All Forum Posts by: Jim Pfeifer

To me, this comes down to whether you want to invest actively or passively.  I have done both.  I had 38 units a few years back and I thought I was a passive investor - but I found I was spending most of my time managing the property manager and I was very involved in the day to day operations of the real estate.  I was not very good at this - I made money only because the market just continued to go up, but I was not cash flowing I was banking on appreciation.  I was speculating.  I did not want to fully commit to being an active investor which is a full time job.  I don't think you can go part way and beat the returns of a syndicator.  To be active, you need to really know the market you are investing in so you can get advantages over the pros.  I didn't have that and didn't want to try.

I have sold all of my active properties and am a full time passive investor.  When I invest in a syndication, I am effectively hiring an asset manager.  I do a lot of due diligence on the sponsor and the deal, but once I send the wire I am completely passive.  I have no control - I just sit back and wait for cash flow and reports.  I trust my professional asset manager to take care of the entire investment.  In my experience, the cash flow is much better than when I owned my own properties (lone wolf) and the appreciation has been about the same.  The result is that I make a lot more money and spend a lot less time doing it.

@Osamede Edokpolo Tribevest assists with many of the challenges of group investing - but I am not sure which ones you are referring to.  Can you be more specific with the challenges you are talking about, including more about what tax issue you are thinking of?

Tribevest is a platform that, for me, has made all aspects of group investing very easy.  There are still some issues that are difficult for passive investors, like K-1 delivery and tax returns - Tribevest can't solve all of those issues, but they do simplify things.

I use Tribevest for exactly this purpose! Tribevest is a platform that makes it easy to form groups to invest together. They call their investing groups tribes - I am in six different tribes. I already know how to form an LLC, get a business bank account and many of the things Tribevest helps you with, but I still use the platform for a number of reasons. First, it is easy - they file for your EIN and your LLC for you, they make communication with your group easy, you can store all of your documents in one place for everyone to see and they make banking really easy. When I started my first Tribe, the banking wasn't set up yet so I had to track down all of the members and remind them and cajole them to send in money. It was a hassle. One of the members was a neighbor and he wrote a check to me personally for our investment and gave the check to his eight year old kid who delivered it to my house. Of course, my wife answered and was shocked to see such a large check made out to me from a neighbor - I think she thought I was the neighborhood dealer until I explained the situation! Now, all I do is tell the group to fund a deal and they go to Tribevest and with two mouse clicks it's done. So a big reason I use Tribevest is that it's easy and convenient.

The main reason I use Tribevest goes beyond convenience.  It makes me a better investor, increases my diversification and lowers my minimums - from your post above, you already understand that!  When investing with a group, we all discuss and evaluate the deal so you are leveraging your network to make better decisions.  You lower your minimum because you have multiple people sharing the investment and this allows you get into more deals allowing you to diversify by asset class, market, sponsor and any other way you want to diversify.

One thing I really like is the voting - this allows and requires everyone to equally participate in all of the decisions. That means each LLC member is equally active in the operations of the LLC.

I invest on my own and I invest in groups.  I will continue to do both, but when I invest in a group, I use Tribevest for all of the reasons I stated but mostly because it's easy and efficient.

It's not too late!  She could have 30 years of life left! I don't know what Lifestyles Unlimited is, but investing is not something that you have to age out of.

She needs to first decide - just like a younger person would - if she wants to be active or passive.

I have invested in turnkey properties and that is definitely not passive.  B

If she is willing to learn and has $50,000 to invest, I would suggest looking into real estate syndications.  It is very passive and there are ways to group invest with a platform like Tribevest and you can reduce your minimums and your risk.    With real estate syndications, you are essentially hiring an asset manager and they are handling every aspect of the investment.  The active part for the investor is finding a quality sponsor and deal - after that, the responsibilities are collecting the cash flow and reading the reports.  It takes some time to get educated on syndications, but after that, she could definitely find quality investments and perhaps even invest with her son or friends!

I have done both and as others have said here, the first question is not whether SFR is better than syndication, it's what are your goals? Do you want to be passive or active? From my experience, it is very difficult to be passive if you own a SFR - hiring a property manager does not make you passive. There is still a lot of work to be done - you are the asset manager. I prefer to hire an asset manager through investing in syndications. The returns you receive are the same if not better than if you are an active investor trying to be passive. What I mean by that is, I think you can probably beat the returns of a syndicator if you are a full time real estate investor who is very active in a specific market and you are able to use this knowledge to create a competitive advantage or find a niche others aren't in. If that isn't you, I think you will have a very hard time beating the returns of a quality, professional asset manager.

As I mentioned, I have invested in both SFR and small MF properties as an active investor and I sold them all and am now a full time passive investor in syndications. I am making more money and spending less time now than I ever did as an active investor.

I think you have another option - the "Lazy 1031".  I prefer to avoid things that are complicated and the 1031 Exchange and CRUT both are expensive to implement, complicated and might not be necessary for your situation.  You mentioned not wanting to 1031 into crowdfunding, but there are better options for that I think.  I sold all of 38 of my active doors and deferred all of the capital gains tax by doing what my CPA calls a Lazy 1031.  Basically, I invested the proceeds in real estate syndications that did cost segregations and bonus depreciation.  This gave me large amounts of passive loss that I used to offset the gains from the property sales.  You don't have to worry about timelines, except that it needs to be done in the same tax year.  This meets your goal of deferring the tax and it also meets your goal of passive cash flow.  I have found that these syndications produce more cash flow and upside than my active investing did.

The thing that is missing for you - as you said - you don't have knowledge or experience in this area.  More people don't!  Most people also don't have experience with active rentals - until they do!  There are plenty of ways to get educated about passive real estate syndications.  A great place to start is the book, Hand's Off Investor by @Brian Burke.  It is a fantastic introduction to syndication but also delves deep into how to vet a sponsor and how to analyze a deal.  I also highly recommend joining a Community that focuses on educating syndication investors.  This will help you find quality operators and help you learn how to analyze deals.  This type of investing is different - you can't walk out your front door and chat with your neighbors about syndications like you can about your 401k.  This is why a Community and a network are so important.

Good luck!

If you are selling active properties and intend to invest passively, why do a 1031 at all?  The 1031 Exchange forces you to stay an active investor as it is difficult to find syndications that take 1031 funds - this restricts your choice of syndicator and means you are choosing an operator based on their acceptance of 1031 money rather than on their success as an operator.  I sold all of my active properties and had a gain similar in size to what you are talking about.  I did not do a 1031 Exchange and I did not pay any capital gains taxes on the sale of the active investment properties.  I did what my CPA calls a "Lazy 1031".  I took the gains and some principal from the sales and invested in various syndications - chosen for the quality of the operator.  These syndications did cost segregations and gave me bonus depreciation resulting in paper losses of 60% to 110% of the amount I invested.  These losses deferred all of the tax from the sale of my properties.  Similar to a standard 1031, all I have to do is continue investing after deals go full cycle to continue deferring the tax.  It's been several years that I have been on the Golden Hamster Wheel of tax deferral and I still do not pay taxes on the gains or cash flow from my syndication investments.  The best part of the Lazy 1031 is there are no timing requirements other than the syndications need to be invested in the same year as the sales and you do not have to continually upgrade into larger debt and bigger deals!

Have you thought about passively investing in real estate syndications?  As you probably know as a current active investor, when you 1031 into new properties, you will still be an active investor.  If that's what you want - great!  But if you are interested in becoming more passive, you might consider a "Lazy 1031" strategy where you invest the proceeds from your sale of active property into real estate syndications and use cost segregation and bonus depreciation to offset the taxes.  Much less restrictive than a 1031 Exchange.  I am not a tax advisor, but I did use this strategy to sell 38 active doors that had quite a bit of appreciation so I have large capital gains and I did not pay taxes on those gains.  If you are committed to remaining an active investor - go for it!  But, if you want to have someone else manage the asset for you and still get great returns, you might want to consider syndication investing.

Good Luck!

I will repeat what others have said ** Not a CPA/Tax strategist, nor a lawyer... **!

My first question is why do a 1031 Exchange?  I prefer the "Lazy 1031" - I sold all of my active real estate and now I am a passive investor in real estate syndications.  I did not pay any tax on the sale of my active real estate even though I had significant gains because I invested the proceeds in multiple passive real estate syndications.  The deals I invested in did cost segregations which gave me bonus depreciation and I was able to use these passive losses to offset the capital gains - the only part that requires any "doing" is making sure all of the transactions happen in the same tax year.  It isn't an exact science, because you won't know how much passive loss you generated until you get the K1s the following year, but you can make estimates and get pretty close.

I think others have answered the questions about going in with your kids. I do a lot of group investing through a platform called Tribevest. They make it easy to create an LLC, vote on investments and other issues (which makes everyone an equal active partner), fund investments through a connected bank account and store all documents. If one person in the LLC is not accredited, then the LLC is not accredited. I assume it's the same for sophisticated investors.

As others have said, I don't think you can combine 1031 funds with non-1031 funds in an LLC and still make the 1031 work. I don't really think that's a problem though because I think the 1031 is really not necessary in this instance.

Good luck!

Quote from @Andrea Diaz:

Quote from @Blake Pieroni:

@Andrea Diaz Congrats on your journey so far, 100k is a lot of money!

I think first off, IMO you need to decide two things for yourself.

1.) Why do you want to invest in real estate? 

2.) Do you want to be an active investor or passive investor?

Active: Finding the deals, underwriting them, putting everything together, executing the biz plan and managing the asset(s) afterwards. Passive: investing with another group and relying on them to all of this and be good stewards of your money.

I'd love to hear your specific goal for this 100k to better give my opinion. Nevertheless, I wish you the best in this new adventure!

Hey Blake! 

I´d probably want to start as a passive investor, work a buy-and-hold portfolio strategy for long-term investments. I am an aspiring multifamily investor. 

My why is clear, I am a single mom who wants to provide financial security and quality time to my son. Also, I have lived in 3 different countries and I have invested in 2 single family homes, successfully, in two of them. 

So obviously there is no "one single right way", but what would YOU do?

Thanks for the time!

You mentioned that you want to be passive and buy multifamily properties.  In my experience as an active investor owning single and multi family and as a passive investor in syndications, I can tell you that buying the properties is not at all passive!  You can hire a property manager, but your job will be managing that person.  You will be an asset manager - I tried to do that "passively" and it was not possible.  Perhaps others have different experiences, but buying properties and being an asset manager is a full time job - at least if you want to do it well.

 If you are interested in being a true passive investor, then I would look into real estate syndications as some have mentioned.  You have some work to do to find and qualify sponsors, then find and analyze deals - but once you send the wire you are done with the active part.  After that, you just collect reports and distributions.  That is truly passive investing.

I think the first thing to do is define passive and active from your perspective and then choose which you want to do.  At that point, you can start working to deploy the capital.

Good luck!