Transition from active to passive investment

[Kelly McClellan]

Good morning BP members.

I am actively seeking to make connections with those who have successfully transitioned from active ownership to more passive real estate investing. I have been on an information bender as I am about a week from closing the sale of a property we have held for over 20 years.

I am specifically looking to connect RT with others in the Columbus, Ohio area. I am also more than happy to connect with others that can add more information from their own experiences also.

There is so much noise in this passive, LP, syndication space that it is challenging to find a clear voice!

We have a moderate sized portfolio of single, two, three and 4 unit properties that we have been 100% active with for many years. We make our income entirely from our RE holdings and they represent a large portion of our retirement plans also. We have experience with 1031s, including 1031 DST deals that we have entered into.

I am now trying to educate myself regarding using syndication deals and the paper losses that come with them to help offset gains as a possible alternative to deferral via 1031. We are in our mid 50s and looking to find a little more time to enjoy. While we don’t plan to sell all of our properties at the moment we, plan on taking a more strategic tack to identify those that meet our goals over the next several years.

I would appreciate the help, folks! I think I nearly made my account’s head explode when I came at her with my needs. She still hasn’t recovered! Oh, yeah, I am actively seeking a new accountant in the central Ohio area that can speak this language!

Hope to hear from you all!

Kelly

[Jim Pfeifer]

I was an active investor and completely transitioned into passive real estate syndication investing. I live in Columbus, Ohio - and have a great accountant who taught me what he calls the "Lazy 1031" strategy. Basically, I sold all of my active real estate - single family and multifamily and invested much of the capital into syndications. The syndications did cost segregation and used bonus depreciation to deliver me large paper losses that offset the gains from the properties I sold. I did not pay tax on my gains and I didn't have to do anything complicated like a 1031 Exchange or a DST. The only thing I had to do was make sure I had enough paper loss to offset all of the gains and had to make sure it was done in the same calendar year.

I continue to use the strategy - when deals go full cycle, I invest in a new syndication.  It's called the Golden Hamster Wheel - instead of 1031 until you die, you just continue reinvesting and defer the tax.  I have been doing this for several years and I don't pay tax on my real estate gains.

You mentioned the challenge of finding a clear voice through the noise - it is difficult to find quality operators in the syndication space.  Many of the best have plenty of capital so they don't advertise.  Many operators are great podcasts and are very well known, but how do you know if they are quality operators or quality marketers?  These are incredibly illiquid, long-term investments that are completely out of your control.  Once you make the investment, there is nothing you can do but watch and wait.  This makes it even more critical that you find quality operators to do that.  When I first started, I mainly found operators through listening to podcasts.  I was exposed to some great operators - and plenty who are not so great.  This is a hard way to find business partners. Now, I leverage my Community - I don't invest in a new operator unless they are recommended to me by someone I know, like and trust and that person is part of my Community and has invested with the operator.  I still do the same due diligence on the operator, but I am starting from a much better position - a position of trust.  It has made a huge difference in the success of my investments.  I strongly believe you need a Community - just like you came to BP for help with active investing, it makes sense to find a specific Community (or several!) that focuses on real estate syndication investing.  

We are both in Columbus - so let me know if you would like to connect!