Passive Retirement Investments

23 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.


@Darrell D. like Bob said above, if you would like to "have your cake and eat it too" look for a fund or syndication that will distribute cash flow along the way AND share the equity growth as well.  Also, since we are talking about retirement investing in this thread, consider an investment that will perform over a long period of time.  If you look back at historic performance of all the different strategies and asset classes, I think you will find that even a first position note can turn in to a bad investment if we experience a market correction.  

The key is to invest in an asset class that will produce cash flow, even through a recession. I prefer mobile home parks, as they tend to produce very stable cash flow and can even experience a bump in cash flow during a recession if they are run by a good sponsor. 

If you choose the right type of investment, with a good sponsor who's goals are aligned with yours, you should be able to have your cake and eat it too.  And it will taste good:)

Hi @Sherman Lau , hopefully you have figured out an answer by now since it was two years ago you posted! But I just got an alert as people are posting on this now, so I will throw in my two cents.

I am personally in the situation you are trying to get into (or at least were two years ago). I am "retired" from working for someone else and instead live off of my portfolio income which supports myself and my family.

I am a big believer in diversifying and not keeping too much in any one investment, asset class or strategy. Before talking about what I do, if you haven't already I would recommend figuring out how much of that portfolio would go to real estate versus of the things like public markets. Once you know that, I would recommend making sure you understand all the different real estate options, and then creating a diversified portfolio based on that. If you go the other way and start bottom-up by just looking at things individually, you'll most likely end up with an unbalanced portfolio based on whatever you just happen to run into.

My number-one allocation is single-family residential rentals. A study was done fairly recently called "the return of everything" which studied the returns of all the asset classes since the late 1800s. Contrary to popular belief, single-family residential rentals outperformed even the stock market on a risk-adjusted basis in both the premodern and modern eras. I am a very conservative investor, because I do not have a day job and my investments have to stand on their own. The worst thing that can happen is that I lose principal, so I will give up yield for safety almost every time. In this situation, I purchase my properties without debt. This gives me a lower yield but makes them extremely hardened against a recession and ever losing them (versus many people who went bust in the last recession in this asset class due to debt payments they couldn't make). Someone who is more aggressive, might be fine with taking on a small amount or even a large amount of debt.

My second allocation is conservatively underwritten real estate debt i.e. hard money loans. For me, investing in individual notes is both risky and too much work to keep a large allocation continuously deployed when they are coming due and more due diligence has to be constantly done. So I invest in hard money loan funds and pay a professional manager with years more experience than I can ever hope to get, a feat to do this for me. I am currently in Broadmark and Arixa and am taking a look at Iron Bridge.

My next allocation is in conservatively underwritten and leveraged real estate equity. I invest in Broadstone Net Lease which invests in low maintenance single tenant net leases in industries it considers to be recession and Amazon resistant: medical office, industrial, fast service restaurants, etc. It is the only nonpublic REIT that I know of with an investment grade rating and very low leverage at 40%. I also invest in a multifamily sponsor that is one of the rare ones with full real estate cycle experience and no investor money lost. They do value-added and do conservative leverage at 65% or less for that, and have large to massive skin in the game and each deal. Plus they also have a uniquely implemented 1031 exchange conveyor belt where the investor can transfer into the next deal and indefinitely defer paying all taxes.

Since we're late in the cycle, I'm currently taking a look at asset classes that are uncorrelated with the business and real estate cycle like litigation financing and life insurance settlements.

If you would like more details on the above, feel free to PM me.

I recommend looking into apartment syndications. Solid ongoing returns plus the upside potential at sale after 5 to 7 years, depending on the operator. With your nest egg, you could invest with one syndicator or diversify across multiple operators.

It's a great plan! This is what I've done. I got to the point where I was so tired of being a landlord. Don't get me wrong. That has been a great strategy in its own time, but I'm so glad to have moved into syndications. I concur with previous posters on diversifying in markets, sponsors and even asset classes, esp. storage deals, apartments, and mobile home parks. Working quite well for me and I'm still going. My thesis for investing is here:

@Jack Martin I'm trying to do less apartments and more self-storage and mobile homes or other type deals. Would like to connect on what you are finding.

@Sherman Lau I know this post is 2 years old but have you thought or looked into being a passive investor through syndication? It's a great way for you to grow your wealth and not take a whole lot of your time. Would love to connect more if you have any question in finding good sponsors. 

@Lane Kawaoka feel free to connect here through BP or through my website.  I will share the highlights of what our experience has been as it relates to acquisitions of MH/RV parks with the rest of the community here as well.  Although you might think the MH/RV space flies under the radar and there is likely to be less competition, you will find that the market is competitive, similar to your experience in MF.  In primary markets, you will be competing with the gorillas in this space, including publicly traded REITs and more recently, Blackstone. That competition drives cap rates down (I have seen deals trade in the 5% cap range) and creates an atmosphere where you are competing for deals that are being sold on unrealistic pro forma's.  If you have patient capital that will be satisfied with a sub 6% yield, then you can probably compete with the gorillas in primary markets.  If not, shifting your focus to secondary and tertiary markets will likely be a better strategy.  However, I have to warn you that shift creates operational challenges that you will have to solve, particularly in the area of a smaller labor pool for management, maintenance, and capital improvements.  The bottom line is you will find better yields in smaller markets, but it needs to fit your operational style and strengths.  If you intend to take a hands-off, 3rd party management approach, I would not recommend smaller markets.  If you are willing to take a hands-on approach and commit a significant degree of time and energy toward building the right local team and gaining momentum in the first 6-12 months of ownership, then you should find success there.  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here