications and other strategies are better for their goals. There are so many ways to invest without dealing with tenants, toilets, and termites!

Big lesson I learned is not to let the property manager have a piece of the General Partnership. It makes it too hard to get them out of the situation if they underperform (or worse, do something illegal)

5 Reply

Login George

Belleville, NJ · Member since 2016 · 46 posts · 19 votes

6y

@Arn Cenedella thanks for sharing your transition story. My current situation is similar with some key differences. I too have now decided that passive investing in syndications is a better fit for me. we (my wife and I) own a triplex and a SF home and it’s been good for us. However, I am very early in my career (as an academic researcher) and I really need to be spending all of my time getting the ball rolling with my career. It’s a competitive field and the return on my time is higher if I focus on accelerating my career (and increasing my success — both income and moving up the career ladder) than if I am out there finding great RE deals. So I have decided to go the passive route as it better fits my life priorities and situation.

2 Reply

Ronan DonnellyPro Member

Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes

6y

Hi @Arn Cenedella, congratulations on having taken a long term view to build net worth over time via real estate. If you haven’t already checked it out, @Brian Burke recently released a book on passive investing. I would thoroughly recommend checking it out. Good luck!

[email protected]

2 Reply

Chris Levarek

Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes

6y

@Arn Cenedella Congrats on the recent passive investment. Charlotte, NC is a great market with some good operators. We've investing in Durham/Raleigh and Fayetteville areas with success.

I wrote an ebook recently with the goal of helping W-2 investors decide whether to invest passively or actively. Basically, what I've seen is it comes down to some key aspects which will drive the decision and time was one of these. So determining the value of time versus the value of say doing the work oneself in an active investment.

It really becomes a trade-off to each investor on what is most valuable to their life in the present moment. That being said, diversification is always beneficial and splitting between multiple asset classes, locations or passive/active investment strategies will pay off in the long run.

Congrats again, keep us posted on how that deal in Charlotte turns out!

0 Reply

Ivan BarrattBusiness Member

Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes

6y

Seeing a couple trends right now.

Realtors who are also accredited investors investing in passive platforms so they can own income property without management AND reap the huge tax advantages allowed for "full time real estate professional."

Small portfolio landlords selling small deals to trade up to bigger syndication deals primarily to get all the benefits of real estate without active management. If timed well these landlords can also get the "effect" of a 1031 (without performing one) by using losses on the syndication to offset gains on sales of small properties.

4 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@TaylorL - that's good advice on the PM.

Please feel free to reach out to me if you have any investments that might make sense.

Thank you,

Arn

[email protected]650-575-6114

0 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@ Ronan Donnelly

Interested to learn about any passive investment opportunities in Phoenix, Mesa, or Tuscon.

Thanks

Arn

[email protected]650-575-6114

0 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@ Chris Levarek

Happy to consider any passive investment opportunities you have.

Thanks

Arn

[email protected]650-575-6114

0 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@ Ivan Barratt

I am open to any passive investment deals you have.

Thanks

Arn

[email protected]650-575-6114

0 Reply

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

6y

I've been doing 1031 exchanges for the past couple of years and have three for sale now. I've been wanting to move into DST's but am finding it had to match the positive cash flow. I'm 59 and would really like to call it quits

That being said, and seeing that DST may not get me there, I've been looking in North and South Carolina for larger multi-families and other commercial interests (E.g. storage, Amazon proof retail, non-drug stores) . We enjoy the area very much and own long and short term rentals in Myrtle Beach and are targeting Charleston or Hilton head for retirement.

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Roni E.Pro Member

Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes

6y

Originally posted by @Arn Cenedella:

I would do your homework and triple check it. I also would be careful of jumping into a new deal without sometype of discount or stronger numbers. I would see below article.

https://tinyurl.com/defaultcity

1 Reply

Mike Dymski

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

6y

Hey Arn. I invest both actively and passively. They both have their pros and cons...and it goes beyond the typical control vs involvement level conversation. Your transition period will give you the opportunity to see both sides.

It appears that you are also transitioning strategies from value plays to more cash flow plays (both of which can be done actively or passively).

Good luck and be diligent.

1 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@ Mike Dymski

Yes I totally agree there are pros and cons with any approach. That is life. But yes I want to increase cash flow and scale up.

If I could find a decent building in Greenville under say $2M, I would be happy to buy it and run it actively.

If you ever decide to sell your quad in N Main, be sure to let me know. 😊

Arn

[email protected]650-575-6114

0 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@Roni Elias

I totally understand your concern about the market direction moving forward.

I invested in a newer Class A project run by a top notch operator. Average tenant income is $94,500 and rents are below $1500 a month. I believe it will be a safe secure long term investment. The investment is NOT dependent on value add and jacking rents.

I am more optimistic about the economy now than I was 3 weeks ago.

I believe the US will rally in the next few months - I am not anticipating boom times - but I don’t think there will be devastation. Things may be flat for a year or two and the operator has taken that into account.

I feel comfortable with my decision.

Thank you

Arn

[email protected]650-575-6114

1 Reply

Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@Mark H Porter

Laura and I moved to Greenville SC about 5 years ago from the San Francisco Peninsula Silicon Valley and LOVE IT HERE. Very happy here and we are not going back to CA.

GREENVILLE is midway between Atlanta and Charlotte both of which most experts consider great places to invest.

Let’s keep in touch. I am working on a deal now.

Thanks

Arn

[email protected]650-575-6114

0 Reply

Joseph CacciapagliaBusiness Member

Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

6y

I haven't made the transition to passive investing myself, but a lot of my clients have gone from owning and managing SFR to trading up to small apartment properties that we manage for them. This isn't the pure passive investment that a syndication provides, but it takes 95% of the work out of their hands and provides better cash flow (especially if they're moving their money from an expensive market to San Antonio). The passive vs. active discussion is much more of a spectrum than it is a dichotomy. It's seems you've decided to go from one of the most active versions to one of the most passive. I'm curious what made you bypass any of the intermediate steps. I know I would have a hard time turning over all control.

[email protected]979-218-2286

Joseph Cacciapaglia powered by Morty

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Arn CenedellaPro Member

OP

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

6y

@Joseph Cacciapaglia

I am open to buying an apartment building under $2M by myself. I just can’t find any decent properties in that price range.

If you have anything under $2M in San Antonio that I can buy, let me know.

Happy to buy a building by myself and hiring a property manager.

San Antonio is good by me.

Have any possibilities under $2M you want me to take a look at?

Thanks

Arn

[email protected]650-575-6114

1 Reply

Joseph CacciapagliaBusiness Member

Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

6y

Originally posted by @Arn Cenedella:

@Joseph Cacciapaglia

I am open to buying an apartment building under $2M by myself. I just can’t find any decent properties in that price range.

If you have anything under $2M in San Antonio that I can buy, let me know.

Happy to buy a building by myself and hiring a property manager.

San Antonio is good by me.

Have any possibilities under $2M you want me to take a look at?

Thanks

Arn

There aren't a ton of apartment deals in that price range at any given time, but we do get some each year. There were just a few that sold recently, but at the moment I can only think of one that may be worth considering. I'll message you.

[email protected]979-218-2286

Joseph Cacciapaglia powered by Morty

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Jacob Blackett

Specialist · Columbus, OH · Member since 2012 · 176 posts · 98 votes

6y

Originally posted by @Arn Cenedella:

I have invested in rental properties since 1986. These have mostly been single family houses. And they have done very well for me.

These are not grand slam investments but solid line drive base hits over time. They have provided minimal cash flow but solid appreciation and net asset growth. The equity developed in these rental properties is a significant portion of my net worth. I am set financially at the age of 65.

I currently own 7 rental properties with 13 tenants. I manage these properties myself and I have great tenants who often drop the rent off at my house. More often than not, when I lose a tenant it is because they bought a house. I am happy for them. Sorry to lose them as a tenant but happy they are on the road to success and financial stability. I remember how excited I was to buy my first home in 1980 - $107,500 with a $868.08 mortgage payment. I was scared and excited at the same time.

I have just started to change my investment approach for two reasons:

1. To increase my monthly cash flow

2. To lessen my property management responsibilities

This week I made my first passive income investment is a beautiful 232 unit apartment complex in Charlotte North Carolina.

Giving up control was a big step for me. I have always been a one man operation - doing it all on my own. I mean after all, who could do it better than I? 😊

Giving up control releases me from property management responsibilities and I will more than double cash flow return on my equity investment.

This recent investment is in an apartment syndication also known as a passive investment.

Over the next couple of years, I will sell or exchange my rental properties into these large scale passive investment syndications.

I would be interested to hear from other investors that created a portfolio of single family rentals and small rental properties over a long period of time and how they decided (assuming they did) to transition to passive investment.

What's been good and what's been not so good?

What's your experience been?

I have a guide I can share with you to help vet syndications. I invest both actively and passively in syndications. It's a great investment vehicle as long as you find the right people. Just pm me and I will share the guide - good luck!

1 Reply

Bola A.

Rental Property Investor · Houston, TX · Member since 2014 · 146 posts · 35 votes

6y

@Taylor L. What is general partnership with property management company?

0 Reply

Taylor L.

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

6y

Originally posted by @Bola A.:

@Taylor L. What is general partnership with property management company?

In a syndication, there are typically two sets of partners. General Partners put the deal together, operate it, and take all of that responsibility. Limited Partners passively invest and do not have management roles or responsibilities. General Partners own General Partnership shares. Basically, you want to make sure you can get rid of your property manager at any time. If they're one of the managers, they have a lot more ability to make that difficult and expensive.

The terms vary. Basically don't have the property manager also be one of the managing partners of the investment company. It gives them far too much control.

2 Reply

Taylor L.

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

6y

Originally posted by @Ivan Barratt:

Seeing a couple trends right now.

Realtors who are also accredited investors investing in passive platforms so they can own income property without management AND reap the huge tax advantages allowed for "full time real estate professional."

Small portfolio landlords selling small deals to trade up to bigger syndication deals primarily to get all the benefits of real estate without active management. If timed well these landlords can also get the "effect" of a 1031 (without performing one) by using losses on the syndication to offset gains on sales of small properties.

Real Estate Professional designation: such a huge tax advantage for people who can qualify! It's good to hear that realtors are taking advantage of it.

0 Reply

Bola A.

Rental Property Investor · Houston, TX · Member since 2014 · 146 posts · 35 votes

6y

@Taylor L. Thank you.

0 Reply

Alina Trigub

Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes

6y

@Arn Cenedella

Congrats on making the decision to become passive investor! I realize it did not come easy, so great job on that!

I realize you've received a ton of valuable feedback already, so I think the main goal here is to share and for you to take it all with a grain of salt and decide what makes the most sense for you!

I'll share a few posts that should guide you further:

https://www.biggerpockets.com/member-blogs/10850/86626-the-pros-and-cons-of-investing-via-real-estate-syndication

https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

https://www.biggerpockets.com/member-blogs/10850/85836-should-i-buy-a-turn-key-property-or-invest-in-a-syndication

2 Reply

Allan C.

Rental Property Investor · Member since 2018 · 826 posts · 810 votes

6y

@Arn Cenedella have you considered how you will optimize your tax obligations (depreciation recapture and capital gains) as you sell out your current assets?

Aside from lower return DSTs, I have not found many syndications that allow 1031 exchanges to optimize tax burden. The wealth that you’ve accumulated would be easiest preserved by passing it to heirs, if applicable, and allowing them to step up the basis.

0 Reply

Transitioning from Active Investments to Passive Investments

Transitioning from Active Investments to Passive Investments

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