How moving overseas made me a better real estate investor

Whenever I’m on a conference call, someone asks, “Where are you?” When I answer, “Lima, Peru,” their eyes widen.

But when I invest in rental properties, I do it in my hometown of Baltimore. After moving abroad, I discovered that I had subsidized these properties with my own labor.

Today, when people ask me what I would do differently if I started investing in real estate again, I have an answer ready – because I did Start all over again.

My “Landlord Era”

When I bought my first house in 2005, I had no idea what I was doing. I then bought a dozen more properties over the next three years and I still had no idea what I was doing.

I didn’t understand it at first How cash flow works. This proved to be a costly and embarrassing mistake.

To make matters worse, I bought Ruthless low-end community exist baltimore city. I didn’t understand that low-end properties come with countless hidden costs that don’t show up on paper – costs like crime and vandalism, high turnover rates, heavy tenant wear and tear, and constant eviction filings to track down delinquent tenants cost of.

Oh, and in fact, skilled property managers avoid them because they work twice as much for half the salary. This leaves you with property management dregs.

I also didn’t realize how difficult life would be when you invest in an anti-landlord jurisdiction like Baltimore City. It took me 11 months to find a “professional tenant” in a property.

I did this for ten years. I hate it.

Move abroad and kick off the crutches

When I moved overseas in 2015, suddenly I couldn’t spend my evenings and weekends driving to properties, coordinating with handymen, and keeping up with incompetent property managers.

I had to reluctantly admit to myself that as bad as my returns looked on paper, they were actually worse than I imagined.

I have always supplemented these investments with my own labor – passive investments such as stocks, bonds, notes or real estate do not require this syndicate. Even under good conditions, Landlords bring more labor Than people realize. My challenging properties are more difficult to regulate than most.

My possessions showed their true value—or lack thereof—when I could no longer go around putting out the proverbial fires.

For a decade, I served as a crutch to keep my portfolio upright. Take away the crutch and the entire portfolio collapses.

Shift to passive investing

At the time, I was an expat in Abu Dhabi and a busy entrepreneur working 50-60 hours a week trying to get SparkRental off the ground, but I hit a brick wall. I sold all my rental properties, even the great properties I purchased later in my rental investing career.

But it made me feel disconnected from what I was teaching. I learned every lesson the hard way and eventually became an expert on every mistake to avoid in rental investing and every easier path to success. At SparkRental we teach rental investing but I no longer buy new properties myself.

Meanwhile, our students kept asking, “Can I make a deal with you?” We kept saying no, until one day I looked at my partner, Deni, and asked, “What if we say ‘yes’ what to do?”

By the way, this is an important lesson for entrepreneurs: sometimes the business you think you’re in isn’t actually the business the market wants or needs. But I digress.

Around the same time, I started experimenting with passive real estate investing. I started investing small amounts on most of the major real estate crowdfunding platforms and then wrote about my experiences. Then I started testing private equity real estate syndication (a fancy word for “group investing”).

I don’t like the high minimum investments required for real estate syndication. I want diversification and spreading smaller amounts across more properties and markets.

Then it dawned on me: There were people clamoring to invest in real estate with me. What if we were involved in a syndicated deal together?

So we did it. We loved it so much we started trading together monthly as a form dollar cost averaging. We later opened it to the public as an investment club.

Get tax-deferred without a 1031 exchange

Many people get into real estate investing at least in part for the tax benefits.

As I gained more experience in real estate syndicated investments, I was surprised to discover that “lazy 1031 exchange”.

Active investors can defer capital gains tax on income properties Chapter 1031 Exchange. But they need to jump through a lot of hurdles — hiring a qualified agent to hold your money and file paperwork, announcing a replacement property within 45 days of selling the old one, closing on the new property within 180 days, and so on.

Even though I lived in the US, I thought it was too much work, so I never did it.

With passive investing in a syndicate, all you have to do is reinvest the proceeds from old deals into new deals. Hard stop.

The depreciation from the new transaction will show up as a loss on your tax return, which you can then use to offset capital gains on the property sold. It’s that simple.

This fits perfectly with my new hands-off investing strategy as an expat.

We’re all busy – who wants another job?

In my 20s and 30s, I endured wasting all my nights and weekends working on rental properties. But becoming a father, an expat, and a busy entrepreneur has put my priorities in perspective. Why should I spend my precious free time arguing with contractors, tenants, property managers, or city inspectors?

I would rather hike the Andes with my daughter. Or visiting Chilean wine country with my wife. Or, for that matter, investing time in growing my business.

There is no wrong way to invest in real estate. I have nothing but respect for rental investing. I just don’t want to do it myself anymore when I can get all the benefits (cash flow, appreciation, tax benefits) without the hassle (financing, contractors, repairs, permits, inspections, tenant management, yuck) .

When investors complain that they are busy and say in the same conversation that they plan to buy another active property, now, I keep my mouth shut about this inconsistency. They embark on their own journey of search financial freedom. I will continue to enjoy mine.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.