Why I Switched To Passive Investing Versus Active Investing

[Randy Smith]

Like many investors, I struggled with the dilemma of active versus passive investing the first few years of my investing career.

I’ll admit that the thrill of “taking down” a deal, the excitement of getting your hands dirty rehabbing the “ugly house on the block,” the challenge of learning the various aspects of the process, and the pride of seeing the amazing transformation from all your efforts were certainly rewarding. Unfortunately, all the items listed above were not the goals of why I got into real estate investing in the first place. I got into real estate investing to help reduce my dependance on my W-2 job so someday I could exit the 9-5 and be able to live on the passive income I had generated from my investing.

About two years ago, I chose to go down the path of passive investing through the syndication model versus active investing in single family rentals. Here’s just a few reasons why I chose to do that:

1. Expertise – I was not an expert at the BRRRR model or even the Turn Key Model, and I didn't have the systems in place to scale a business that could successfully collect 100+ deals I would need to hit my financials goals. Passive investing allowed me to simply pick the expert in the space I wanted to invest, and they would do the rest.

2. Time – A lot of investors will tell you that single family rentals are passive income after you get them set up and run by a property manager. This was simply not my experience. I had to have regular phone meetings with my property managers, I ended up flying to Atlanta multiple times to meet with contractors, realtors and property managers, and the amount of time that was spent looking for new deals was exhausting. After you do your due diligence on the operator, passive investing takes little, if any, time after the initial investment.

3. Passion – I found out very quickly that I am not passionate about all the nuances of the active investing business, and I believe you must be passionate about everything you do to be successful. I am, however, passionate about amazing monthly returns that give me the freedom to do what I want, when I want and with who I want after just a few short years of investing passively in real estate syndications.

4. Cash Flow – $100/month is the basic rule of thumb that many active investors use when calculating whether they’ll do a new single family home rental. Yes, $100 per month per house. A very quick calculation will tell you that you need a humongous amount of SFRs for this model to allow you to leave the rat race.

These are just four of the reasons to consider looking at adding passive investing through syndication to your financial tool belt. Your unique situation will likely uncover a few more. Let’s connect to see if it makes sense to hold just a small portion of your investments in this space.

[Paul Moore]

Hi @Randy Smith! Thank you for posting this! Your experience is almost identical to hundreds of investors I've spoken with. I've spoken to very few who have successfully managed active real estate investments, especially if they have a high paying career or retirement. I wish I could take your post and copy it to hundreds of other forums about investing on the side. 

Can you imagine Michael Phelps training part time for the Olympics while he had a job? Can you imagine Taylor Swift being a part time singer while holding a server job? It makes no sense and I marvel at how people pull it off. I admit some people do pull it off but I don't see how they do it part time. And I doubt they are making as much profit as they planned or having the lifestyle they hope for. 

To those like @Vincent Plant looking to go down this path I highly recommend @Brian Burke's book The Hands-Off Investor for due diligence and @Jim Pfeifer's Left Field Investors to connect with a community of like-minded people plus education. Good luck and happy investing!