All Forum Posts by: Jim Pfeifer

Great perspective on this - I would add a bit more on the taxes.  I agree that if you currently make $100,000 that you don't need $100,000 in real estate cash flow to replace it.  If you do it right, you should be able to legally avoid paying taxes on any of your real estate cash flow.  You can do this using the Lazy 1031 strategy.  Basically, you use depreciation to offset any gains (distributions and property sales) and when one of your syndication deals or active properties sells, you invest in a new deal and get a fresh batch of depreciation.  It is slightly more difficult now that bonus depreciation is being phased down, but it is still possible to do. If you set it up right, you should not pay taxes on your real estate,  so you can do with less than the $100,000 to replace the W2.  That's the good news.

The less than good news is that counting on 10% or even 7% cash on cash returns is more difficult now then it was a year ago.  Perhaps that will change or perhaps there will be "deals of a lifetime" coming through soon - but I wouldn't count on that.  Much better to assume a 5% or 6% cash on cash return and build to that number - then, if your returns are better you have a cushion and you won't have to crawl back to the W2.  If you assume that the next few years will be like the last few, I think you could be in a situation where you don't replace the income like you thought you could.  I would also recommend not ditching that W2 until you are well on your way and have replaced most, if not all, of your income.

I really don't understand why some people think syndications are only for experienced and wealthy investors.  That makes no sense to me.  What's nonsensical is telling anyone that they have "zero business" investing in something.

Real estate syndications can be accessed for less than the down payment on a rental property and are managed by professional asset managers.  How is that worse than having no experience and buying active real estate?  How are syndications worse than someone recommending that a new investor sell their house and buy a new one to house hack?  This baffles my mind.  

If you take the time to educate yourself and join a Community of like-minded syndication investors, you absolutely can be successful with no experience (you learn from others) and without bein accredited.  Certainly, if your net worth is $100,000, you shouldn't be investing $50,000 or maybe even $25,000 but people with that net worth often invest in the stock market - how is that better?  You can invest in syndications for as little as $10,000 in some cases.

As someone else mentioned, the first thing you need to decide is if you want to be active or passive.  That is critical because everything starts there.  If you want to have a second job (many do, but it should be a choice in this case) then perhaps active investing is for you.  If you don't want another job, then perhaps passive investing is better for you.  

I have done both and I finally realized that passive investing in syndications is the best option for me.  I effectively hire asset managers to find the properties, set up the deal parameters, buy the property and manage the asset.  The part where I participate is vetting the operator (most important) and analyzing the market and the actual deal.  After that, I wire in my money and wait for reports and distributions.  Again, you don't need to be accredited or experienced to do this - I strongly recommend you educate yourself and join a Community so you will be best prepared for success.

There is no reason to become an active real estate investor if that isn't what you want to do or what you might be good at - there are other ways to get into real estate.  There is no reason that syndications need to be reserved only for the wealthy and those with experience.

There are a lot of good answers here!  I won't re-hash all of it, but I will say I have both high cash value life insurance polices and a self-directed 401k.  I use both for investing and find myself looking for ways to put more money into the life insurance while looking for ways to get money out of my self-directed account.  Why? Because I want to get as much of my capital into a tax free earnings bucket as I can and for me, that's real estate.  I can buy real estate syndications and never pay taxes on the gains (Lazy 1031).  With my self-directed account, I am partnering with the government because they will decide how much tax I pay and when I can take it out.  

The question was - which should someone put money into - this is an unanswerable question because each person's situation is so different and these two products are, as others have said, comparing apples and oranges.  They are both fruits, but very different.

High cash value life insurance is not an investment, but when used properly it can turbo charge your investments. The key is to have it set up correctly and for your specific situation. I used to sell these policies and the first policies I sold were to my wife and myself. I was trained to sell a specific type of insurance in a specific way - targeting high paid professionals who would use it for retirement. This is completely appropriate - except that wasn't how I was going to use it. I sold myself the wrong type of policy because I was inexperienced and I was following my training. I don't sell insurance anymore, but I still buy new policies and I have them structured by an agent I know, like and trust and someone who understands how to structure if for me to maximize cash so I can use it to turbo charge my investments. As an example, I use my cash value to buy ATM's. I take a loan against the cash value at 5.5% and put it into ATM machines which pay around 25% cash on cash. For round numbers, I take out $100,000 and pay interest of $5500 per year and earn $25,000 per year. After 4+ years, my loan and the principal is paid back and I collect ATM distributions for another 3+ years. At the end of seven years, the interest and principal is paid back and I have effectively manufactured $60,000+ in cash. For those four years that I had the insurance loan - the cash value was collateral, so the actual cash value in the policy continued to grow. I earned two returns with the same dollar and created cash out of nothing. I can't do that with a self-directed IRA.

The reason I still use the self-directed account is that I had some old 401ks that I rolled over - I use that money to invest in debt because if I invest in real estate through that account, I lose a lot of the tax advantages.

Again, it's different for each person - neither of these are bad products, they just have to be used correctly.  Yes - Suzie Orman and Dave Ramsey say whole life insurance is a scam - but as was said above, they are financial entertainers.  They have great advice for people deep into debt - they give terrible advice for people who are striving for financial freedom through investing.  Both of them own whole life insurance - they just don't think their audiences are smart enough to own it correctly.  

The key to investing is to have great partners - so if you decide to go with the self-directed IRA, whole life insurance or both - make sure that you have a partner who you know, like and trust that can give you expert advice. If you get your insurance agent from the yellow pages, be prepared to feel like whole life insurance is a scam. If you get your insurance agent from a trusted person who already uses that agent successfully, then be prepared to have a properly structured policy that can turbo charge your investments. I would say the same for any financial product.

 There are quite a few Communities who deal with passive investors - most are not local, most are online and some have meetups as well.  Some of these Communities are organized by a capital raiser and they provide limited deal flow and education.  Others are purely for passive investors and provide education, a network and deal flow.  My recommendation is to join a few of them and you will find yourself spending the most time in those Communities where you are most comfortable.

Feel free to DM me if you want some recommendations on Communities!

There is a lot of great advice in this thread!  I would add that investing in real estate syndications is putting your money in long-term, illiquid investments where you have zero control.  This means, as many here have said, that the most critical part of the process is finding quality operators.  It's a hard thing to do - many of these deals last five or ten years, so how can you know if someone is a good operator?  After going through several different strategies to find good operators, I settled on this: I only invest in a new (to me) operator if they are referred to me by someone in my Community or network who I know, like and trust and that person has already invested with the operator.  I still do all of my normal due diligence on the operator, but trust transfers - so by making my first screen a referral from someone I trust, I shortcut the evaluation process.

That brings you to the next issue - how do you find people to be in your Community or network?  Posting on this forum is a great start - there is a ton of good information and a lot of quality people on BiggerPockets.  But if you really want to focus on passively investing in real estate syndications, I would strongly recommend joining a Community.  There are several people on this thread in various Communities, so DM them and find a Community that fits you.  If you walk out your front door and talk to your neighbors about finance - they will talk about the interest rate on their mortgage, their 401k and T-Bills.  When you mention real estate syndications they will think you are crazy and they will be certain that it is too risky - they will also be misinformed, but this is why you need a Community.  There, you will find like-minded individuals who are working toward similar goals as you and are interested in the same type of investments.  You can learn from them and hopefully, short cut the process and avoid some of the mistakes many of us made in our journey.

Good luck!

Welcome to BP and Real Estate!

My first question is always, do you want to be passive or active investors?  When I started out, I bought single family properties and hired a property manager and told myself I was investing in passive real estate - it wasn't at all passive.  If you own a property, it is very hard to make that a passive investment.  You will need to manage the asset - that means managing the property manager, collecting rent payments, paying bills and the mortgage and much more.  It is NOT passive.  There is nothing wrong with it being an active investment - but it is critical that you understand that going in.

I ended up buying single and multi family properties and got up over 38 units. The entire time, I told myself I was passive, but I was spending a good portion of my time managing the assets - and a lot of that was trying to manage property managers.  I was fortunate as I was doing this at a time when all real estate seemed to do nothing but go up in value.  None of my properties cash-flowed like I expected, but they all appreciated beyond expectation.  I was lucky - I was a bad asset manager but I made quite a bit of money.

Then I found true passive investing - or as close to it as I have seen in real estate and that is investing in real estate syndications.  You are effectively hiring an asset manager to buy, manage and operate the asset on your behalf.  There are many advantages to this: the sponsor (operator, GP, asset manager) is a professional - this is their day job so they should (if you vet them properly) be much better at finding and managing assets than most new investors; you can diversify in multiple ways - you can invest with different operators, in different markets and different asset class; it is truly passive - you need to vet the operator and analyze the deal, but once the property is purchased you have no role - you just collect reports and (hopefully) cash flow; you don't need a competitive advantage - if you are an active investor, in order to get great returns you have to be able to do something better than your competitors - that could be local market expertise, DIY skills - something to make yourself stand out.

My experience since going fully passive is that my returns are better because I am hiring professional asset managers and my return on time is MUCH better because I am not managing the properties.

If you want to be an active investor - absolutely go for it!  BP is a great place to learn.  But if you are buying properties and you think that you will be a passive investor, I would encourage you to really think that through - because owning an asset and being the main person responsible for that asset is rarely a passive activity!

If you want to be a passive investor, I would strongly recommend you look into real estate syndications.

Good luck!!

@Ian Ippolito made some great points and I will add a few additional thoughts.

You do not need to be accredited to invest in real estate syndications and there are quality operators who offer investments to non-accredited investors.  It is simply not true that any syndication that is open to non-accredited investors is low quality (I think when people post these generalizations with confidence that they are correct - you might want to seek an alternate opinion - it is an opinion after all...).  It is true that non-accredited investors need to look harder for investments because there are fewer opportunities out there.

If you are going to compare the risk of syndications vs direct investments, you need to go beyond just talking about the risks of syndications.  While I agree that you have risk from the person running the syndication - fraud, competence, experience, conflicts of interest - all of that needs to be evaluated.  But you can't just talk about the risks of syndications without talking about the risks of direct investment.  In direct investment, to achieve returns that beat a typical syndication, you will some type of experience or expertise that gives you a competitive advantage over professional active, direct investors.  You will need greater market knowledge or some skill that allows you to generate greater returns than the professionals.  If you are just starting out - do you have that?  With syndications, you are hiring professional asset managers who (if you are selecting the right partners) have more experience, resources, knowledge and ability than you do - and they have a team working for them.  With direct investment, you will either need to do all of it yourself - or you will need partners - and then you will be right back to the risk mentioned for syndications in that your partners could have issues with competence, experience, fraud and conflicts of interest.

I have invested directly and in syndications.  I had very little knowledge or expertise that set me apart from the competition when I was investing directly.  I was not a good asset manager - I was lucky and got saved by market increases, but my properties did not perform how they should have, or how they would have with a more competent asset manager.  Now, I am a full time passive investor and I hire asset managers, through syndications, and my results are much better than when I was an active investor.

As mentioned above, the most critical action that a passive investor makes is selecting the operator/asset manager.  This is the active part of passive investing - you need to be able to vet the operator to make sure they are going to be a good steward of your capital.  It took me a while to find a process to vet operators effectively and now I only invest in a new operator if they are recommended to me by someone in my Community who I know, like and trust and who has already invested with that operator.  I still do all of the due diligence I normally do, but because trust transfers - I am starting ahead of where I would be if I didn't rely on my Community.  This is the reason that I believe that to be a successful passive investor in real estate syndications, you need to join a Community.  These are long-term, illiquid investments that are totally out of your control, so finding a group of like-minded people to vet operators and analyze deals is critical.  There are quite a few Communities out there, starting with BP and there are several that are more targeted directly to passive syndication investors.

Good luck!

@Tamer Ibrahim Are you looking to invest passively or actively?  

Either way, I suggest you start by joining a Community - just like you did when you joined BP.  

If you are interested in becoming an active investor, there is a Meetup in Columbus called COIN - Central Ohio Investors Network and they meet monthly.  It's a great group of active investors - flippers, wholesalers, buy/hold etc.  This would be a great way to meet active investors who can help you on your journey.

If you are interested in being passive - you mentioned syndications - I would recommend joining a Community that focuses on that.  There are several out there - even one that started in Columbus - but it is really important to find a group of people who can help you along your journey.  You can learn from their mistakes and grow comfortable with this type of investing.

Good luck!

I think the first question to ask yourself is if you want to be active or passive.  After selling a business - are you excited to start another full time business or would you like to have someone else run it for you?

If you choose to go the passive route, you won't have to do a 1031 Exchange in order to defer taxes and you won't need to become an expert in MF or a particular market.  Passive investors in real estate syndications invest in other people's deals - effectively you are hiring an asset manager to manage the entire asset.  This allows you to diversify into different markets, different asset classes and different operators.  You hire experts to manage these assets for you.  In my experience, the returns are better than if you are an active investor - unless you have some sort of advantage or skill that allows you to beat the competition.

If you want to be an active real estate investor - go for it!  If you don't want a new job, consider passive investing.  Good luck!

If you are just starting out, I would recommend reading "The Hands Off Investor" by @Brian Burke.  It's a great introduction to this type of investing and gives you in-depth strategies for finding quality operators.

I would also recommend joining a Community that specializes in real estate syndications.  These are long term, illiquid investments that are completely out of your control.  The most important part is finding the right operator as they will manage the entire deal for you and the other investors.  A Community can be a huge benefit in finding those partners, as well as providing you with like-minded people who are looking to do the same thing as you.

Good luck!!