Landlording is Not All That Passive
Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes
Landlording is Not All That Passive
Most Popular Reply
Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votesI had gap in between tenants at a long distance mid term rental a few months ago. A buddy of mine and I went and spent the weekend at the property. He was talking about wanting to get into real estate...his exact words were, "I just want some passive income." In the exact moment he was saying that, I was snaking the shower drain. Agreed...not passive. It can get more hands off over time though.
66 Replies
- 2yAndrew FreedBusiness MemberInvestor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
@Terra Padgett - Agreed! To truly make an asset perform to the desired cash on cash return, it requires solid oversight. What I will say is you can create systems in place to make it semi-passive, but you will have to provide oversight in one capacity or another.
What I will say is there are certain structures in real estate that allow mostly passive investments and that is syndications. Syndications require work up front in regards to vetting the syndicator, the deal, and the market, but once the aquisiton is complete, you simply sit back and collect the returns. I've invested in a few syndications as a LP and it was the closest thing to mailbox money I experienced in real estate.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Terra Padgett:
You always hear about rental properties as passive income. Well I totally disagree. Even with PM in place, there are still many active activities when it comes to direct property ownership. Yes, it does take several tasks off your plate, but it is NOT “truly” passive. When it comes to your rentals, do you agree or disagree?
I agree and would go a step further and sale all aspects of Real Estate is not passive unless you invest in a fund or syndication.
some may be less work than others, but compare it to your 401k. That is passive. If I do not have to think about it and only may allocation changes, that is passive, moment you have to do more than that, its not passive = real estate is not that.
7e investments53 Reviews - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Andrew Freed:
@Terra Padgett - Agreed! To truly make an asset perform to the desired cash on cash return, it requires solid oversight. What I will say is you can create systems in place to make it semi-passive, but you will have to provide oversight in one capacity or another.
What I will say is there are certain structures in real estate that allow mostly passive investments and that is syndications. Syndications require work up front in regards to vetting the syndicator, the deal, and the market, but once the aquisiton is complete, you simply sit back and collect the returns. I've invested in a few syndications as a LP and it was the closest thing to mailbox money I experienced in real estate.
In reality syndication has more work than any other real estate investment lol
- 2yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Nothing is 100% passive, but depending on the type of rentals (and tenants) you have, you can make it as much or as little work as you want. Buy a place that is in good condition and well kept and you should have fewer problems.
One thing I found with having a PM, is tenants are more likely to request repairs because they see it as a business rather than a person.
- 2yAndrew FreedBusiness MemberInvestor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
@Carlos Ptriawan - Not as a limited partner once you vet the deal. All the work is up front. Yes on the GP side but that is not what I am referring to.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Andrew Freed:
@Carlos Ptriawan - Not as a limited partner once you vet the deal. All the work is up front. Yes on the GP side but that is not what I am referring to.
What I meant as an LP
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y
Quote from @Andrew Freed:
@Terra Padgett - Agreed! To truly make an asset perform to the desired cash on cash return, it requires solid oversight. What I will say is you can create systems in place to make it semi-passive, but you will have to provide oversight in one capacity or another.
What I will say is there are certain structures in real estate that allow mostly passive investments and that is syndications. Syndications require work up front in regards to vetting the syndicator, the deal, and the market, but once the aquisiton is complete, you simply sit back and collect the returns. I've invested in a few syndications as a LP and it was the closest thing to mailbox money I experienced in real estate.
Ditto! Syndications are a great model for the real estate investor who is truly looking for a way to deploy and grow their capital hands off. But vetting the Sponsor is certainly more art than science. Which GPs have you worked with in the past?
- 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
I had gap in between tenants at a long distance mid term rental a few months ago. A buddy of mine and I went and spent the weekend at the property. He was talking about wanting to get into real estate...his exact words were, "I just want some passive income." In the exact moment he was saying that, I was snaking the shower drain. Agreed...not passive. It can get more hands off over time though.
- Member since 2019 · 7k+ posts · 4k+ votes2y
everything real estate is hyper-active investment, but the return is not worth it just to catch one hundred two hundred cash flow, hence I move to even more double-hyper active investment which is rehabbing and flipping house. I'm liquidating right now.
- Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes2y
Agreed. Even with a PM you need to play the Asset Manager role
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y😄 That is funny. I can only imagine the thoughts that may have went through your head. Tell your buddy to look into getting started in passive real estate by way of an investment club. REI clubs are a great way to learn from others, get deal flow, network, and do deals much bigger than any one person could do on their own. I’ve found it to be one of the truly passive ways to invest in real estate to generate passive income streams.
Quote from @Travis Timmons:
I had gap in between tenants at a long distance mid term rental a few months ago. A buddy of mine and I went and spent the weekend at the property. He was talking about wanting to get into real estate...his exact words were, "I just want some passive income." In the exact moment he was saying that, I was snaking the shower drain. Agreed...not passive. It can get more hands off over time though.
- Member since 2019 · 7k+ posts · 4k+ votes2y
truly passive is only REIT but that also if you don't check their dividend or NAV every day. These days I prefer to buy REIT because price is at the bottom. LOL.
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2yRehabbing is great active income. We generate active in order to get passive. What do you plan to do once liquidation is complete?
Quote from @Carlos Ptriawan:
everything real estate is hyper-active investment, but the return is not worth it just to catch one hundred two hundred cash flow, hence I move to even more double-hyper active investment which is rehabbing and flipping house. I'm liquidating right now.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Terra Padgett:
Rehabbing is great active income. We generate active in order to get passive. What do you plan to do once liquidation is complete?Quote from @Carlos Ptriawan:
everything real estate is hyper-active investment, but the return is not worth it just to catch one hundred two hundred cash flow, hence I move to even more double-hyper active investment which is rehabbing and flipping house. I'm liquidating right now.
the liquidation is for cash-flow out of state property. I put more effort into just hyper-active flipping business in local market. By nature I like real estate when it's more hyper-active. I only need one good flip project per year to create six digit income.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Terra Padgett, passive is really in the eye of the beholder, unless you are talking IRS definition; then, it is defined as passive.
As you will see here, some people simply want the "freedom" of not being bound to their corporate job and a desk. But when anyone gets to the scale of owning enough rentals to actually make a living, I think they learn that they simply traded one job for another, often harder, job.
As far as syndications go, they are only somewhat more passive than owning rentals, and I think it really depends on your mentality and attitude toward them. Just like all real estate, they are not a silver bullet to grow your wealth. You are clearly giving up a lot of control to a group that will ultimately make decisions that may not align with yours. Unfortunately, syndications are a lot like Airbnbs: they are all called the same thing, but the experience you have will vary widely. And most of the return is going to be driven by market conditions, regardless of how good or bad an operator is. But the same can be said about buying a SFR.
Things no single person/company can control: rents, interest rates, supply and demand. You/the company can make bets and predictions that may turn out alright in the end, but they could go the other way on you too. And as we are seeing, the cost of a miss in a syndication is just a lot bigger than the cost of a miss in a SFR. So given a syndication is needed because the GP, presumably, cannot fill out the capital stack for a $20mm-$100mm deal on their own, when that miss happens, it often needs to be born by the LPs, either by selling for a loss, or capital call. A single family, if the buyer uses all their money to acquire, will result in the same thing, but only the buyer has to bear that burden.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2y
Makes me think of that line from princess bride..."You keep using that word, I do not think it means what you think it means."
Landlording is passive in much the same way that waterskiing is passive.
To be fair, there are times when I'll go months without new issues, then times when I have a backlog of things to handle. It is more passive than a w2 job for me.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Glen Wiley:
Makes me think of that line from princess bride..."You keep using that word, I do not think it means what you think it means."
Landlording is passive in much the same way that waterskiing is passive.
To be fair, there are times when I'll go months without new issues, then times when I have a backlog of things to handle. It is more passive than a w2 job for me.
Actually the more we say everything is active investment, the better risk-adjusted return we had, because we will do more realistic due diligence.
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y
Quote from @Carlos Ptriawan:
Quote from @Terra Padgett:
Rehabbing is great active income. We generate active in order to get passive. What do you plan to do once liquidation is complete?Quote from @Carlos Ptriawan:
everything real estate is hyper-active investment, but the return is not worth it just to catch one hundred two hundred cash flow, hence I move to even more double-hyper active investment which is rehabbing and flipping house. I'm liquidating right now.
the liquidation is for cash-flow out of state property. I put more effort into just hyper-active flipping business in local market. By nature I like real estate when it's more hyper-active. I only need one good flip project per year to create six digit income.
That's great. You sound like you'd be (or are) a great Operator. I personally like to earn active income so that I can multiply those dollars in passive investments. As the great investor Warren Buffet once said, If you don't find ways to make money while you sleep, you'll work until you die.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Terra Padgett:
Quote from @Carlos Ptriawan:
Quote from @Terra Padgett:
Rehabbing is great active income. We generate active in order to get passive. What do you plan to do once liquidation is complete?Quote from @Carlos Ptriawan:
everything real estate is hyper-active investment, but the return is not worth it just to catch one hundred two hundred cash flow, hence I move to even more double-hyper active investment which is rehabbing and flipping house. I'm liquidating right now.
the liquidation is for cash-flow out of state property. I put more effort into just hyper-active flipping business in local market. By nature I like real estate when it's more hyper-active. I only need one good flip project per year to create six digit income.
That's great. You sound like you'd be (or are) a great Operator. I personally like to earn active income so that I can multiply those dollars in passive investments. As the great investor Warren Buffet once said, If you don't find ways to make money while you sleep, you'll work until you die.
what Buffet mentioned there is just dividend income, I have hedged portfolio of dividend income that generates conservative 8-11%.
I guess once we're in certain level we can print money actively or semi-passively because we know how to do it and associated risk with the investment.
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y
Quote from @Evan Polaski:
@Terra Padgett, passive is really in the eye of the beholder, unless you are talking IRS definition; then, it is defined as passive.
As you will see here, some people simply want the "freedom" of not being bound to their corporate job and a desk. But when anyone gets to the scale of owning enough rentals to actually make a living, I think they learn that they simply traded one job for another, often harder, job.
As far as syndications go, they are only somewhat more passive than owning rentals, and I think it really depends on your mentality and attitude toward them. Just like all real estate, they are not a silver bullet to grow your wealth. You are clearly giving up a lot of control to a group that will ultimately make decisions that may not align with yours. Unfortunately, syndications are a lot like Airbnbs: they are all called the same thing, but the experience you have will vary widely. And most of the return is going to be driven by market conditions, regardless of how good or bad an operator is. But the same can be said about buying a SFR.
Things no single person/company can control: rents, interest rates, supply and demand. You/the company can make bets and predictions that may turn out alright in the end, but they could go the other way on you too. And as we are seeing, the cost of a miss in a syndication is just a lot bigger than the cost of a miss in a SFR. So given a syndication is needed because the GP, presumably, cannot fill out the capital stack for a $20mm-$100mm deal on their own, when that miss happens, it often needs to be born by the LPs, either by selling for a loss, or capital call. A single family, if the buyer uses all their money to acquire, will result in the same thing, but only the buyer has to bear that burden.
That is why I invest in syndications with an investment club. One is able to spread their risk across many deals and not have all of their investment capital tied up into one single deal. Loss of capital may occur in both scenarios, but you limit your liability &/or losses as an LP. You'll also have a greater learning curve being a Landlord and fingers crossed those learning lessons don't wipe you out. Thanks for sharing your thoughts
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Terra Padgett:
Quote from @Evan Polaski:
@Terra Padgett, passive is really in the eye of the beholder, unless you are talking IRS definition; then, it is defined as passive.
As you will see here, some people simply want the "freedom" of not being bound to their corporate job and a desk. But when anyone gets to the scale of owning enough rentals to actually make a living, I think they learn that they simply traded one job for another, often harder, job.
As far as syndications go, they are only somewhat more passive than owning rentals, and I think it really depends on your mentality and attitude toward them. Just like all real estate, they are not a silver bullet to grow your wealth. You are clearly giving up a lot of control to a group that will ultimately make decisions that may not align with yours. Unfortunately, syndications are a lot like Airbnbs: they are all called the same thing, but the experience you have will vary widely. And most of the return is going to be driven by market conditions, regardless of how good or bad an operator is. But the same can be said about buying a SFR.
Things no single person/company can control: rents, interest rates, supply and demand. You/the company can make bets and predictions that may turn out alright in the end, but they could go the other way on you too. And as we are seeing, the cost of a miss in a syndication is just a lot bigger than the cost of a miss in a SFR. So given a syndication is needed because the GP, presumably, cannot fill out the capital stack for a $20mm-$100mm deal on their own, when that miss happens, it often needs to be born by the LPs, either by selling for a loss, or capital call. A single family, if the buyer uses all their money to acquire, will result in the same thing, but only the buyer has to bear that burden.
That is why I invest in syndications with an investment club. One is able to spread their risk across many deals and not have all of their investment capital tied up into one single deal. Loss of capital may occur in both scenarios, but you limit your liability &/or losses as an LP. You'll also have a greater learning curve being a Landlord and fingers crossed those learning lessons don't wipe you out. Thanks for sharing your thoughts
Yea investing with SPV and other group of folks are great idea because multiple investors are DD-ing the offering and you get special treatment from the GP side. Then it's just matter of time if the investment timing is correct or not.
- 2yDenis PonderPro MemberNew to Real Estate · Yuma, AZ · Member since 2023 · 280 posts · 246 votes
I think it really depends on what people mean when they say passive. I would agree that landlording is not a completely hands off, set it and forget it type of activity. However, I don't know if that is what everyone means when they say passive.
I try to evaluate it from a time vs money relationship. My current W2 is active, that's my baseline. Anything that can earn me money with a disproportionate (lower) time investment is more passive than my W2. From there, it's about finding ways to increase that income and decrease the time investment. My life and my earnings are getting more and more passive. It's more of a continuum and journey.
People pay me to stay at my places and I don't have a daily list of tasks/activities I have to show up and complete for that to happen. If most of the "work" can be done from my couch on a phone, that's pretty passive to me.
I get that some people choose to do much of the work themselves (PM, handyman, etc), and that will make it less passive. But, to me, it's still far more passive than a 40+ hr/wk W2.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes2y
As the blunt but knowledgeable @Thomas S used to say, "There's no such thing as a retired landlord!"
I self-managed all for 17 years, then 1031 consolidated half and left the seller's PM in place.
I could not believe the stupidity of their repair decisions and high costs. The 10% PM fee talked about all the time is complete bs even before including fill or renewal fees. Then it's 16% minimum.
I fired them from doing several tasks (like laundry room collection- $75 to collect $30 x3) dealing with garbage disposals or maintaining the 70s style 4ft flourescent lights in kitchens.
I was getting $150 balast repair bills and they were driving to stores for cover replacements at $40/hr. (Instead of upgrading to the $25 LED fixtures I had in storage)
They summoned licensed pros for every small one-off thing, including swapping light fixtures, wall heaters and changing toilet flappers.
So continue doing it myself to not go Bk or sell? I tapped out in '22. The market was good and I was sick of being the only one who could manage expenses effectively, I do not regret reducing my RE 90%.
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y
Quote from @Denis Ponder:
I think it really depends on what people mean when they say passive. I would agree that landlording is not a completely hands off, set it and forget it type of activity. However, I don't know if that is what everyone means when they say passive.
I try to evaluate it from a time vs money relationship. My current W2 is active, that's my baseline. Anything that can earn me money with a disproportionate (lower) time investment is more passive than my W2. From there, it's about finding ways to increase that income and decrease the time investment. My life and my earnings are getting more and more passive. It's more of a continuum and journey.
People pay me to stay at my places and I don't have a daily list of tasks/activities I have to show up and complete for that to happen. If most of the "work" can be done from my couch on a phone, that's pretty passive to me.
I get that some people choose to do much of the work themselves (PM, handyman, etc), and that will make it less passive. But, to me, it's still far more passive than a 40+ hr/wk W2.
You bring up a good point Denis. "Passive" may mean different things to different people. Passive could be how Fidelity or Mass Mutual manages our company 401k investments (basically No involvement). Or Passive could be how I may manage my personal brokerage portfolio (I have to review & make trades.) Passive could be checking in a couple times a year on your rental properties. I think I would say a general definition for me would be spending no more than 1 day a year or 24 total hours a year "working" on that investment for it to generate me a return. Not a concrete number, but in general.
- Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes2y
Quote from @Steve Vaughan:
As the blunt but knowledgeable @Thomas S used to say, "There's no such thing as a retired landlord!"
I self-managed all for 17 years, then 1031 consolidated half and left the seller's PM in place.
I could not believe the stupidity of their repair decisions and high costs. The 10% PM fee talked about all the time is complete bs even before including fill or renewal fees. Then it's 16% minimum.
I fired them from doing several tasks (like laundry room collection- $75 to collect $30 x3) dealing with garbage disposals or maintaining the 70s style 4ft flourescent lights in kitchens.
I was getting $150 balast repair bills and they were driving to stores for cover replacements at $40/hr. (Instead of upgrading to the $25 LED fixtures I had in storage)
They summoned licensed pros for every small one-off thing, including swapping light fixtures, wall heaters and changing toilet flappers.
So continue doing it myself to not go Bk or sell? I tapped out in '22. The market was good and I was sick of being the only one who could manage expenses effectively, I do not regret reducing my RE 90%.
I can totally relate to your Ownership pain points. Been there myself. We even sold off several of our properties as well. #TiredLandlord. But understanding how RE is still one of the tried and true investment vehicles, we just decided to do it a different way. We began investing those dollars with our investment club in commercial syndications, promissory notes, funds, etc. We still maintain the profit centers that SFRs have (cash flow, appreciation, taxes, etc), but we now take our manual labor out of the equation. There are pros & cons with both and it truly boils down to what each individuals goals & passions are, but I've found that investing in the syndication model and group investing with a club is by far much more my speed for passive income.
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