as a foreigner As a landlord in recovery, I prefer hands-off investing. I have invested as a limited partner (LP) in over twenty real estate syndicates. I effectively became a silent partner and part owner of a large property, receiving all the benefits of ownership –cash flow, appreciateand Tax incentives– Not to be a landlord.
But syndication isn’t the only way to passively invest in real estate. I have also invested Most of the main Real estate crowdfunding platform, including Groundfloor, Fundrise, Streitwise, Ark7, Arrived, etc. Some I like. Others not so much.
However, even the ones I enjoyed still didn’t offer exciting rewards. I invest some money and they seek diversityand there are Firsthand experience when I write and talk about them.
So, as a passive real estate investor, what am I excited about investing in right now?
Why we love private partnerships
The co-founders of SparkRental and I organized an investment club for passive real estate investors. Every month, the United Investment Club gets together Discuss and review different passive real estate investments.
Usually this means real estate syndicate. But we consider everything, including working with private real estate investors on deals.
We have been working with a private real estate investor in the Midwest for almost a year Now, get to know him and the types of investments he makes. next month, we are planning Work with him on some flip trades.
He is not a syndicate organizer or a public figure, so I will call him Casey to protect his privacy. Casey and his team of five employees have done it hundreds of times house flipping. He has a 93% win rate and a short-term average cash return of 25% to 30% flip; flip; His long-term flip is higher.
When he hires partners to provide most of the cash, he pays them a portion of the profits. there is nothing unique there-but Interestingly He also provides partners with a “bottom line” in return. he signed Both Companies and individuals guarantee that he will pay his partners a return of at least 6% to 8%. On the rare occasion that his income falls below this figure, he bears the loss as a cost of capital.
Good luck finding a real estate syndicate willing to do this.
Oh, and another idea: These private partnerships allow unapproved investor, since they are not registered and the U.S. Securities and Exchange Commission.
Private Equity
Some private equity funds that never advertise operate similarly, just on a larger scale. These word-of-mouth funds allow investors to purchase a collection of single-family rental properties run by a small, experienced team.
We hope to invest later this fall with a team like this that specializes in lease selection partnerships. They first find renters and home buyers, then find properties for them to move into. They buy the property and the client moves in and Pay rent, then buy the property Three years at predetermined price.
Likewise, there are occasional mistakes and losses. But the longer this small company is in business, the smaller and further the gaps between these people become. already. They’ve done hundreds of these trade, under many different market conditions. We will be involved in dozens of properties with them and I am sure the profits from the wins will more than offset the inevitable losses here and there.
This is one of many private, unpublished examples Funds that rely solely on word-of-mouth communication. I think my job is to find all The most reputable and experienced These In addition to developing relationships with the 50 or so syndicated sponsors worth knowing about, there are also private citizen investors.
Low-risk, high-interest private notes
Don’t think that low-risk, high-return investments are actually exist? You haven’t been in the game long enough. Actually, There’s a term in finance to describe them: asymmetric returns.
When I first borrowed it private notesit It was for a friend who was making money almost as fast as he was spending it on fancy dinners and cars. As collateral, I asked him to sign over the rights to his 1957 Porscheit is atLong time with keys. He also gave me the money, albeit a little later than promised.
Recently, our joint investment club Lending a private note for six months at 10% interest (paid monthly). We can terminate this comment exist any time, Six months’ notice.
I realized 10% may not sound impressive, but the risk is low. First, we obtained personal and corporate guarantees from a professional real estate investor with 112 rental properties. He also won the first place lien, exist Below 50% loan to value ratio (lifetime value).
The only drawback is that in the event of a default, we will take responsibility Hire a foreclosure attorney to recover our money. but I no doubt us Yes, along with any legal fees.
Surprise about Syndicaters
throughout the process In dozens of real estate syndicated transactions, our United Investment Club discovered a surprising phenomenon: sponsors with big brands and great reputations Underperformance to a large extent this smaller Couple Sponsors.
When we first started reaching out to sponsors to find the people most promising to invest in our investment club, we asked other passive investors. The same name often appears again and again: Sponsors who have completed dozens of transactions and have a proven track record and reputation.
Then, rates spike in 2022 and be disturbed The entire real estate industry.
Two of the worst deals we’ve ever invested in were with big-name sponsors. If you’re in the syndication space, you know their names. We will never invest with them again.
At the same time, the smaller syndicates we have encountered and invested in over the past few years have performed significantly better.
why is that?
The risks of big brands
In my experience, big brand sponsors are overly focused on size and scale Brand Promotion, and not enough About operations.
Many of them offer training programs for novice promoters. They make millions selling five-figure courses and programs. what do you know they are no Focus on when they run a high profit training program? operate their existing properties and generate returns for investors.
Couple sponsors we have invested in most Funding is raised through word of mouth among friends, family and other small sponsors. They’re not interested in buying a $100 million apartment complex. They know their niche very well and how to consistently achieve strong returns inside.
Instead of spending a lot of energy on marketing or To raise funds or sales education programs where they focus primarily on finding the right deals and then executing on them exist Operations. They make money for investorsMilletAnyone among them is immediate family and friends.
big Returns for small investors
it is a lot of It’s hard to find small businesses that spend little or no time on marketing, but World Health Organization Willing to obtain funding from partners and investors. Reviewing them is even harder. Unlike big-name sponsors, you don’t get immediate feedback from other investors BiggerPockets and other forums About them.
But once you make sure the investors know what they’re doing and can reliably grow your capital, these partnerships are pure gold. In some ways, these bring you back to smaller properties, including single-family homes.
sound like lots of work? possible. But it’s still a lot less work than building your own side hustle and buying real estate. And you don’t have to do it yourself—you can always join an investing club.
Most people think of private equity real estate syndication when they think of passive investing. I like syndicates, but they are just one of many passive real estate investments you can make. As you explore passive investing, consider looking beyond the obvious big brand syndicates.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
