All Forum Posts by: Jim Pfeifer

How about option 3 - investing in real estate through passively investing as a Limited Partner in syndications?  
Do you have any experience as an active real estate investor?  Do you want to spend the time and resources it takes to be an active real estate investor?  

Option 1 will be a very active position - especially if you are living there.  How will the time required effect your jobs and the family you want to start?  Even if you hire a property manager, owning a multifamily is an active job.

Option 2 - buying an out of state property will also be active and you will need to learn how to effectively invest outside your state.

There are plenty of people who do both option 1 and 2 on this platform and they do very well at it.  I would guess that all of the successful people who do either of those have some kind of competitive advantage - either they are good at swinging a hammer, have market knowledge or something else that sets them apart.  As an active investor, you will be competing against these people.  You might be successful, you might not - but you will be required to spend a lot of time, effort and money to make this work.

Investing passively in real estate syndications is different - you get the benefits of real estate, but you do not manage or control the asset yourself.  You invest with a professional asset manager who selects that asset, negotiates and completes the purchase, manages the asset and makes the sell decision down the road.  You will need to do significant due diligence on the operator, market and the deal.  These are long term, illiquid assets that are completely out of your control.  

There are benefits and drawbacks to both active and passive investing.  I have done both. As an active investor, I was not a good asset manager and none of my properties cash flowed like I projected.  I was fortunate that the market was only go up in those days - even for people like me who didn't know what they were doing - so I made a lot of money on the appreciation.  When I found syndications, I realized that I was much better suited to this type of investing.  The returns met or beat my active returns - I was effectively hiring a professional asset manager to manage the asset for me.  It also allowed me to diversify - I didn't have to just be a single or multifamily investor in one or two markets.  Instead, I invested in self storage, multifamily, mobile home parks, debt funds, triple net leases, industrial and more - all of these were in different markets with different operators.  You can't diversify like this as an active investor.

Real estate is the best investment I have found - I think the key decision that needs to be made prior to deciding Option 1 v Option 2 is are you, your family and your lifestyle more suited to active investing or passive investing?  Once you have that figured out, you can take the next step!

Good luck!

I think the first question is do you want to be an active investor or a passive investor?  If you want to be active, you will get a lot of good advice on this Forum about what market to invest in and what type of active property.  For active investing it is also helpful to have some type of advantage that sets you apart from other investors - that could be construction or rehab skills, market knowledge or anything else that gives you an edge.

I was an active investor and didn't really have any of those skills.  Fortunately for me, I started investing a time in the market where everything went up.  Even though I wasn't a good asset manager, I made money on my properties.  Eventually, I found real estate syndications and became a full time passive investor.  Now, I hire experienced asset managers to buy, manage and eventually sell the assets.  My job is to thoroughly vet the operator, analyze the market and analyze the deal - then I send the wire and my job is done.  You lose all of the control and these are long term investments - but in my experience the returns match what I had on the active real estate and I am hiring professionals to manage the assets.  These are people whose full time job is to effectively manage the assets on behalf of the investors.  Another benefit is it is much easier to diversify into multiple markets, asset classes and operators.

Just wanted to share an alternative - often active investing is the way to go, but it really depends on the person and it is important to know that there are passive ways to accomplish your financial goals.

Good luck!

Investing in real estate syndications is a great way to get exposure to real estate without having to manage the actual asset.  It is complicated because these investments are long-term, illiquid and completely out of your control.  I recommend as a first step in your education in this new type of investing - join a Community that is specific to syndication investors.  You will find a group of like-minded people to share information with and learn from.  The most important part of a syndication is the person and company that is operating the syndication.  It is difficult to property vet these operators without learning on the experience of others - that is one of the biggest benefits of finding a Community!

Good luck!

You mentioned that you are interested in passive income.  I think the most important first step is to define what that is!  Passive income, to me, is where you do the upfront work (vetting partners, researching the market, analyzing the deal) and then you invest your capital - then it becomes passive and you (hopefully) collect distributions.

Managing a contract who will do the work, managing an interior designer, managing a property manager - those are all active actions you take after you buy the property. Owning the real estate 100% yourself means that you are an active investor - you will not be passive.

I started out thinking I was a passive investor.  I bought single family properties, hired a property manager and thought that I could just sit back and watch the cash roll in.  That was not the case. I had to manage the asset - that means actively engaging with the property manager, the handyman and contractors and often the tenant.  I was constantly having problems with well-vetted property mangers.  I was not good at managing the asset.  Part of the reason is that I was an active investor and thought I was a passive investor.

None of my properties cash-flowed like I had projected, but lucky for me - I did this in a market that even bad asset managers saw their properties appreciate.  So I made money.

Eventually, I realized that I wanted to be a passive investor and what I was doing was active - that's when I found syndications.  This is where you do all of work up front - vet the operator, analyze the deal, research the market - and then you wire some amount (typically $50,000 or $100,000) to the operator who manages the asset.  You own a small portion of the asset and receive distributions based on the performance.  

The advantage of this type of investing is you are effectively hiring an professional asset manager - this is their profession.  They do all of the active management of the asset and send you distributions and reports.  There are downsides - you have almost no control of the asset, it's very illiquid and they are long term deals.  But - for me - the advantages clearly outweigh the disadvantages.  My returns are higher, my stress is lower - and I am using my strengths rather than my weaknesses.

I think the first thing to do is determine what "passive investing" means to you.  To me - owning real estate that I manage is not passive!

As @Account Closed mentioned, the first question is to decide if you want to invest actively or passively.  If you want to be an active investor, to be successful, you need an advantage.  That could be market knowledge, ability to rehab a property - something that can give you an edge over other experienced RE professionals in the market and asset class you are working in.  If you want to be a passive investor, you need capital, information and a network, but you don't need specific advantage in real estate.  

Many people start out active because they want exposure to real estate and don't know that you can start out passive - you can effectively hire the asset manager and supply capital to the investment.

You can have great success as an active or a passive investor - but it is important to understand the difference and to select whichever option matches your skills and resources the best.

Good luck!

I think the first question you need to answer is if you want to be an active investor or a passive investor.  Active investing takes your time and some type of knowledge or skill that gives you an advantage over other investors.  If you have the time and that skill/knowledge, then active investing might be for you.  Passive investing takes time up front to educate yourself, find operators and deals - but after you invest, you have limited obligations.  Of course, you also have limited liquidity and control.

I am a full time passive investor, so I am clearly biased - but passive investing might at least be worth a look.  It won't interfere with your day job and you can get into deals for $25,000 or $50,000 so you will be able to diversify by operator, market and asset class.  You get all the great benefits of owning real estate, without the hassle of tenants and dealing with the problems that always happen when you own real estate.

As both @Ian Ippolito and @Brian Burke said - if you aren't getting responses, that is a red flag.  These type of investments are illiquid, long-term and completely out of your control.  If an operator is not responding to you adequately - in timing or quality - prior to you wiring them $50,000, you have to ask yourself how will they respond after they already have your money?  One of the (many) mistakes I have made in my syndication investing career is to get too locked in to an operator, a deal or a strategy.  As Ian said, it's like missing the bus - if doesn't feel great, but another bus is coming.  

I would also recommend joining a Community of other limited partner investors.  This is where you can learn and network with other people who have the same goals as you do - and many are willing to share their experiences with others.  It's a great way to learn from others and avoid the mistakes they have made.

Good luck!

BP just started a Community called PassivePockets (full disclosure, they started it through acquiring my company Left Field Investors) - and the mission of the Community is to help LP investors learn and grow together.  There are other groups as well.  I am clearly biased in that I think PassivePockets is great - but I always recommend you join a couple communities and then settle in the one where the culture of the Community best fits your personality.  I have become a much better investor since joining a Community and met a lot of great people who have helped me along my journey!

I would recommend you join a Community of LP investors!  Investing in syndications is a team sport.  These are long term, illiquid investments that are completely out of your control.  If you are going to be doing more than just the one deal you are currently looking at, you will gain a lot by learning from the experience and mistakes of other investors.  You will also learn from others which operators they like or don't like, which asset classes are going well, diversification strategies, standard terms and more - and most of all you will have other like minded individuals to consult with who are on a similar journey.  Good luck!

I have never done a DST or a 1031 Exchange. They seem complicated, lock up your money and have a lot of restrictions. I was an active investor and fully transitioned to a passive investor in syndications. My CPA told me I could either suck it up and pay the tax from selling my active portfolio or do a "Lazy 1031". I chose the latter and ended up not paying any tax on gains from my active real estate. I admit, it was more effective in the days of 100% bonus depreciation, but it still works at 60% and will work if it goes to 0%. I have never really understood why people do the DST or regular 1031 exchange. Here is an article on the Lazy 1031 if people are unfamiliar with that strategy.
https://passivepockets.com/learn/syndication-basics/lazy-103...