What other low management investment options are there?

22 Replies

Hey guys,

Reading about performing notes has fascinated me; seems like such a superior investment compared to stocks/bonds in terms of variance and ROI.


What else is out there that is relatively passive? Can be REI or non-REI related. Anywhere on the risk/reward spectrum is fine, I'd just like my eyes open to the options for now :)

@Gary Clisele - Here are my top 3:

1. Vanguard index funds - super low fees. VTSAX is the most popular. 

2. Hire a property manager

3. If your property is in a good location, you can rent your property to someone and have him/her AirBnb for you. Make sure they take care of any of the maintenance problems. And you get a rent deposited into your account every week. 

For total passiveness: bonds, stocks, etfs, notes, syndication

Owning rentals is not entirely passive. Yes it’s pretty passive if you have a manager but it still doesn’t compare to ETFs. I imagine a note fund or syndication would be extremely passive

Gary Clisele note funds are passive and are similar to a mutual fund. It’s a pool of $ investors in performing and non performing notes.

Performing notes are passive as well but if they go non performing it is no longer passive.
If you have questions regarding where to find note funds or performing notes feel free to reach out to me and we can chat offline

For me, it's 3rd party PM for rentals, syndications, and index funds...and no more SFR flips.

It did not start out this way at all but my portfolio is now officially passive.  I have 33 direct owned units but currently only 2 properties.  I have not been to them in 6 months...wife drives by on occasion.  I spend a couple of hours analyzing the books each month.

The rest of my real estate portfolio is invested in passive syndications.  These large professional sponsors have mature deal flow pipelines; so, it has been an intentional strategy to generate deal flow for me in a market where others are having a tough time finding properties that meet their criteria.

It was a lot of work leading up to this stage, even vetting the passive syndication strategy.

@Gary Clisele 

So if you want to stay completely passive then follow what @Mike Dymski and @Caleb Heimsoth offered:

Notes, index funds, syndications. Keep in mind notes can also entail mortgage notes & offer fixed income. In some cases higher loans may mean higher returns.

Syndications is totally passive and is something I can talk for a very long time. 

So feel free to PM me if you have questions. 

Best!

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

Originally posted by @Kris Benson :

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

 I agree that your structure is not passive. That said, there is a way to do storage in a relatively passive way. Personally, I don't actually believe in "passive" income at all. I much prefer to look at all income as residual for fearing of giving people the impression that there's such a thing as free lunch in this world. Even stocks or lending etc require oversight and rebalancing etc...

All that said, I own considerably less property than you. Clearly the OP's investment strategy will depend on their goals beyond remaining as passive as possible.

I have just 3 properties totalling 80,000 square feet. They are unmanned and take up about 5 hours of work per week total from me...and another 3-5 in bookkeeping by my wife. Our out of pocket investment on these deals spanning the last 7 years is $71k. We have roughly $2 Million in equity today and generate enough cash flow each year to support our chosen lifestyle (which is admittedly pretty low key). 

Our strategy is to buy underperforming properties in secondary and tertiary markets and bring them up to the highest possible unmanned revenue. In these markets, we would never recoup 60+ hours of labor with ancillary sales. As such we opt for online rental portals and a call center.

Just goes to show you that there are a million ways to make money in real estate and the greatest success is acheived by designing a strategy that best acheived your own personal goals. 

Our other investments are in American based independent Oil companies that either do re-works or drill new wells. Can’t get more passive than that because you surely are not going to jump on a rig - right ?!

@Gary Clisele , if you are buying individual notes, then that it is definitely not a passive investment. True, everything is passive as long as the borrower is paying you. But if and when one of them defaults, then you have to have the time, ability and desire to go through a foreclosure process, rehab the property so it can be sold, and then sell it. If it happens to be bad timing, you may not be able to sell it in which case you have to hold onto it and try to rent it out to produce income.

Note buying is only passive if you do it through a syndication or crowdfunding site that will handle all of that for you. Then once you are in the investment, it is no different than owning a stock or mutual fund, as far as the work involved.

And in the same way, any other aspect of real estate can be made passive, by doing it through a syndication or crowdfunding.

Gary Clisele - investing with a syndicator/lead investor is the optimal passive investment IMO. You do have to do some research on the syndicator, and make sure you feel comfortable with him/her, go over the offer document, etc, but once you invest with them, you are passive - you don't manage the property, deal with the bank, etc - they do everything for you. You pay them a fee, but still can get significant returns (15%-20% IRR, 7%-10% CoC).

Originally posted by @Kris Benson :

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

YUp I don't see self storage as an investment per se  I think its a business.. and you can choose how to run it.  I had one building I turned it into a condo and sold the storage condos to the floating homes on the Columbia river.. that was a good play. 

Originally posted by @Ian Ippolito :

@Gary Clisele , if you are buying individual notes, then that it is definitely not a passive investment. True, everything is passive as long as the borrower is paying you. But if and when one of them defaults, then you have to have the time, ability and desire to go through a foreclosure process, rehab the property so it can be sold, and then sell it. If it happens to be bad timing, you may not be able to sell it in which case you have to hold onto it and try to rent it out to produce income.

Note buying is only passive if you do it through a syndication or crowdfunding site that will handle all of that for you. Then once you are in the investment, it is no different than owning a stock or mutual fund, as far as the work involved.

And in the same way, any other aspect of real estate can be made passive, by doing it through a syndication or crowdfunding.

 Or very good brokers who have been doing it for decades and take care of their clients.. but your right.. one off   say from FCI exchange and yes it goes bad ( whole note) and you have your work cut out for you as you described.

Originally posted by @Jay Hinrichs :
Originally posted by @Kris Benson:

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

YUp I don't see self storage as an investment per se  I think its a business.. and you can choose how to run it.  I had one building I turned it into a condo and sold the storage condos to the floating homes on the Columbia river.. that was a good play. 

 Im guessing it's just a matter of semantics but worth pointing out anyways as I think this is where a lot of new investors go wrong and ultimately end up buying themselves a job rather than an investment. Self storage is (read as...can be) every bit as much of an investment as any other type of real estate investing. Renting garages is no different from multi family or other commercial ventures in that you own space that you rent out at a rate that exceeds your cost to own and operate. And all invests should be treated like a business if success is the goal. To me, the deciding factor on whether it's a business (job) or an investment is how you structure it and your roll within the operation.

Originally posted by @Michael Wagner :
Originally posted by @Jay Hinrichs:
Originally posted by @Kris Benson:

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

YUp I don't see self storage as an investment per se  I think its a business.. and you can choose how to run it.  I had one building I turned it into a condo and sold the storage condos to the floating homes on the Columbia river.. that was a good play. 

 Im guessing it's just a matter of semantics but worth pointing out anyways as I think this is where a lot of new investors go wrong and ultimately end up buying themselves a job rather than an investment. Self storage is (read as...can be) every bit as much of an investment as any other type of real estate investing. Renting garages is no different from multi family or other commercial ventures in that you own space that you rent out at a rate that exceeds your cost to own and operate. And all invests should be treated like a business if success is the goal. To me, the deciding factor on whether it's a business (job) or an investment is how you structure it and your roll within the operation.

the reason why I say its not an investment like most BP folks think about it.. is that there is turn over your not out sourcing your PM ..

if you have a no pay your the one doing the eviction.. you usually need a form of advertising going all the time..

but I understand what you have and where they probably are.. those are great mom and pop business's and are in most every small berg in America..  the other gentlemen who is talking about truck rental and such.. now that for sure is not real estate investment like BP folks talk about it.. just like running a restaurant its on real estate but you have to run the business manage staff etc etc.

its all good...   Have you seen those micro storages I was up in BC ( British Columbia) fishing a few weeks back and saw a big billboard advertising micro storage.. and I have seen that In my travels to Europe.. that's an interesting concept for urban environment.

Originally posted by @Jay Hinrichs :
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
Originally posted by @Kris Benson:

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

YUp I don't see self storage as an investment per se  I think its a business.. and you can choose how to run it.  I had one building I turned it into a condo and sold the storage condos to the floating homes on the Columbia river.. that was a good play. 

 Im guessing it's just a matter of semantics but worth pointing out anyways as I think this is where a lot of new investors go wrong and ultimately end up buying themselves a job rather than an investment. Self storage is (read as...can be) every bit as much of an investment as any other type of real estate investing. Renting garages is no different from multi family or other commercial ventures in that you own space that you rent out at a rate that exceeds your cost to own and operate. And all invests should be treated like a business if success is the goal. To me, the deciding factor on whether it's a business (job) or an investment is how you structure it and your roll within the operation.

the reason why I say its not an investment like most BP folks think about it.. is that there is turn over your not out sourcing your PM ..

if you have a no pay your the one doing the eviction.. you usually need a form of advertising going all the time..

but I understand what you have and where they probably are.. those are great mom and pop business's and are in most every small berg in America..  the other gentlemen who is talking about truck rental and such.. now that for sure is not real estate investment like BP folks talk about it.. just like running a restaurant its on real estate but you have to run the business manage staff etc etc.

its all good...   Have you seen those micro storages I was up in BC ( British Columbia) fishing a few weeks back and saw a big billboard advertising micro storage.. and I have seen that In my travels to Europe.. that's an interesting concept for urban environment.

 Yes Jay, I know you and I are the same page here. My explanation was more for the benefit of other folks who might be "vulnerable" to accidentally investing themselves into a job;) 

Yes those micro units are intriguing to me. They come with a cost per square foot that is slightly higher than traditional storage but they clearly have other benefits that can offset this. They can be placed on easements and setbacks, don't incurring property taxes and lend themselves well to "phasing". Definitely a good tool for the storage investor to have in their pocket!

Mike

PS- your storage condo story is still one of my favorites here on BP. Truly genius!

Originally posted by @Michael Wagner :
Originally posted by @Jay Hinrichs:
Originally posted by @Michael Wagner:
Originally posted by @Jay Hinrichs:
Originally posted by @Kris Benson:

@Lane Kawaoka and @Michael Wagner I am respectfully disagreeing with you on self storage being a passive investment at least in our experience.  

My background is in multifamily and I was shocked when I transitioned to self storage and saw the level of active management that is required to drive a return. Now we are focusing on larger facilities 50,000 sq + but I would guess if you are trying to maximize NOI any facility needs active management.

Across our portfolio of 47 properties we average 13% of our revenue from ancillary income like truck rentals, tenant insurance, POS (Point of sale) items like boxes, tape, locks, etc.  Those revenues come from great sales training and active customer service.  I know there are a lot of operators that believe the kiosk model is the way to go and I definitely think there is a place for it in some markets.  Our focus has always been great customer service is the differentiation when you are renting metal boxes....

I will give you a quick example.  We are under contract for a 2 property portfolio in Bradenton, FL and a big part of the value add is adding a sophisticated management team to the property.  The current owner is leaving money on the table by not offering truck rentals, current rents are 9-11% below market, low tenant insurance participation, etc.  These types of revenues don't come along with a passive strategy.

@Mike Dymski I agree with your take that syndication opportunities allow you to invest in these asset classes with your work being on the validation of the operator.  Once you have vetted the operator and find a project you like you can leverage the experience of a real estate professional to run the day to day operations.  As an investor you give up some return in exchange for that passive approach but it depends on how much time you have to commit to it.

Here is what I have learned over the years.  Time is the only thing I can't create more of.  I can make more money, I can buy more stuff, etc. but I cannot make more time.  Its the most valuable resource we have and we have to decide how we want to spend it!  Just my two cents!

Kris

YUp I don't see self storage as an investment per se  I think its a business.. and you can choose how to run it.  I had one building I turned it into a condo and sold the storage condos to the floating homes on the Columbia river.. that was a good play. 

 Im guessing it's just a matter of semantics but worth pointing out anyways as I think this is where a lot of new investors go wrong and ultimately end up buying themselves a job rather than an investment. Self storage is (read as...can be) every bit as much of an investment as any other type of real estate investing. Renting garages is no different from multi family or other commercial ventures in that you own space that you rent out at a rate that exceeds your cost to own and operate. And all invests should be treated like a business if success is the goal. To me, the deciding factor on whether it's a business (job) or an investment is how you structure it and your roll within the operation.

the reason why I say its not an investment like most BP folks think about it.. is that there is turn over your not out sourcing your PM ..

if you have a no pay your the one doing the eviction.. you usually need a form of advertising going all the time..

but I understand what you have and where they probably are.. those are great mom and pop business's and are in most every small berg in America..  the other gentlemen who is talking about truck rental and such.. now that for sure is not real estate investment like BP folks talk about it.. just like running a restaurant its on real estate but you have to run the business manage staff etc etc.

its all good...   Have you seen those micro storages I was up in BC ( British Columbia) fishing a few weeks back and saw a big billboard advertising micro storage.. and I have seen that In my travels to Europe.. that's an interesting concept for urban environment.

 Yes Jay, I know you and I are the same page here. My explanation was more for the benefit of other folks who might be "vulnerable" to accidentally investing themselves into a job;) 

Yes those micro units are intriguing to me. They come with a cost per square foot that is slightly higher than traditional storage but they clearly have other benefits that can offset this. They can be placed on easements and setbacks, don't incurring property taxes and lend themselves well to "phasing". Definitely a good tool for the storage investor to have in their pocket!

Mike

PS- your storage condo story is still one of my favorites here on BP. Truly genius!

I am thinking the storage lockers that Amazon is putting in convenience stores for returns is something like that ??

I got the condo storage because I own a airport condo for our airplanes.. and 90% of my tenants had floating homes.. I got tired of day to day so put the condo plat on it and 2X the value buy selling individual condos... now they all self manage the HOA and I think they are all happy !!

I agree with @Kris Benson on self-storage.  I always assumed it was easy.  After studying this business for some months now, I have concluded that it is an easy business to run poorly or well... and a very complicated business to run for max revenue.