All Forum Posts by: Jim Pfeifer

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 @Chris Burns 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...

Great stuff here!  I agree that the sponsor and alignment of interests are critical.  The deal comes after that in my opinion.  But I would agree with @Evan Polaski that it becomes easy - after all of your sponsor due diligence and alignment work - that you become tempted to think the deal offered by your vetted sponsor will be a "good" deal.  What's good for me, might not be good for you!  I think it is important to make sure the sponsor and the deal also align with your investing goals.  I made this mistake when I was starting out - I got excited about the returns of a development deal - but I didn't pay attention to the fact that I needed to be a cash flow investor because I did not have a W2 income, nor did I have sufficient passive income yet.

It is critical for investors to understand the relative importance of evaluating the sponsor, alignment of interests and the deal.  They are all important and must be evaluated appropriately - but that doesn't mean send the wire!  These are long-term, illiquid investments that are completely out of your control.  After (or before!) you have done all of your vetting, evaluations and due diligence you need to make sure that the particular deal is right for you.

 I am admittedly biased here @John Ki, but I think PassivePockets would be a great place to start.  There are paid Communities and there are free Communities.  I think the most important thing is to find a Community where the culture fits your personality.  You need to find a place where you can comfortably connect with other people.  Some Communities are buttoned-up and intimidating and others are more about sharing and educating - it's critical to find a network that is comfortable for you.

If you are planning on investing in even one deal a year, the cost of the membership is likely a drop in the bucket compared with the capital you will commit when investing.  Knowledge is key in this type of investing, so finding "your people" will help you immensely.  Join more than one - you will fairly quickly figure out where you spend most of your time, which will tell you all you need to know!

Good luck!

@John Ki Passively investing in real estate syndications is a great way to get exposure to real estate investing for those who don't have the time or knowledge needed to actively buy real estate.  I used to be active but found that I wasn't a very good asset manager.  I found real estate syndications and have been a full time passive investor since then.  I think the best way to learn about syndications and to find quality investment partners is to join a Community.

This type of investing is long-term, illiquid and completely out of your control.  The most important thing to do is to find quality operators to partner with.  It is very difficult to vet an operator - they all say they are experienced, conservative and will be a good steward of your capital.  You can, and should, interview them and ask them all of the appropriate screening questions - but you won't be able to "test" them out without contributing significant capital as part of your test.  This is where a Community can help.  You can get unbiased opinions from people in the Community who have invested with different operators.  They can give you real feedback on their actual experiences with the operators.  There are many other benefits from these Communities as well - you will find like-minded people who are interested in building wealth through real estate the same way you are.  You can learn from them and bounce ideas off of them.  I think finding a network of people is the most powerful force multiplier for this type of investing.  You can, and should, read books, listen to podcasts and interview operators - and all of that knowledge will be fortified and verified only if you find others whose experience you can share and use.  Trust transfers and so can experience and knowledge!