Lots of capital and little time. How do I invest in real estate?

18 Replies | Tampa, Florida

I live in Ft Myers, Fl and have been looking at surrounding cities for my first rental home. I've decided to take some chips off the stock market table and diversify a bit. I'd like to build a passive income stream.  We are supposed to be in a rental housing crunch here but if you look at rental rates compared to home prices, there's no case for buying these homes. I have a successful business that is growing and requires my time.  So I can't spend the time it takes to chase real estate deals. How does someone with a lot of capital but little time build a real estate portfolio? Are there specialists who find deals for real estate investors? I've been looking at this for the last few weeks and I'm perplexed.  Any advice would be greatly appreciated.

Chris

Yes there are specialists that find deals for investors. They're called wholesalers, but the problem is 99% of them don't know what a deal is, so it would be the blind leading the blind. You'd be better off with an agent on the MLS, you'd overpay, but it could be a lot worse.

Your best bet for being hands off is to get into lending. Pay a lawyer to do the paperwork, and that's about as passive as it's going to get in real estate. 

@Chris Dwyer , Lending as Nick mentioned could be a good strategy. You wouldn't be building a portfolio of real estate but more a portfolio of real estate backed loans. You might also want to consider buying existing notes.  If interested in note investing,  look up Dan Van Horn , a well known note investor, he's active  on biggerpockets and elsewhere and has a recent book out on Note Investing, which I haven't read yet , but it sounds pretty good.

Investing in real estate syndications could be a good option for you.  This can allow you to diversify into commercial property - apartment buildings, retail , self storage etc  for minimum investing of usually $25,000 .  You can take a look at crowdstreet to get an idea of returns or expected returns, it's one platform but there are many others. Note most syndication deals are only open to 'accredited investors" definition of that here if not familiar with the term. http://www.seclaw.com/accreditedinvestordefinition...

Another idea if you are looking for passive , but want to own the property directly and have more control might be to invest in NNN (triple net) properties. These are properties where the commercial tenant takes care of all maintanance , pays the taxes etc. You'd want to work with a commercial broker to find these deals, I believe you can also filter for them on Loopnet .

@Chris Dwyer , Growing business that obviously jazzes you + little time + no real estate experience all would lead me to examine the reason why you would want to jump into real estate investing.  The word "Passive" is very misleading.  Whether you're chasing tenants, borrowers, or trades people it's anything but passive on most levels.

So after that little bit of doomsday I'd say that a diversification into truly passive isn't a bad thing.  the key being that you're not looking to run circles around your stock portfolio but to truly diversify and provide some sector correction protection.

Lending is certainly one way.  But a lender that doesn't know the product he's lending on is nothing but a mark for the borrower.

NNN, syndications, TICs, DSTs are all options that come to mind where you get absolute passivity, the benefits of real estate ownership, and the sector protection opposite the equity market, but to truly succeed in those it is your vetting of the company of the tenant that is more important than that of the real estate. That provides a more gentle learning curve for you on the real estate side.

@Chris Dwyer , you have a couple of options.

First, you can hire a turnkey provider, who will provide you with a rental property and the renter already in it. Of course, they will also take away any upside and financial cushion that you might have had by purchasing the deal on your own. But since you don't have the time, maybe that would be worth it to you.

However, even then you are going to be stuck purchasing individual properties, and unless you're got a ton of money to invest you're going to be taking on the risk from lack of adequate diversification. So the alternative would be to invest in a syndication or crowdfunding fund that specialized in single-family rentals. In this case you would be hiring a professional manager to pick the houses and manage the property manager, in exchange for a fee (which is usually about 1 to 1.5% yearly). The advantage is that the fund may diversify your, say, $10,000 investment into, say, 150 properties. This is a lot to and putting that same $10,000 into a single property.

Syndication/crowdfunding are limited to just equity investments in single-family rentals. Pretty much any real estate investment you can dream up you can find a fund for. The options are a lot better for accredited investors then nonaccredited though.

@Larry F. I'd add one thing to that, the most successful lenders I know have a wealth of knowledge they built up by doing deals on their own. That enables them to tell the good lending opportunities and borrowers from the bad.

Real estate, even "turnkey" is almost never what I would describe as passive, not to mention the risks associated.

Become a hard money lender, or look into syndication/crowdfunding, that's the closest you'll get to a specialist who really does handle everything.

@Chris Dwyer Some great info in the other responses. My response is focused on if you really want to own rentals. I am not smart on the other options, but am probably overdue learning more about them.

I am in a similar position as you. I am a busy professional and travel a lot. Other than maxing out my 401k, I stopped deploying excess capital to the stock market 3 years ago to diversify. I already owned multiple rentals, I just started acquiring more. I don't have a lot of time to source great RE bargains as touted on this website. I have bought MLS properties in areas I am intimately familiar with, and they were all on the low side of market value (deals that a lot of people on BP would say are weak). I have built a "passive" income stream from properties that have appreciated an average of 50%.

Bottom line to your question though, is you must learn your market to not make foolish purchases. You must spend time seeking out a team to help. It will take time to find a good realtor as there aren't many out there. It's even harder to find a good property manager. Even with interviews and referrals, the risk you have a non-performing PM is not small. I have had to fire more than one to get to someone with the right care level and communication. As a business owner, you know that if you hire a manager to manage all or parts of your business, you must now manage your manager. Same with a property manager.  

 So as @Dave Foster indicated, "passive" is a total misnomer for RE investing. You will need to spend significant up-front time and then recurring on-going time if you're going to properly pay attention investments. 

I spend a lot of time reading investment books, perusing the markets daily, periodic communications with my PMs and bookkeeping. Maybe 3-5 hours a week. This would probably not be doable for me if I did not love real estate and investing in general. I'm not sure someone who doesn't have a passion for stuff like this would care to shoehorn time into their already demanding schedule.

Best of luck to you going forward.
Dave

@Chris Dwyer I have seen what you describe as your problem a lot of times here on BP and decided to help people like you. As most experts will tell you, most of the success stories are based on three things:

1. Relationships. It takes time to develop them but when you have,m and while you keep doing it, instead of hiding them, I am happy to share them with the aim to create win-win-win. If the seller is happy, you are happy, and I am happy, we did the right deal

2. directly related to #1 is discipline. When I help people, the success is defined by having clearly established goals and stick to them. 

3. Trust. I select the folks I work with and tell them about my principles. Most of the time people like those a lot. I want to learn about your principles. If we have a match we have a foundation to work with each other. That should always remain in the back of mind. If you try to find a better deal, a better price, a lower lending rate, etc. instead of keeping with what was agreed in #2, we would have to part ways - not because it takes time as much as it takes energy away from the common goal.

4. It's a business. Too many see planning for retirement or a worry-free life based on passive income as a hobby or something that is done when you have time for it. To get the results most of us want, it should be done and run like a business

I have the impression you like to achieve certain goals and get those passively. In your 401K I bet the plan manager is taking the money, invests it in accordance to the risk level you once put in a form when you signed up, and then you receive reports about performance and see the fees they charged you to get the buys and sells they did on your behalf.

In my work, I would draw a comparison to that role of your 401K plan manager for people who have a good amount of funds to invest and want it to be really passive. To me, that is very similar to what commercial clients ask me to do when they bring me in as a consultant. They want my expertise right away. Yes, they could learn about it, train a new employee, go to a class, etc., etc. It costs them some money but they will have results very quickly.

To me, helping someone who is busy and liking what they do with the business of developing a portfolio of passive income allows me to do what I love to do. That's a win-win in my book. No idea if there is a name for it yet, but I could see it being called "passive income consultant" 

I sent you a contact request so we can discuss details if you like.

First I would analyze, would investing in your business yield a better ROI than real estate? Your power team depends on your strategy. For cash flow hiring a quality property management company could make or break your investment. You may consider an area that has a little more appreciation than cash flow if the numbers are tougher to make sense of based solely on the rental income. You can always access the equity if you needed to as well. You can link up with wholesalers who can find off market deals but you might have to approach it differently until you have more experience and can walk through a property and have a good idea of what work is needed. Pros/Cons to working with wholesalers (we do it), lots to chat about here, feel free to PM me and we can hop on a call if you need more time.

@Chris Dwyer I'd second @Joseph M. suggestion to look into 

1) lending - aka debt investing. You can do it on your own or through a company that will vet the investments for you. 

2) syndications (PPMs) - aka equity investing, look at various commercial asset classes like MFH, MHP, storages. Typically done by someone else (GPs), your role as an investor is to vet them upfront and validate the investment presented to you. Once you invest, your job is done. 

Here're a few articles on the topic:

https://www.biggerpockets.com/blogs/10850/77215-th...

https://www.biggerpockets.com/blogs/10850/74883-wh...

3) NNN - is a good option but normally utilized solely to park cash somewhere as the returns have been on a lower side.

Feel free to PM if you have any other questions. 

Originally posted by @Chris Dwyer :

I live in Ft Myers, Fl and have been looking at surrounding cities for my first rental home. I've decided to take some chips off the stock market table and diversify a bit. I'd like to build a passive income stream.  We are supposed to be in a rental housing crunch here but if you look at rental rates compared to home prices, there's no case for buying these homes. I have a successful business that is growing and requires my time.  So I can't spend the time it takes to chase real estate deals. How does someone with a lot of capital but little time build a real estate portfolio? Are there specialists who find deals for real estate investors? I've been looking at this for the last few weeks and I'm perplexed.  Any advice would be greatly appreciated.

Chris

 What you need is a turnkey company or a real estate brokerage that provides sales & management. You tell them how much money you have to deploy and they can more or less do all of the heavy lifting and day to day stuff for you. Tons of companies like that here on Bigger Pockets.

Originally posted by @Nick C. :

Yes there are specialists that find deals for investors. They're called wholesalers, but the problem is 99% of them don't know what a deal is, so it would be the blind leading the blind. You'd be better off with an agent on the MLS, you'd overpay, but it could be a lot worse.

Your best bet for being hands off is to get into lending. Pay a lawyer to do the paperwork, and that's about as passive as it's going to get in real estate. 

 Im going with Nick on this one. Pay a little more for the peace of mind of several teams of licensed individuals to make sure the deal goes through smoothly. Once you are under contract find a property manager to handle your property for you. 

If owning an appreciating and cash flowing asset isnt for you, consider investing in a real estate fund or get a partner.