Transition from active to passive investment

Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes

Good morning BP members.

I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.

I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.

There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!

We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.

I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.

I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!

Hope to hear from you all!

Kelly

3 Reply

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Jim PfeiferBusiness Member

Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votes

I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.

I continue to use the strategy - when deals go full cycle, I invest in a new syndication. It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax. I have been doing this for several years and I don't pay tax on my real estate gains.

You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space. Many of the best have plenty of capital so they don't advertise. Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers? These are incredibly illiquid, long-term investments that are completely out of your control. Once you make the investment, there is nothing you can do but watch and wait. This makes it even more critical that you find quality operators to do that. When I first started, I mainly found operators through listening to podcasts. I was exposed to some great operators - and plenty who are not so great. This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator. I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust. It has made a huge difference in the success of my investments. I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.

We are both in Columbus - so let me know if you would like to connect!

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Taylor L.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
4y
You mentioned that you've 1031ed in to a DST - it is also possible to 1031 into a syndication, using a Tenants In Common arrangement. There is also the Deferred Sales Trust concept floating around, which may be worth looking into. I haven't personally done one but have discussed it with Brett Swarts from Capital Gains Tax Solutions.
1 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
@Taylor L.
Thanks for the reply.
I am aware of the possibility of a TIC position into a syndication. I like the idea in concept, and there are a couple challenges also. One of the biggest concerns I have is committing so much equity to one syndication deal. Especially because I have yet to develop any track record with any group or groups. Another problem is that I am just on the cusp of bringing forward enough money into the deal to warranty the trouble and expense of the TIC. I am finding that 500K is the minimum and most won't even consider it until 1M. I would need to ad capital to even make the 500k mark on the deal I am selling.
I have also done some reading on the deferred sales trust but would have much to learn about that vehicle. It is also my understanding that it might be a bit questionable in the eyes of the IRS. I would certainly need the advice and professional assistance of an expert regarding this strategy.
1 Reply
Louis Young
Real Estate Investor · Member since 2017 · 5 posts · 4 votes
4y
Hello Kelly,
I too am looking into the possibility of entering to a more passive role in my investment holdings. You mentioned that you entered into a DST 1031 exchange. How did that work out?
0 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
@Louis Young
So far so good. But I will say that the distributions are not fantastic. I feel good about the sponsors I am with and the asset class and locations so I anticipate the investments will be fine. I am just looking to unlock a bit more cash flow while preserving the capital/equity.
I have done one deal with Cantor Fitzgerald (multi family Texas) and one with Capital Square (manufactured housing Florida).
I chose to work with a fiduciary vs a broker dealer and I was pleased with that arrangement. I felt the fiduciary responsibility offered a bit more downside protection.
So far all of my distributions have been as expected. (Just under a 4.5% average between the two days investments). I feel I can nearly double that distribution outside the DST. I do feel my equity is relatively safe and I didn't have to concern myself with the tax liabilities this time around. The taxes will eventually come to roost, but by the time I roll out I'd these investments I am hopeful for more upreit opportunities as a possible final resting place. It really just depends on the market opportunities when they get to disposition.
There is a bit of a learning curve as I acquaint myself with this new strategy!
0 Reply
Jim PfeiferBusiness Member
Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
4y
I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.
I continue to use the strategy - when deals go full cycle, I invest in a new syndication. It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax. I have been doing this for several years and I don't pay tax on my real estate gains.
You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space. Many of the best have plenty of capital so they don't advertise. Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers? These are incredibly illiquid, long-term investments that are completely out of your control. Once you make the investment, there is nothing you can do but watch and wait. This makes it even more critical that you find quality operators to do that. When I first started, I mainly found operators through listening to podcasts. I was exposed to some great operators - and plenty who are not so great. This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator. I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust. It has made a huge difference in the success of my investments. I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.
We are both in Columbus - so let me know if you would like to connect!
11 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Jim Pfeifer:

I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.
I continue to use the strategy - when deals go full cycle, I invest in a new syndication. It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax. I have been doing this for several years and I don't pay tax on my real estate gains.
You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space. Many of the best have plenty of capital so they don't advertise. Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers? These are incredibly illiquid, long-term investments that are completely out of your control. Once you make the investment, there is nothing you can do but watch and wait. This makes it even more critical that you find quality operators to do that. When I first started, I mainly found operators through listening to podcasts. I was exposed to some great operators - and plenty who are not so great. This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator. I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust. It has made a huge difference in the success of my investments. I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.
We are both in Columbus - so let me know if you would like to connect!

Jim.
I appreciate the comment. I would definitely like to connect RT here in Columbus. If you are willing to share your knowledge and experience, I would be grateful for the education!

I will reach out with a PM with my contact info. Let’s talk soon!
Best, Kelly
1 Reply
Joshua JanusBusiness Member
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
4y
Quote from @Kelly McClellan:

Good morning BP members.
I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.
I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.
There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!
We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.
I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.
I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!
Hope to hear from you all!
Kelly

Columbus, Ohio is a great market to invest in. The population has been growing here year over year over the last decade, it is home to The Ohio State University which has over 50,000 students that live here along with those that visit, and it also holds a diverse range of young professionals and traveling nurses to fill the demand of the multiple business corporations and hospitals stationed here. The appreciation rate in Columbus has been 8% higher than the national average over the last year. Tech companies are continuously moving here and establishing a footprint in Columbus as well. Intel is a great example, who is building the largest chip manufacturing plant in the US right here, and it will be a $20 billion dollar investment that brings a few new thousand jobs.
https://www.dispatch.com/story/business/2022/01/21/intel-ohio-building-computer-chip-factories-licking-county-jersey-township/9173472002/
Another example of economic growth is the upcoming Ohio State University Wexner Medical Center Inpatient Hospital which is a 1.9million square foot hospital that will bring over 800 new beds and a thousand new jobs.
https://abc6onyourside.com/news/local/new-osu-hospital-expected-to-transform-health-care
Here are a few more recent investments
https://www.10tv.com/article/money/business/hydrogen-power-company-hyperion-bringing-700-jobs-to-columbus/530-25907aab-5517-4661-a9f3-d2ed2d5be6b0
https://news.wosu.org/news/2022-02-08/rumpke-to-build-50-million-recycling-facility-in-columbus

Check out The Complete Guide to the Columbus, Ohio Real Estate Market which goes through the Columbus, Ohio market in depth and will give you a better scope of where the highest levels of growth are taking place and where to look to invest.

[email protected]614-502-5316 Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
0 Reply
Bruce D. Kowal
Metro NY + New Bedford · Member since 2022 · 294 posts · 216 votes
4y
Quote from @Jim Pfeifer:

I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.
I continue to use the strategy - when deals go full cycle, I invest in a new syndication. It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax. I have been doing this for several years and I don't pay tax on my real estate gains.
You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space. Many of the best have plenty of capital so they don't advertise. Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers? These are incredibly illiquid, long-term investments that are completely out of your control. Once you make the investment, there is nothing you can do but watch and wait. This makes it even more critical that you find quality operators to do that. When I first started, I mainly found operators through listening to podcasts. I was exposed to some great operators - and plenty who are not so great. This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator. I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust. It has made a huge difference in the success of my investments. I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.
We are both in Columbus - so let me know if you would like to connect!

Simply great advice, Mr. Pfeifer. Required reading, to be sure. I would add that any investment should have equal or better returns than a good REIT ETF, such as from Vanguard or Fidelity. That is the baseline for really passive investing. The return which they post assume reinvestment of dividends, I believe. Here is an example: Vanguard Real Estate ETF [VNQ]

I have seen a lot of PPM's from syndicators, and it's very hard to find reliable ones. As you mentioned, the good ones don't need to advertise. What I have seen is commingling of accounts and Ponzi schemes. At the very least a new investor in a syndication should demand a copy of the tax return, and then look at the balance sheet. You should NOT see a lot of loans to and from the LLC. And you should clearly see syndication costs as a non-depreciable assets. In any event, run that balance sheet by an experienced CPA.
2 Reply
Colton Hahn
Specialist · Member since 2021 · 322 posts · 273 votes
4y
Quote from @Jim Pfeifer:

I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.
I continue to use the strategy - when deals go full cycle, I invest in a new syndication. It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax. I have been doing this for several years and I don't pay tax on my real estate gains.
You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space. Many of the best have plenty of capital so they don't advertise. Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers? These are incredibly illiquid, long-term investments that are completely out of your control. Once you make the investment, there is nothing you can do but watch and wait. This makes it even more critical that you find quality operators to do that. When I first started, I mainly found operators through listening to podcasts. I was exposed to some great operators - and plenty who are not so great. This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator. I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust. It has made a huge difference in the success of my investments. I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.
We are both in Columbus - so let me know if you would like to connect!

Absolutely this. Why 1031 into a mediocre property, when you could change asset classes and take advantage of the benefits of passive investing? No brainer to me..
2 Reply
Dwayne Poster
Investor · Van Isle · Member since 2021 · 455 posts · 226 votes
4y
I wouldn't overlook transitioning your current assets as a means of reducing the commitment. Rent to own and seller financing are cash flow vehicles that allow you to step back while taking advantage of the current, and near future markets.
1 Reply
Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
4y
@Kelly McClellan, Jim can't mention is because of self promotion rules on these forums, but check out his Left Field Investors group. I believe there are fees to truly join, but listen to his publicly available podcasts and YouTube channel content for a good idea of the expertise he and his group bring.
There are many factors to consider, but with you living off your earnings, I would imagine consistency/frequency of distributions (which gets into risk of assets) and hold period would be big ones.
Many groups on these forums are 3-5 yr holders and operate in the value-add space. I know some (not necessarily on these forums) that don't make their first distribution for about 12 months to build up reserves. Others will fund reserves in the equity raise, but then start distributions much sooner. Some pay quarterly, others monthly. Some have historically been all over the place with their distribution amounts, and others pay out a consistent amount each month with annual reconciliations based on actuals.
The initial journey can be daunting, as you will spend a lot of time on the phone vetting different groups, and a lot of time on the computer trying to discover new ones. As noted, this is where groups like Left Field can provide significant value. And once you have groups you would consider investing in, then you need to match goals, risk profile, hold periods, etc.
4 Reply
Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
4y
Quote from @Kelly McClellan:

Good morning BP members.
I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.
I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.
There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!
We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.
I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.
I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!
Hope to hear from you all!
Kelly

I can send you some accountant referrals in Columbus, Ohio.
[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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1 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Remington Lyman:

Quote from @Kelly McClellan:

Good morning BP members.
I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.
I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.
There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!
We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.
I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.
I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!
Hope to hear from you all!
Kelly

I can send you some accountant referrals in Columbus, Ohio.

Thanks! I am looking!!!
0 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Evan Polaski:

@Kelly McClellan, Jim can't mention is because of self promotion rules on these forums, but check out his Left Field Investors group. I believe there are fees to truly join, but listen to his publicly available podcasts and YouTube channel content for a good idea of the expertise he and his group bring.
There are many factors to consider, but with you living off your earnings, I would imagine consistency/frequency of distributions (which gets into risk of assets) and hold period would be big ones.
Many groups on these forums are 3-5 yr holders and operate in the value-add space. I know some (not necessarily on these forums) that don't make their first distribution for about 12 months to build up reserves. Others will fund reserves in the equity raise, but then start distributions much sooner. Some pay quarterly, others monthly. Some have historically been all over the place with their distribution amounts, and others pay out a consistent amount each month with annual reconciliations based on actuals.
The initial journey can be daunting, as you will spend a lot of time on the phone vetting different groups, and a lot of time on the computer trying to discover new ones. As noted, this is where groups like Left Field can provide significant value. And once you have groups you would consider investing in, then you need to match goals, risk profile, hold periods, etc.
I have already begun the process of reaching out to Jim and Leftfield.

I appreciate the info you have offered. You are right, consistent income is one of my goals. This is why I am starting slowly. with just one property at a time to “feel” things out. Beyond the loss of income, I am just as concerned about loss of capital. So there is a lot to consider as I make this move!

I appreciate your input.
0 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
4y
I started with turnkey remote rentals in 2009-2015 while working my engineering W2 job. Then went into syndications once my net worth went over 500k.

If you make over 150-250k and your net worth is over 500k then I would look to going passive soon. Its a total mistake to think you are going to get 10 fannie loans in each spouses name... I thought that was my dream at one time.
Investing will get your net worth over 3-4m pretty quickly and that that point its about being passive and getting a life than being a busy bee.
1 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Lane Kawaoka:

I started with turnkey remote rentals in 2009-2015 while working my engineering W2 job. Then went into syndications once my net worth went over 500k.

If you make over 150-250k and your net worth is over 500k then I would look to going passive soon. Its a total mistake to think you are going to get 10 fannie loans in each spouses name... I thought that was my dream at one time.
Investing will get your net worth over 3-4m pretty quickly and that that point its about being passive and getting a life than being a busy bee.
Hey Lane.

You and I talked about 2 weeks ago. You might not remember but we were having problems with your internet as there were storms in the area.

I have been evaluating some of your current offerings also.

I went through the “gathering of mortgages” phase many years ago. We are very tax efficient currently but are trying to move away from the 1031 structure if we can. My focus now is passive. At the same time, I am looking to increase cash flow as we have a good bit of frozen equity in our real estate holdings.

I hope some of your “chocolate” deals pan out…

0 Reply
Paul MoorePro Member
Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
4y
Hi @Kelly McClellan. I have searched far and wide for a great real estate CPA and tax strategist and it turns out that I found one in right in your area, in a suburb of Columbus. Reach out to me if you want to connect to them.

It's great to get a good community when transitioning to passive investments. It turns out one of the best communities is right there in your area, in Dublin, OH, Left Field Investors. I highly recommend that you connect with Left Field Investors and @Jim Pfeifer to learn more about passive investing and to strengthen your knowledge, community, etc. I also recommend getting @Brian Burke's excellent book The Hands-Off Investor. Good luck!
Podcast Guest on Show #533
3 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Paul Moore:

Hi @Kelly McClellan. I have searched far and wide for a great real estate CPA and tax strategist and it turns out that I found one in right in your area, in a suburb of Columbus. Reach out to me if you want to connect to them.

It's great to get a good community when transitioning to passive investments. It turns out one of the best communities is right there in your area, in Dublin, OH, Left Field Investors. I highly recommend that you connect with Left Field Investors and @Jim Pfeifer to learn more about passive investing and to strengthen your knowledge, community, etc. I also recommend getting @Brian Burke's excellent book The Hands-Off Investor. Good luck!

Thanks Paul!
Already on it. I have already connected with Jim and the group. Also, I have a call with a new accountant tomorrow: also from LeftFieldInvestors connections.
Thanks for reaching out!

0 Reply
Jack Martin
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
4y
@Kelly McClellan I would echo the perspective from @Jim Pfeifer regarding cost segregation and bonus depreciation. Keep in mind, some property types will garner more bonus depreciation than others. Bonus depreciation is derived from the portion of the property's value with a shorter useful life than the buildings themselves. Therefore the property types that are the most favorable to generate bonus depreciation will be those with a high degree of what the tax code refers to as "land improvements". Examples are mobile home parks, RV parks, and golf courses where the value of the property is not primarily derived from building(s) but rather from the improvements to the land. In a mobile home park or RV park, most of the value is in the underground infrastructure, roads, landscaping, amenities, pools, fencing, pads, utility pedestals, etc, while only a small portion of the value comes from a building, like a clubhouse or laundry facility. In a similar fashion, if you can imagine how much landscaping and underground infrastructure is in a golf course as compared to the clubhouse, that will give an indication of why an extremely high percentage of the property's value is allocated to the land improvements.

When a property is purchased, a cost segregation study should be performed, wherein the value of the property will be segregated into land (which is not depreciated), buildings (which are depreciated on a 39 or 27.5 year schedule), land improvements (15 year schedule), and other smaller items like personal property. If the bonus election is taken, then 100% of the allocation to the land improvements can be taken as a passive loss in the year the property was purchased. Properly executed, an investment in these types of property can garner passive losses equal to or greater than the amount of capital invested.

This can be executed with a direct investment yourself, or through a passive investment in a syndication with a sponsor who is taking the bonus election. If you invest passively you should receive your pro rata allocation of bonus depreciation on your K1 along with the other investors. Either way, you should be able to garner passive losses equal to or greater than the amount of capital invested.

Those passive losses can be used to offset the gains you have incurred (or gains you expect to incur) as long as the gain AND the investment where bonus depreciation is being taken occur in the same calendar year. Any allocation of passive losses you cannot use in that calendar year will carry over, so they can be used in subsequent years. I am not a tax advisor or a CPA. This perspective is solely from my own experience in managing mobile home park funds and working with the tax experts around us.
All the best,
Jack

2 Reply
Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
4y
Quote from @Kelly McClellan:

Good morning BP members.
I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.
I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.
There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!
We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.
I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.
I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!
Hope to hear from you all!
Kelly

I own both direct/active real estate and passive real estate (syndication/crowdfunding) in my portfolio (which I use to support myself and my family).

In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

Having said that...I know you're asking about passive. And one of the main advantages of passive investments (via syndication/crowdfunding) is that you can hire a manager who has years more experience than you can ever hope to obtain yourself.

And once you finish the due diligence, your work is done: it's completely passive.

Also, rather than taking a large amount of money and investing into one single directly owned property, you can split it up into much smaller chunks across many different passive investments. This can allow a person to get much better diversification protection across geographies, asset types, strategies, investment subclasses etc. Versus putting all the eggs into one basket.

As far as returns to expect: I saw a post above where a person made a claim about these only having a very narrow range of returns to expect. I'm sure it's accurate from their personal point of view but as someone sees hundreds of these deals each month, I can tell it's not accurate for the wider market (at all). And you there's actually a very wide spectrum ( and it depends on your personal risk tolerance, unique financial goals, unique financial situation etc. as far as what works for you.).

The downside with passive is that someone has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone can do that and not everyone feels comfortable turning over control. So it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time and/or is just starting out building their wealth) is unlikely to find this a good fit.
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1 Reply
Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
4y
The paper losses from a syndication can be awesome. Many will provide you 70-100% loss in year 1 through cost segregation and bonus depreciation. Bonus depreciation is phasing out over the next several years, so this is something to consider. I would suggest reaching out to a qualified CPA to discuss this. Our company uses Clifton Larson Allen, which is a firm that have a real estate division.
I am not a CPA, but happy to chat about our experiences, both on the LP and GP side of a syndication
1 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Ian Ippolito:

Quote from @Kelly McClellan:

Good morning BP members.
I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.
I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.
There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!
We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.
I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.
I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!
Hope to hear from you all!
Kelly

I own both direct/active real estate and passive real estate (syndication/crowdfunding) in my portfolio (which I use to support myself and my family).

In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

Having said that...I know you're asking about passive. And one of the main advantages of passive investments (via syndication/crowdfunding) is that you can hire a manager who has years more experience than you can ever hope to obtain yourself.

And once you finish the due diligence, your work is done: it's completely passive.

Also, rather than taking a large amount of money and investing into one single directly owned property, you can split it up into much smaller chunks across many different passive investments. This can allow a person to get much better diversification protection across geographies, asset types, strategies, investment subclasses etc. Versus putting all the eggs into one basket.

As far as returns to expect: I saw a post above where a person made a claim about these only having a very narrow range of returns to expect. I'm sure it's accurate from their personal point of view but as someone sees hundreds of these deals each month, I can tell it's not accurate for the wider market (at all). And you there's actually a very wide spectrum ( and it depends on your personal risk tolerance, unique financial goals, unique financial situation etc. as far as what works for you.).

The downside with passive is that someone has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone can do that and not everyone feels comfortable turning over control. So it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time and/or is just starting out building their wealth) is unlikely to find this a good fit.

Ian.

Thanks for your reply your comments mimic my current sentiment regarding both strategies. In the end, what I anticipate will happen is that I will end up with a blend of both active and passive investments with the trajectory leaning towards passive investments as we continue to age.

Even the relatively small amount of passive investments I have started last year has taken a bit of a load off my shoulders. There might be one or two more properties I will look to dispose of in the relative near term, but even if we hold pat for now, I feel like I can manage it.

I have connected with a fantastic passive investment group, LeftFieldInvestors.com. That network has been very helpful as I have begun to educate myself. Up until now, my only experience with passive RE investments has been via 1031 DST opportunities. Through this group and through my own research, I have found other 1031 opportunities that meet my investment goals. I have yet to invest in a non-1031 syndication or fund but I see this likely to come in my future. We are just today evaluating a long-term rental SFH that we have owned since 2008. We have had the same tenant for the last 8 or more years and the property will need considerable update to get it back into market rent condition. Once we evaluate it, we will be making a decision how to best move forward: keep or sell.
I appreciate your taking the time to comment.
Best
Kelly
1 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Louis Young:

Hello Kelly,
I too am looking into the possibility of entering to a more passive role in my investment holdings. You mentioned that you entered into a DST 1031 exchange. How did that work out?
So far so good. I would be happy to share my experience with you if you wish to connect offline. Fee free to pm me.
0 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Todd Dexheimer:

The paper losses from a syndication can be awesome. Many will provide you 70-100% loss in year 1 through cost segregation and bonus depreciation. Bonus depreciation is phasing out over the next several years, so this is something to consider. I would suggest reaching out to a qualified CPA to discuss this. Our company uses Clifton Larson Allen, which is a firm that have a real estate division.
I am not a CPA, but happy to chat about our experiences, both on the LP and GP side of a syndication
Thanks Todd!

Appreciate the post and the offer to share your experience.
0 Reply
Kelly McClellan
OP
Rental Property Investor · Columbus, OH · Member since 2018 · 33 posts · 19 votes
4y
Quote from @Jack Martin:

@Kelly McClellan I would echo the perspective from @Jim Pfeifer regarding cost segregation and bonus depreciation. Keep in mind, some property types will garner more bonus depreciation than others. Bonus depreciation is derived from the portion of the property's value with a shorter useful life than the buildings themselves. Therefore the property types that are the most favorable to generate bonus depreciation will be those with a high degree of what the tax code refers to as "land improvements". Examples are mobile home parks, RV parks, and golf courses where the value of the property is not primarily derived from building(s) but rather from the improvements to the land. In a mobile home park or RV park, most of the value is in the underground infrastructure, roads, landscaping, amenities, pools, fencing, pads, utility pedestals, etc, while only a small portion of the value comes from a building, like a clubhouse or laundry facility. In a similar fashion, if you can imagine how much landscaping and underground infrastructure is in a golf course as compared to the clubhouse, that will give an indication of why an extremely high percentage of the property's value is allocated to the land improvements.

When a property is purchased, a cost segregation study should be performed, wherein the value of the property will be segregated into land (which is not depreciated), buildings (which are depreciated on a 39 or 27.5 year schedule), land improvements (15 year schedule), and other smaller items like personal property. If the bonus election is taken, then 100% of the allocation to the land improvements can be taken as a passive loss in the year the property was purchased. Properly executed, an investment in these types of property can garner passive losses equal to or greater than the amount of capital invested.

This can be executed with a direct investment yourself, or through a passive investment in a syndication with a sponsor who is taking the bonus election. If you invest passively you should receive your pro rata allocation of bonus depreciation on your K1 along with the other investors. Either way, you should be able to garner passive losses equal to or greater than the amount of capital invested.

Those passive losses can be used to offset the gains you have incurred (or gains you expect to incur) as long as the gain AND the investment where bonus depreciation is being taken occur in the same calendar year. Any allocation of passive losses you cannot use in that calendar year will carry over, so they can be used in subsequent years. I am not a tax advisor or a CPA. This perspective is solely from my own experience in managing mobile home park funds and working with the tax experts around us.
All the best,
Jack

Thanks Jack!

I appreciate the reply!
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