My first big move in real estate was when I decided to move to New York City to become an actor and was inspired by the musical Rent. Ironically, this led to a career in digital advertising, and finally, real estate investment. I refused to leave the nineties idealism of Rent behind me though, until I promised myself one thing. I wanted to be a more enlightened owner whose investments made life better for the people who lived in my properties.
* This article was first published in Forbes.
In my capacity today as both a passive real estate investor and syndicator, that purpose is the driving force behind all of my deals. My real estate syndication company buys and operates multifamily apartment buildings. This means that I manage all aspects of every investment as the general partner, while a group of limited partners provide most of the capital to purchase the property. I pick my investors carefully, and I only invest in properties that are win-wins for everybody involved. Every deal must improve life for my investors, but also for the residents of each community.
Picking The Right Advisor Makes All The Difference
Syndicators all have their individual approaches to the marketplace, so it’s crucial to choose somebody whose investment philosophy and priorities are in line with your own. Some syndicators are higher risk and higher profit, some more conservative and more moderate in terms of returns. All of my deals are underwritten to make a substantial profit, but I believe that the bottom line has to be about more than just money. I am charting a different course for real estate investment as a form of activism, by using my investment dollars, structuring my deals and managing my properties in a way that improves the quality of life for everyone involved.
If you are interested in passive real estate investment, and everyone should be because it’s a fantastic and fruitful ride, here is some basic information that will make your road to success as you define it, just a little smoother.
Passive Real Estate Investment 101
Real estate, at 35%, is the most favored long-term investment among Americans, compared with stocks (21%), savings accounts or CDs (17%) and gold (16%), according to data from an April 2020 Gallup survey.
When you first consider real estate investing, you probably imagine an active investment, i.e. directly purchasing a property, flipping it for a profit or renting it out for cash flow. If you’re an experienced real estate investor, this approach can be satisfying and profitable, but one word to the wise, it requires a lot more risk and work.
Passive real estate investing, on the other hand, involves practically no participation beyond your initial research and financial contribution. You can invest passively through syndications, real estate investment trusts (REITs), real estate exchange-traded funds (ETF) or crowdfunding deals, gaining access to high earning potential with low risk and responsibility, and zero hands-on work.
Investing In Real Estate Syndications Opens Up Bigger Possibilities
When you invest in a real estate syndication, you pool your resources with other limited partners so you are able to buy larger buildings than you could afford individually. It’s a passive investment because the general partner manages everything, from the purchase to the day-to-day responsibilities to the eventual sale. All you have to do is invest and collect.
I have personally invested in more than 5,000 apartment units in locations across the country, and in 75% of those deals, I’m a passive investor. I’ve developed a diversified real estate portfolio this way, and I receive regular monthly or quarterly income from multiple passive income streams.
Critical First Steps
Before you become a passive real estate investor, you will need to do some research on the front end in order to evaluate three important pillars: the operator, the market and the deal.
The operator should be someone who can appreciate your goals, and transparently shares documentation with details on the market, the deal and the expected returns. Thoroughly vet your syndicator to make sure this is a person you like and trust. How did you meet them? What’s their track record on past investments? Who can vouch for them? And then of course, do they share your values and appreciate your definition of value and success?
Is the market growing, steady, stagnant or shrinking? Look for factors like employment growth, rent growth and capitalization rates for the area. Booming markets are more competitive, but you want to invest in markets that are at least holding steady or experiencing slight growth.
What is the business plan for the deal? Is the operator planning to hold the property until sale, or are they going to add value and force appreciation?
If you take care to evaluate these three pillars, do your research up front and understand your values and goals, passive investment can contribute to your financial freedom while simultaneously improving the quality of life for others.