Passive Retirement Investments

16 Replies

I wanted to get everyone's advice on passive real estate investment strategies. We have low 7 figures to invest and would like to retire. We no longer want to be landlords or manage developments anymore. What would be the best way to invest our savings for income and growth. We still have grade school age children. I am very interested in Note Funds, like PPR, with it’s 12% returns. It seems so attractive, that I want to be a large percentage of our savings into the fund, since I have a hard time finding similar returns. We are also looking at starting a EIUL retirement plan. Any thoughts on how I could diversify my strategy to get a solid return without too much risk. Any other funds you could recommend. Thanks for the input.

Hi @Sherman Lau

This is great that you are looking for alternative passive real estate investment strategies.  First question.. Are you willing to invest into a fund or investment strategy based outside New York?  I am  from NY/NJ but reside and invest in Texas. There might be a couple opportunities that I can make available to you if you are willing to invest out of state..  Let me know if I can help.

@Sherman Lau ,

I like your thinking. I too am exploring an EIUL strategy as one income stream for retirement. Insurance is pretty complex and there are about a bazillion ways to structure the contract. I won't go into it any further for fear of bringing out the haters but I will give a shout out to @Thomas Rutkowski who knows a thing or two about them and definitely has some opinions. Mainly because he sells them, but what I like about his strategy is that he structures his policies so that you can take a loan out against your cash value almost immediately, which would allow you to invest that money into other things such as Note Funds at a higher rate than you borrowed. It is an aggressive strategy but the risk cn be mitigated.

I like PPR's fund, but like most you have to be an accredited investor. NNG and RCM (@Bob Malecki ) also have funds with different return structures and risk profiles that I would look into to diversify some. You may want to look into some of the crowd funding sites as well to diversify even further. And I would also recommend looking into performing or reperforming notes outright once you are comfortable with the space. You should be able to earn a 12%+ return fairly easily, but also get that kicker if the borrower pays off early, and statistically most will, since you buy them at a discount. A fund does not provide that. Of course, the higher potential return does come with greater risk, as always but definitely something worth looking into.

PPR, NNG, RCM, many of the crowd funding sites etc are all stand up companies and I have invested with some of them. I just can't bring myself to put all of my eggs in one basket, though. You just never know when someone or some company will fall on hard times so I would urge you to diversify among them. That is a personal preference, though. And even though this may be heresy on BiggerPockets, I would also look at other asset classes as well. Especially if this is going to be your retirement. The EIUL will cover the stock market but I am a huge proponent of asset allocation even though I focus on real estate and notes.

+1 for @Bob Malecki fund.  I looked into it, looks really good.   Since you have low 7 figures, that makes you an accredited investor. 

Hi @Sherman Lau , if you are an accredited investor, you can buy into institutional grade $50-125M projects with as little as $100,000 and diversify. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. This is the world of Delaware Statutory Trusts. Some of the sponsors in the industry have funds available with properties across the country. Happy to answer any questions you may have. - Leslie

Originally posted by @Edward B. :

@Sherman Lau ,

 I just can't bring myself to put all of my eggs in one basket, though.That is a personal preference, though. And even though this may be heresy on BiggerPockets, I would also look at other asset classes as well.

Wise words, and I don't think it's heresy by any means. You want that diversification. I would also not invest in funds that are in the same business, or that haven't been time-tested. For example, what would be the point in investing in 5 note funds when you could diversify by investing in a note fund, an HML fund, a commercial real estate fund, etc? You could diversify even more if you invest in non real estate related funds / businesses.

What's the Warren Buffett rule #1, never lose money? seems even more accurate if you're in preservation mode and you're done with accumulation. 

You're not looking for maximum yield, you're looking for a compromise between yield and safety.

Crowd funding, Lendingclub, Hard money loans 

@Patrick Desjardins ,

Totally agree. Back before I threw in the towel on trying to beat the market makers in the stock market and switched to straight indexing, I would always pick a couple of companies in an industry or sector that I was interested in to mitigate the business risk of any one company. So if I liked telecoms I would buy AT&T and Verizon etc.

So if I had big money to invest I would do the same here. Whatever I decided to put toward Notes I would split among the note funds that I liked and whatever money I decided to allocate to HML I would split among a couple of different funds there as well, etc. etc.

And I like Warren, but I guarantee you that he didn't get where he is by insuring that he would never lose money and he has probably lost more money in one day than any of us will ever make.

I would say performing mortgage notes.  

For 1st lien performing notes you can lock in 12-14% for 15-30 years.  Personally I am concerned with how seconds will perform during the next downturn

Or, shames pitch, you could lend it to us, we could pay 12% on 65% LTV loans with occupied rentals.

I would also look into Master limited partnerships, very liquid with a large depreciation to offset the income they generate.

@Sherman Lau

If you have an IRA or a solo 401k, then consider investing in trust deeds/promissory notes secured by real estate. This is popular way to grow your IRA or solo 401k funds.

@Mark Nolan any suggestions for TD brokers in San Diego?  I've found and talked with a few but interested in your opinion since we are from the same hood. 

Sorry to butt in.  

When someone receives a percentage (12% for example), does it include the equity of the purchase?  

In other words, do passive investors receive a chunk of the appreciation or do they only receive a percentage of their original investment?

Thank you

Low 7-figure is a big number. You could do a lot. I know you want passive investments but wouldn't your returns be a lot higher if you went solo? I personally would buy a property or multiple properties with that money and hire property management. 

You could work with a REIT, a first trust deed investment, or crowdfunding. 

The suggestions here are very good too, very helpful. 

Have you considered becoming a private money lender to real estate investors who do fix and flips? With your experience in real estate investing, you could decide which deals you would or wouldn't be willing to invest in. There are plenty of people out there with resources to good deals but don't have the money to continue flipping them at an aggressive pace. You could even probably work out deals where you receive 50% of the profits from the flip.

Originally posted by @Darrell D. :

Sorry to butt in.  

When someone receives a percentage (12% for example), does it include the equity of the purchase?  

In other words, do passive investors receive a chunk of the appreciation or do they only receive a percentage of their original investment?

Thank you

Hi Darrell, typically in a Reg D fund, a preferred return like 12% is just an annualized ROI on your investment capital. Some funds, like ours provides a preferred return plus a share of the profits after expenses and preferred returns are paid. There are many ways to design a fund and much of it is based upon the asset types, timelines and goals of the fund manager.

Bob

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.