All Forum Posts by: Jim Pfeifer

 I have also invested in 506b deals - from the passive investor side I haven't found any difference in the deals than the 506c deals I have invested in.  

Investing passively in real estate syndications are a great way to build wealth and it can be very passive.  The finding and screening of sponsors and analyzing deals is active but once you send the wire, your job becomes collecting distributions and reading reports!

In my experience, the most important factor in the success of a deal is the sponsor.  Some on this post have mentioned sponsors they have had positive experiences with - I think that is the best way to find a quality partner, by using your network or Community.  There are many sponsors who are great marketers and podcasters - but that doesn't make them great asset managers necessarily.  Some of my favorite sponsors don't advertise at all because they have all the investors they need and other sponsors I invest with are great podcasters and marketers, but what they all have in common is they are excellent asset managers and they came to me recommended by people in my Community and network who had already invested with them.  

Real estate syndications are long term, illiquid investments that are completely out of your control so it is critical to partner with someone who has experience, integrity and a track record of success.  The best way I have found to meet and invest with these partners is to leverage my network and Communities to get introduced to quality operators.

Those are all great things to look at when evaluating a sponsor - I absolutely agree.  I think you also need to evaluate how to find a sponsor and that's where the power of your network and Community can help.  It is very difficult to find a trusted advisor - a CPA, attorney, financial advisor or a sponsor!  I have found my success and satisfaction with any of these professionals is much greater if they come to me recommended from someone I know like and trust who has already used their services or invested with them.  I believe passive investing in syndications is a team sport - and you need a team!  That is where your Community can help you.  There are plenty of quality Communities - find one that suits you and leverage their experience in finding professionals that can help you.  Once you find them - see the post above on how to screen them!

My family uses a plan on the healthcare exchange - and it works for us.  I think finding a good plan is like so many other financial things - the quality of your solution is directly related to the quality of the advisor/agent/professional who helps you with the solution.  I have a very thorough and diligent agent and he shopped around until he found the most affordable and comprehensive coverage available for my family.

Another option that I looked into is using my real estate LLC to join the Chamber of Commerce and then you can access the health plans that they offer to small businesses. For now, the regular healthcare exchange was better for us.

@Evan Loader

There are sponsors out there who take non-accredited investors, but just like good sponsors in general they are hard to find.  That is why I believe you are smart to reach out to your Community - I think your network is your most valuable asset, especially when looking for quality sponsors.  BP is a great Community, but it doesn't focus exclusively on passive syndications so it might make sense for you to look for some groups that have a more narrow focus.  You can use these groups and networks to find best in class syndicators - including those who accept non-accredited investors. There are plenty of quality Communities out there, you just need to find one (or several) that has a culture that fits your personality.

The other thing you could do is become accredited through taking the Series 65 exam.  The rules are vague on what "good standing" means, but if you pass the 65 and are in good standing, that is a way to accelerate your accredited status.

I was talking real estate syndications more generally, not just the NNN space. But there are syndications that can get you 8% on triple net commercial and industrial leases.

 Absolutely!  To take your comparison a step further - if you have $1,000,000 in a 401k and you retire, you will be advised to take 4% our annually.  So you will have $40,000 of income from that account and you will be taxes on it so you will have $30,000 or so annually going into your pocket.  If you take that same $1,000,000 and invest it in real estate you would probably get 8% return so you will have $80,000 of income and will likely not pay tax on it at all.  Which would you prefer?!

Even if you took the $1,000,000 out of your 401k and paid the tax on it and you are left with $700,000 and get the 8% you are still left with $56,000 in income and probably no tax.  

You are right - a financial advisor would say it's too risky to be in that much real estate.  But what happens when there is an economic downturn? Your money in the market goes down 25% so you are now pulling 4% off of $750,000.  Not good.  But the real estate cash flow will not crater nearly as fast - asset values might go down the same 25% but your cash flow will not because rents don't and can't go down as quickly.

It's always good to have a mix of different assets, but I don't see how real estate is riskier than owning paper assets that don't produce any income!

 @Josh Auerbach - Sorry for the repetitive post, but I think I ran afoul of the BP Forum rules by mistake!  Just to clarify, I didn't use a 1031 Exchange rather I did what my accountant calls a "Lazy 1031".  Basically when you sell active or passive real estate and realize a gain, you can invest in passive real estate syndications and use the depreciation to offset the gains from your sales.  I sold all of my active properties and used this strategy to defer and reduce all of the taxes on my gains.  It is very similar to a 1031 but without much of the friction and hassle.

You might want to consider passively investing in real estate syndication.  There is some work on the front end to find quality sponsors and deals, but after that it is very passive.  As a bonus, you can use a strategy my accountant calls the "Lazy 1031" to defer your tax.  I sold all of my active properties and invested in passive syndications and did not pay capital gains on the sale of those properties.  Instead of living off of 4% of the principal as most financial advisors recommend, you can invest in syndications and collect 4-10% cash on cash and get appreciation on the back end - all without paying tax on your cash flow or gains.

As a former financial advisor, I agree with what others have posted - your advisor will not recommend real estate for two reasons: they are not licensed for it and they don't get paid for those recommendations.  If you are already familiar with real estate and the cash flow and tax benefits you can get, why not stick with it, but do it in a more passive way!!??

You indicated that you don't want to actively participate in the day to day operations.  If that's the case, I would not recommend buying properties or a business.  You will need to manage the property managers or your business managers.  In my experience, that will require a lot of active management on your part - certainly in the beginning and will only reduce if you can find quality people to manage the real estate or business for you.  Quality managers are very difficult to find.

If you truly want passive income and you have $500,000 to invest, I would recommend looking into passively investing in real estate syndications. You will own real estate, but instead of finding the properties and buying them yourself and hiring a property manager - You  find a syndicator and hire them to buy and manage the asset for you. It is not passive to start - you need to vet the sponsor and analyze the deal - but once you send your wire to the syndicator, then the deal is out of your control and is completely passive. There are disadvantages - these are long-term, illiquid investments and you do not control how they are managed or when they are sold. But the returns meet and often beat what you get trying to be passively active. 

The cash flow is much less lumpy and the appreciation is as good as it was when I was active and trying to be passive. I am sure someone who is truly active - actually in the business of real estate can beat my returns, but I never wanted to be totally active and it sounds like you don't either.

When trying to decide how to allocate your $500k in capital, I think the first thing you need to figure out is how active you want to be and be realistic about how active you will actually need to be based on the strategy you select.