750k-1mil to invest passively

[Dan D.]

So I run a full time mortgage business, and even though I’m in an industry connected to Real Estate; I just don’t have the time to become an active investor.

My days are long and I’ve got a couple young kiddos at home, so, I just don’t have time for it.

That being said, I’ve accumulated around $1mil in Capital that I want to invest.  I’m probably going to take 250k of that and invest in the stock market through a good friend that’s wealth advisor/ money manager, so, that leaves the balance of $750k to deploy into RE.

Looked at turnkey out of state rental investing, but, it seems that purchasing the property at such a premium really cuts into decent returns.  Plus I still need to deal with having the right management company set up.

What else should I look at?  What are realistic expectations  of returns for simply supplying capital?  What type of risks are associated with this?

Was reviewing another thread about syndications, sounds like that might be a decent fit for what I’m looking for?

Thoughts?

[Bryan Hancock]

Investing passively you can generate 6-20% or so IRR. The former would be a bond-like proxy if you're bearish on bonds or bond funds, which I feel is probably prudent in the current inflationary environment with rampant money printing. The higher end of the spectrum would be closer to a ground-up development of a hotel with a newer sponsor with more risk and a higher cost of equity capital. You can probably find some other development projects offering that much too for passive investors.

There are also a lot of more semi-active investment types that could offer you greater returns, but if you're time-starved this probably isn't a good fit for you.  

In the middle of these two extremes there are all sorts of options for hard money loans, syndications, rentals, etc.  Each offers plusses and minuses and different levels of engagement.  IMO if you're not getting at least 12% on your money you're better-served investing passively in index funds provided you have a long enough time horizon to stomach the sequence of returns risk when divesting.  So I'd limit my diligence to projects above 12% up to 20% where you work to identify good risk-adjusted bets for taking additional systemic risk.  Quality sponsors with lengthy track records will offer lower returns to investors and vice versa so it may require interviewing them all to decide who knows what they're doing and is just young or who is a good operator that doesn't understand capital formation and cost of capital well.  

Note that one thing you need to account for is contingent liabilities and most investors who claim to be doing super-awesome diligence work don't ask about these risks.  For most active sponsors this is the source of some of the main risk if things don't go as planned.