Investing for (Mostly) Passive Income

[Laura R.]

I'm looking for some guidance or suggestions on how to invest some different chunks of money into some sort of passive-ish real estate investment. The main goal is to get more diversification, both in terms of asset class and geography and get a decent return that isn't crazy risky.

I would like to ultimately invest $100k from a self-directed IRA and $100k from a savings account.

I already have multiple businesses so I don't have much time right now to do much hands-on property management or flips. I do have experience doing 2 full renovations and 1 new build (personal properties) in the past. Also some residential real estate agent experience.  I am not big into driving all over town so if I do take on something local it needs to be close by. I like to travel and have thought about purchasing real estate overseas, but I would rather go somewhere new each year and not get locked down to specific locations. The passive cash flow could help fund that travel. 

Here are the things I have considered: 

- Cash purchase a turnkey-ish SFR rental using the self-directed IRA and plan to buy and hold. Would need to use a PM company due to arms length rules. Looking at Cleveland market.

- Purchase REIT funds, Hard Money Lending fund, or invest in some sort of crowdfunding real estate thing. Could use retirement or savings funds for this.

- Find a local commercial project or apartment building where I can become an investor partner and get some % of the rents each month. Would need to use savings funds for this. Not sure how to go about finding something like this. 

- Purchase a feature home near where I live now in Austin and manage it as an Airbnb rental. This would require $100k down payment from savings account. Need to learn more about the time commitment to manage. 

- Purchase a SFR home in my neighborhood to rent out and manage it myself. Would only require $50k or so down payment from savings, but not really a big fan of this due to lack of geographical diversification. Plus LTRs have crap cashflow rates in our area.

I'm also concerned about where we are in the economic cycle and that we may be in for a downturn soon. Would love to hear if anyone has any other suggestions or thoughts, please? Thank you!

[Ian Ippolito]

@Lauren Hogan,

I invest both passively via syndications/crowdfunding and directly in real estate properties that I own myself (including SFRs).

If you are able to execute successfully, you will make more money by being an active investor then passive. That's because of the sweat equity you put into it.

But as you mentioned, this would require a time commitment and it sounds like something that might be difficult for you. The other thing is that since you are a newbie, there is no guarantee that you execute successfully. You could make some mistakes that cause loss of principal for instance in any of numerous areas such as market selection, property selection, purchasing, rehab, etc.. So if you want to go that route you will want to make sure you are okay with assuming those risks as well as taking the time to educate yourself and then devote to this strategy. Finally, since your local market sounds unsuitable, you will have additional risk doing it out of your area than you would if you could keep it local. So these are factors for you to think about.

On the other hand, you mentioned investing passively. I also invest in hard money loans, although not individual notes because I'm conservative and I would much rather be in a diversified portfolio. Plus, if and when a note goes into default, I personally don't want the time and headache of having to take it through foreclosure, rehab and sale. First position debt projected returns can range currently anywhere from 6% to low double digits, depending on how much risk you're willing to take.

Crowdfunding is basically the same as syndications, but online. So you can find hard money loans there but also other types of debt and also other types of equity. Again there is a wide range of projected returns from as low as 4-5% to double digits. Also add that while there is zero effort involved in this type of investing once you pull the trigger, there is actually quite a bit of education that you should do beforehand to make sure you are choosing wisely. If you're interested in how I do this, let me know and I talk about it further.