All Forum Posts by: Jim Pfeifer

BP is a great place to start looking for quality operators, but you will probably have the most success if you find a Community that specializes in supporting LP investors in syndications.  There are several out there.  People are often hesitant to share their favorite sponsors on a public forum like BP, but in smaller groups - masterminds, LP communities or one-on-one you will find people very willing to share their expertise and connections!

Are you interested in passively investing or being active?  If you buy a property and own it yourself, you will be active - you will need a property manager, real estate agent, and others to help you but you will be in charge of managing the asset.  This is perfectly fine - as long as you understand that it isn't a passive activity, even if it's a turnkey property.  

If you want to truly be passive, you could consider investing in real estate syndications.  You would invest some amount in an asset that someone else is managing.  You will need to do due diligence on the operator, market and deal - but after that you just wait for them to send you reports and (hopefully) cash flow.  You get to benefit from their expertise - they do this full time, so unless you have a skill or some knowledge that gives you a competitive advantage it is very likely that they will be a better asset manager than you.

I started out investing actively, though I thought it was passive.  It wasn't.  I didn't have any expertise or knowledge that set me apart and I had a full time job - I relied on property managers with varying levels of success.  I was fortunate that I bought these properties at a time in the market where everything was going up so I made money even though I did a poor job of managing the assets.

Now, I am a full time passive investor investing in passive real estate syndications.  My cash flow and returns are better than when I was an active investor and my headaches are much smaller!  You definitely give up control and the assets you are buying are long term holds and very illiquid, but you aren't buying yourself a new job and you will likely make more money than if you do it yourself!

Real estate syndications are a great way to build wealth - especially if you do not have expertise in a particular niche or market.  You effectively hire asset managers to buy the asset, institute the business plan and provide returns for investors.  I don't know if you are looking for specific examples or just general successes, but I know many people who have been able to ditch their W2 job through the income generated from passive syndication investments - I am one of them.

There are many things you need to evaluate when passive investing, but I recommend listening to podcasts, reading books (The Hands-Off Investor by @Brian Burke is a great place to start) and joining a Community.  These investments are long-term, illiquid and completely out of your control so leveraging the experience of others is critical.

Good luck!

I think the real question is do you want to be passive or active?  You have a W2 so I assume the bulk of your time is spent there, but perhaps your wife wants to be an active investor?  Managing multifamily properties is not passive.  When I owned MF and SF properties it took a ton of time - and I thought I was a passive investor.  In addition - do you have a competitive advantage that will give you an edge over the competition - some type of market knowledge or experience?  If not, I would expect you will find it very difficult to beat active investors in whatever market you choose.  If you invest in a syndication, you will be investing with an operator who is a professional asset manager - it's what they do for their W2.  It will be difficult for you to beat their returns.  This is why I gave up the active real estate ownership and invest passively.  I still get the tax benefits, but I hire a professional asset manager to manage the assets for me.

As Lane said, it's very important to find a Community of other passive investors.  Syndications are long term, illiquid investments that are completely out of your control.  Your most important decision will be the operator so it's important to find quality operators - a Community will help you with that.

Once you make the decision if you want to be active or passive, then  you can start building your network and fine-tuning your strategy.  I think it makes sense to really be certain you want to be an active investor and you have an edge - otherwise, passive investing might be a good option.

@Evan Polaski gave a ton of great insight.  I will add the most important thing from my view as a passive investor, and Evan mentioned it as well - communication.  It doesn't matter if you know everything about your deal, market and syndication, if you aren't able or willing to communicate that to your investors.  Timely and effective communication is the number one thing I look for from an operator.  If someone doesn't respond in a timely manner, then I will go find an operator who will - I don't care how good your deal is.  Syndication investments are long term, illiquid investments that are completely out of the LP's control.  The only thing we have is communication from the operator.  If you can't commit to a quality response within 24 hours, you will be a frustration to your investors.  I can tell you - when I am frustrated, I find other places for my capital...

There are a couple operators I know of who invest in San Antonio and Austin who did 506b syndications, but I am not sure they still do.  DM me and I can give you more information.

I think the question @Chris Seveney asked is important - there are quite a few markets where you can find quality operators that aren't quite as hot as Austin!

I struggled to find quality operators when I started out.  My first few investments were from operators I met at a conference.  I assumed because they were at a conference, they must be great operators.  That was a bad assumption!  Some of them were, some of them weren't.

Next, I started listening to podcasts and reading books.  I learned about quite a few operators and called them up and had a 30 minute conversation.  Then they would send me a deal and I would have to decide if I wanted to invest $50,000 with, basically, a stranger.  For those who were on podcasts, I didn't know if they were great operators, great marketers, both or neither!  My result were much better than just going to a conference and investing with everyone I met - but I was still always unsure and uncomfortable because I didn't know if they were legit.

After that, I found a Community and everything changed.  With a Community, you can rely on others who you meet, get to know, like and trust - and use their experience to guide you.  Now, I only invest with a new operator if they are referred to me by someone in my Community who I know, like and trust AND that person has invested with the operator.  I still do all of the same due diligence on the operator, but I am starting many steps ahead.  Trust transfers and if someone I trust recommends someone they trust, it's a huge benefit.  It doesn't mean I won't get into bad deals or invest with sub-par operators - but I am confident that I will have fewer of those experiences than if I had kept to my old ways.

Real estate syndications are long term, illiquid investments that are completely out of your control.  Once you send that wire, you are done - you can only sit back and collect reports and (hopefully) distributions.  There is very little education out there and many of the deals can't be advertised so they are hard to find!  That's why I believe strongly in joining a Community - or several - so you can work together with others to vet operators and analyze deals.

Good luck!!

Great stuff! 

I would add that the main advantage of REIT's as compared to private equity is liquidity. One of the big advantages of private equity in real estate that you don't get from a REIT is the tax reduction or elimination of taxes.

You mentioned you would prefer to be passive - syndications seem to make good sense if you want to be passive.  I am not sure what you meant my accumulating long term assets, but there are some syndications that have ten year and indefinite hold periods.  It is also quite passive to get into a syndication that goes full cycle in five years and then invest in a new deal for the next five years.  Much more passive than a rental property - even if you have a good property manager.

There are quite a few quality operators working in Dallas, Houston, Austin and San Antonio.  

If you are running a business already and don't want another one - passive syndications are the way to go in my opinion!

If it seems to good to be true, especially in this market I think I would walk or run the other way! The market has changed significantly and if someone is offering returns that are much better than the rest of the deals you are seeing, then I would either run - or ask a lot of questions!

Vetting an operator is the most important part of syndication investing in my view - and the most difficult.  These are long term, illiquid investments completely out of your control.  In most cases, you won't know if you made a good decision investing with an operator until the deal is done and that could be 3, 5 or even 10 years.  I went through a lot of different strategies for vetting operators with some failures and some successes.  Now, I will not invest with an operator I don't know unless they are introduced to me by someone I know, like and trust who is in my Community AND has invested with that operator.  I will still do my same due diligence, but I am starting from a place of trust.  That doesn't mean I won't ever get into a bad deal or invest with an subpar operator - but it sure does give me an edge.  This is why I always recommend that if you are going to invest in syndications join a Community.  You will find like-minded people who can share their experience and everyone learns from each other - just like we are doing here on BP!