How Passive can it be to own larger apartments?

Question

How passive can someone invest/own larger apartments? Say someone makes enough in their primary business to invest in larger apartments (40-200 units) and decides to hire a good 3rd party manager. How passive of an investor can this owner be?  Grant Cardone owns thousands of units, and he claims its all passive (which sounds like it would be seeing that his primary business takes a whole lot of his time).

Ivan Barratt · Answer

@Patrick Tudor the closest thing to true passivity is being an LP (limited partner) in someone else's security (real estate, biz, etc).  Even in that scenario you'll need educate yourself as an investor.

Grant Cardone has a great model. Funnel income from his primary businesses (education, books, products) into income property. He's grown an asset management team (they manage the property management team) so his investments have become more passive; allowing him to focus on what he does best.

In general it's a model that the truly wealthy use. For me; I started a property management biz first. My management firm is the vehicle that generates incomes in which I funnel into my own real estate deals.

Most of my clients do the same thing via their biz, medical practice, high wages, etc.

If you want to be truly wealthy do the same thing: grow a biz and funnel income into income property that's very hard to destroy!

Nothing in this world is truly passive. Anyone who tells you otherwise should be a red flag.

All the best man!!

Ed Matson · Answer

We have a 46 unit MF that is professionally managed.  We give the PM general direction and monitor their performance. We also handle the insurances.  The PM does everything else. Leasing, maintenance, etc.  I think our PM is very good, but this is not as passive as investing in a syndication.  For example, PM's can be more concerned about keeping high occupancy than keeping up with market rent increases, and you may end up charging under market rents.  So, the owner must know rents in the market and work with the PM to strike a balance between maintaining high occupancy and not leaving money on the table.  So, if you want your investment to be maximally profitable, you need to act as the asset manager, or hire one if your holdings warrant that.  Having said all that, we (two of us) probably spend a total of 2-4 hours/month on the property.

Account Closed · Answer

A way to become wealthy (whether "just wealthy" or "truly wealthy") is to funnel money into income-producing assets.

Excess income from a job might make you "just wealthy" because there are limits on how much money most people can make for their time.  Excess income from a business might make you "truly wealthy" if the business remains profitable and growing.  Either way, vigilance, which takes time to do, is needed to make sure the income sources and investment uses stay on track.  It's a high-class problem to have.

The only exception to nothing being truly passive might be for those people who put their wealth into a blind trust (as U.S. presidents often do).  The managers of the trust do what they have to do with the money and the owners of the wealth have no idea what is being done with it.  The owners of this wealth go about making their decisions of geo-political importance and receive their annual tax statements from the trust.

I became "mass affluent" with regular contributions from my job income into mostly index funds (investing in the entire U.S. economy) in taxable and retirement accounts.  Today, I have food on the table and a roof over my head without having to go to work to get the money to pay for it.  Other people have accomplished the same thing, but with real estate as their source or use of funds.  We make the money we need to live on now while we sleep or take the day off, which is passive enough for me.

Brian Ploszay · Answer

I protest the word "passive" when it comes to real estate.  It is not, unless you buy corporate NNN properties, like a Walgreens.

Renting residential real estate is a business.  And over 50 units, it quickly becomes a full time job.

The best landlords, especially larger ones, run their own management in-house.  Third party management often has disappointments.  Even if you hire a manager, you need to "asset manage" on top of them.  You need to visit the property, have knowledge of collections, vacancies, repairs and deferred maintenance.  You need to talk to your property manager often.

Passively managed properties often sub-perform.  My opinion.

Ben Leybovich · Answer

First, forget anything under about 90 units if you want any resemblance of passivity. The numbers don't work to accommodate professional management infrastructure, and professional management doesn't want that deal.

Secondly, if you are indeed going to adhere to number one, and go after bigger stuff, then you will either run it, which is not passive or invest in it, which can be quite passive. Good luck!

Alina Trigub · Answer

@Patrick Tudor

Different people have different definitions of "passive investing".

Some say, buying a house, placing tenants there, and then getting a phone call in the middle of a night about clogged toilet is passive investing. LOL

So from my stand point, passive investing is when you spend the minimum amount of time and gain the maximum reward for such. Syndication is one example where equity partners (aka limited partners, aka passive investors) spend the least amount of time on it and generate passive income.

If you have any additional questions feel free to PM.

Michael Le · Answer

Even with a 3rd party manager your work as an asset manager is not passive. It can be a lot of work. It won't be full time but it's not hands off either unless you want your asset to go down the toilet.

Matthew Paul · Answer

@Patrick Tudor If you move up to that level , you start your own management company that is responsible to you and you only . Put the right individual in charge and it will be passive , and the opposite is also true

Bjorn Ahlblad · Answer

@Patrick Tudor If you invest in a proper syndication that can be passive-very passive. If you buy a building and hire a PM it will be quite passive unless there is a serous meltdown and then there will be some involvement on your part. A PM is a filter-some extremely good some not so much. If you own a building you will want to have a say on how that assett is handled. You could tell the PM 'I never want to hear from you'; but IMO that would be unwise. All the best!

How Passive can it be to own larger apartments?

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