Real Estate Investing – Can you ever truly invest passively?

LEARN FROM MY MISTAKES

You need to put in the time and effort to maximize your passive investment opportunities and keep your eye on it. It is true even just investing in the stock market, perhaps through mutual funds, stocks, bonds, etc.

Sure, there's no work involved, but if you aren't deliberate about how you allocate to different asset classes, keep your portfolio balanced against your targets, pick the right fund managers, and know when you'll trigger sales to pull down profits at the right time, you can find yourself on quite a roller coaster like I did.

One day, you're feeling pretty good about your portfolio, and a few months later, you find yourself 10 years further from retirement. I saw huge swings in my portfolio during COVID-19, I saw them back in 2008 during the great recession, the .com bubble burst, and many times in between. You must keep your eye on your investments.

In another example, I started a couple of franchise hair salons and the model seemed great! Hire a manager. They’ll run the day-to-day and I'll focus on scaling the business, opening new salons. After all, I can't cut hair, so I would be focused on the business, not in the business.

But what ended up happening is that it was very hard to find great managers that could truly run the operation independently. I found myself several times a week in the hair salons, coaching the managers, fixing the operational issues, and keeping those salons profitable. Ultimately, I sold the business for a profit, but not without putting in way more work than I ever thought I would need to.

COMPLACENCY IS THE ENEMY

If you take your eye off the ball, if you become complacent, you'll find yourself upside down in a hurry. Well, the same is true in multifamily syndications.

Although multifamily investing is incredibly passive compared to many other opportunities, nobody should relax and not watch their investments.

But that's what most people do. They just keep investing and rarely look at their statements until tax time when they say – oh it went up! Or maybe it stayed the same or went down.

With very little effort, you can have a big negative impact on your net worth. So nothing should be purely passive.

Since nobody cares about your money the way you do, you need to have a strong interest in being prepared and educating yourself.

TIME COMMITMENT

So how much time does it take to invest in syndications?

I know a person that spends 10 hours a week networking finding deals. Of course, he's a full-time passive investor. And for many of us, this is just a portion of our portfolio.

Others spend very little time at all, and it really comes down to your own comfort level to make sure that you're satisfied with the investment choices you're making.

FINDING AN OPERATOR

Most of your time is going to be spent upfront finding an operator that you're comfortable with and want to work with to invest your hard-earned money. You'll spend the time finding those operators through networking and vetting them.

But, usually, passive investors will only invest with one or two, maybe three operators. And that's because you get very comfortable with the approach the operator's taking. It fits your investment style, and you begin to see the results of their work.

Once you find the right operator to invest with, they usually have a strong pipeline of deals, three, four, five, six a year. So there's plenty of opportunities to continue to invest as you see results.

You'll also want to do some due diligence on each deal as it comes up so that you are comfortable that the investment meets your objectives. That's really most of your work!

Once you invest, you should open the statement every month. Often investors will just read the narrative to confirm the investment is on track. Sometimes, particularly early on, you may want to dig in a little more into the financials. But, once the property stabilizes and you’re getting the cash flow, and checks are coming in — really there's very little to do at that point.

SO, IS A MULTI-FAMILY SYNDICATION TRULY PASSIVE?

Well no, you did your homework and you made a great choice —something you should do on every investment!

In fact, you will have probably done more than you have done for many of your other investments. And, you now have a much clearer understanding of why and where you've chosen to invest your money.