Transitioning from Active Investments to Passive Investments

General Real Estate Investing
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Transitioning from Active Investments to Passive Investments

Arn CenedellaPro Member
Rental Property Investor 路 Greenville, SC 路 Member since 2008 路 786 posts 路 1k+ votes

I have invested in rental properties since 1986. These have mostly been single family houses. And they have done very well for me.

These are not grand slam investments but solid line drive base hits over time. They have provided minimal cash flow but solid appreciation and net asset growth. The equity developed in these rental properties is a significant portion of my net worth. I am set financially at the age of 65.

I currently own 7 rental properties with 13 tenants. I manage these properties myself and I have great tenants who often drop the rent off at my house. More often than not, when I lose a tenant it is because they bought a house. I am happy for them. Sorry to lose them as a tenant but happy they are on the road to success and financial stability. I remember how excited I was to buy my first home in 1980 - $107,500 with a $868.08 mortgage payment. I was scared and excited at the same time.

I have just started to change my investment approach for two reasons:

1. To increase my monthly cash flow

2. To lessen my property management responsibilities

This week I made my first passive income investment is a beautiful 232 unit apartment complex in Charlotte North Carolina.

Giving up control was a big step for me. I have always been a one man operation - doing it all on my own. I mean after all, who could do it better than I? 馃槉

Giving up control releases me from property management responsibilities and I will more than double cash flow return on my equity investment.

This recent investment is in an apartment syndication also known as a passive investment.

Over the next couple of years, I will sell or exchange my rental properties into these large scale passive investment syndications.

I would be interested to hear from other investors that created a portfolio of single family rentals and small rental properties over a long period of time and how they decided (assuming they did) to transition to passive investment.

What's been good and what's been not so good?

What's your experience been?

[email protected]650-575-6114
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Taylor L.
Rental Property Investor 路 RVA 路 Member since 2016 路 5k+ posts 路 4k+ votes
6y

Good on you! Many tired landlords are finding that syndications and other strategies are better for their goals. There are so many ways to invest without dealing with tenants, toilets, and termites!

Big lesson I learned is not to let the property manager have a piece of the General Partnership. It makes it too hard to get them out of the situation if they underperform (or worse, do something illegal)

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  • Genna Golden
    Rental Property Investor 路 Portland, OR 路 Member since 2009 路 83 posts 路 30 votes
    6y

    I'm a big fan of NNN commercial buildings to increase my "passivity". I also have a master lease agreement on a 3 unit building. Full lease payments coming in so far in spite of Covid. Retail is in flux right now. While I'm sure the masses won't rush back into the office space market, and restaurants are in trouble for a while, many business models need brick and mortar and NNN tenants take great care of your building.

    0Reply
  • Arn CenedellaPro Member
    OP
    Rental Property Investor 路 Greenville, SC 路 Member since 2008 路 786 posts 路 1k+ votes
    6y

    @Allan C.

    You are so right. 
    I am still trying to figure out the tax angles of this transition. 
    Of course if I sold some of my stocks right now that would generate a loss to offset the RE gain. 
    I am basically retired at this point and thanks to depreciation, paid zero in income taxes last year. 
    So my situation is much different than a high W2 income earner. 

    Your comment was spot on. 

    Thank you


    Arn 

    [email protected]650-575-6114
    1Reply
  • Paul Smythe
    Investor 路 Greenville, SC 路 Member since 2012 路 269 posts 路 187 votes
    6y

    @Arn Cenedella props for getting to where you are. Why not look at notes? Might give you the passive returns you're looking for.

    EDIT: Didn't think about the tax angle, which might be an issue with the notes.

    0Reply
  • Ivan BarrattBusiness Member
    Investor 路 Indianapolis, IN 路 Member since 2015 路 764 posts 路 953 votes
    6y

    @Arn Cenedella cheers. I haven't paid federal in almost 8 years thanks to legally playing the passive loss game and having full time re professional designation. You're going to LOVE the generally bigger losses on syndication. Big deals have big cost seg benefits that nearly doubled after 2017 tax act. enjoy!

    2Reply
  • Kelly McClellan
    Rental Property Investor 路 Columbus, OH 路 Member since 2018 路 33 posts 路 19 votes
    4y

    @Arn Cenedella

    I would like to connect. I am in a similar situation as you were when you made this post. I will reach out privately to connect and would appreciate the opportunity to speak to you.

    Best

    Kelly

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