Passive Income Via Real Estate Investing

There are two kinds of real estate investing: passive and active. Here, we are going to focus on those who earn a passive income via real estate investing.

When you become a passive investor, you become a limited partner in a deal. You provide private capital to an experienced, knowledgeable syndicator—like myself—who will use those funds to acquire and manage an apartment community.  

Gaining passive income through real estate is popular, in large part, because it is a low-risk approach. When you make these investments, you join an investment system that already exists, has been successful, and is run by a dependable syndicator with a proven track record. Just ensure that you understand the projected limited partner returns before investing, meaning the results are more certain. And, as long as the syndicator follows my Three Immutable Laws of Real Estate Investing, the project should exceed projected returns.

Partner with Experienced Syndicators

Passive income real estate investing can be risky because it requires you to place a lot of faith in your general partner. That person, along with his or her team, will be the one constructing the business plan.

This is why it is important to work with the right people. Since breaking into this industry, I have established myself as an investor you can trust. As I’ve gained control of more than $900,000,000 in real estate, I’ve helped people across the country gain the financial independence they seek through passive investing opportunities.

In this section of my blog, you will learn more about how to earn a passive income through real estate investing and how I seek passive investors for nearly all of my apartment deals. If you’re an accredited passive investor, please consider completing this form to potentially work with me.
Knowledge without Action Is Nothing with Adam Bazia

Knowledge Without Action Is Nothing with Adam Bazia

Adam Bazia moved from Poland to Seattle in his twenties hoping to work in the construction industry, but soon realized that most of the jobs he had his eye on required a degree. Refusing to let this stand in his way, Adam attended the University of Washington, where he took classes in business and earned a degree in construction management.

After graduation, he went to work as a superintendent on a government project but soon discovered that working for other people wasn’t for him.

“I decided to leave because I found there were good opportunities to build houses at the time, so I started my own business. Luckily, I started it when the economy was on the rise,” Adam said. “Now anytime I purchase a lot and know I’m not ready to build on it, I know I’m going to build it within an eight-month time frame. But I didn’t know that then, so I risked it a little bit.”

With some good timing and a lot of hard work, Adam’s risk paid off. In 1998, he started his contracting business renovating and eventually investing in multifamily projects.

“I was a builder and then a land developer, then the business cycles redirected me to find a more secure business that created cash flow on a regular basis. That’s how I found the multifamily market,” Adam shared.

Adam’s desire to learn didn’t stop after graduation. In the investing world, he learned by example. Emulating what he saw working for others, he built his own hybrid of contract work and investing.

“I was always seeking more business education here in the United States. Along the way, I would ask, ‘This guy is successful — what’s he doing?’ He’s doing the construction, but at the same time, he’s investing in various areas, like buying a piece of land or buying an older home and renovating it,” Adam said.

This enthusiasm to learn inspired Adam to seek out experienced investors to surround himself with. For investors of all experience levels, it’s essential to associate with people who have the wisdom to impart, who have made mistakes already, and who know how to avoid making them again.

“I choose people who have been in business for a while. They’ve faced certain challenges already; they’ve already figured out how to solve those problems, and that makes their business stronger,” Adam reflected. “Beyond that, honesty and integrity are important, too. I look at what someone is trying to accomplish and what they’ve added to their life that has enabled them to be successful.”

From watching and learning from other investors, Adam knew he had to use his resources and connections wisely.

“I purchased a couple of multifamily buildings. I had some relationships with the bank so I built one fourplex, then another, and designed them so I could sell them as townhomes. In Seattle, small projects were not penciling out,” Adam said. “I was the one that said, ‘Okay, well, I have this resource, so I’m going to utilize it.’”

With the confidence of a solid foundation built on his network, Adam also expressed the importance of another resource: the backup plan.

“I think it’s very, very important to invest money in organizations, and have a system in place where if something happens, there’s always a plan B, C, and D. Because if you call in with a crisis that you can’t solve on your own or you’re not prepared for it, that’s a big deal. You have to be prepared for things,” Adam explained.

Being prepared is a necessity, and it’s just one of many lessons Adam has gleaned over the years. While he’s learned a lot from his colleagues by example and at school, he concedes that knowledge must be followed up with action.

“Working with syndicators, I would say my biggest insight is that knowledge is power, but knowledge without action is nothing.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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More Than a Side Hustle with Henry Lai

More Than a Side Hustle with Henry Lai

Henry Lai always knew that real estate would be more than just a passion project for him. So in 2018, he started his own real estate company while also working a demanding full-time job. Identifying his skills in developing corporate strategy and management consulting, Henry noticed that there was an opportunity for him to take these essential skills he’d learned and apply them in the field of real estate analysis.

His first investment began like many others — with a traditional house hack. After quickly realizing that this model had many benefits, Henry was able to apply the lessons he learned to additional investment opportunities.

“I mostly learned that being a landlord was quite a hassle and a lot to do, especially being out of state. Though, I would still start my journey by house hacking. You can learn a lot by being a single-family landlord,” Henry said. “I would even say instead of single-family house hacking, depending on the market that you’re in, I would probably get a fourplex because you learn a lot by managing a fourplex as well.”

Looking to grow his portfolio beyond active investments, Henry started attending real estate meetups and conferences to expand his network and identify potential mentors. After more than a year of attending different networking groups, Henry developed a deeper grasp of the advantages and disadvantages of various investment types. He then took the leap from single-family to multifamily and passive investing.

“I started learning more about multifamily investing, just kept networking with folks, started going to real estate conferences, and in doing so, I met a lot of folks who were doing multifamily real estate. I started thinking, ‘Well, you know what? I want to take more action than just passively investing,’” Henry shared. “I was passively investing in other people’s deals, but I was hoping to learn more about it and get my hands dirty and be part of the managing group. Through this, I was able to not only get into a number of passive investments but also become a general partner in six different deals now.”

As Henry has continued to grow his real estate business alongside his full-time career, building relationships has been critical. In addition to the connections he formed in the networking groups, creating partnerships with syndicators and other investors is pivotal to the success of both active and passive investments.

“Just like in most other business ventures, I think trust is so important,” Henry said. “You never really know how a real estate partner is going to be until you get into a deal with them, so I would advise developing that relationship over a number of years, a number of situations, and starting small in partnering with them rather than just getting into a large deal with them.”

Another relationship that is influential to Henry’s real estate investments is the one he has with his family. When he evaluates a new investment, he carefully considers the impact of a deal on his availability to his wife and two young children.

“I want an investment opportunity where I can be there and back in a day so that I can leave in the morning and then come back at night and still spend it with my kids. So I try to spend as little time away from my family as possible,” Henry said.

Throughout Henry’s real estate journey, he has learned the value of delayed gratification. Henry transitioned from investing in properties that deliver immediate cash flow to opening his portfolio to the less traditional real estate deals like new construction that may provide a return in years to come.

“Now, my lifestyle doesn’t really change if I get money immediately versus in five years, so I have learned to be a bit more risk-taking,” Henry said. “Sow your seeds today so that you can harvest in the future. A lot of investing is delayed gratification and remembering that delayed gratification actually helps people succeed.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Falling into Passive Investing with Jeff Anzalone

Falling into Passive Investing with Jeff Anzalone

What was supposed to be an adventurous and stress-free vacation led to a moment that changed the trajectory of Dr. Jeff Anzalone’s financial perspective. While enjoying a skiing trip with his family, another skier cut Jeff off as he was exiting a ski lift with his wife. Jeff swerved in an attempt to avoid injuring himself and the other skier.

The result was a badly injured wrist, which might seem like a minor injury to most skiers. However, Jeff Anzalone has been a periodontist for nearly 20 years, a profession that requires constant and steady use of both hands. For the first time, Jeff had been forced into the position of thinking about what his lifestyle would be like if he were unable to work.

“I knew that I needed to do something, but I had no clue where to start. I didn’t want to work more or longer hours. But I knew that I needed extra income streams. I had read some books from people that were successful, and I learned two things,” Jeff Anzalone shared. “Number one, 90-plus percent of millionaires had real estate in their portfolio. I had zero; besides my primary residence, I had none. The second thing, which was even more eye-opening, was that the average millionaire had anywhere from three to nine extra income streams. I had one.”

Jeff’s knowledge of real estate led him to believe that to be an investor you had to be a landlord, which automatically didn’t meet his criteria since it would require working longer hours. But after starting to network with other like-minded professionals, he discovered passive investments through syndications.

After starting with syndications in 2017, Jeff’s investment portfolio quickly grew. As he continued to broaden his investments, he asked other investors where they found deals and what avenues they used to help grow their knowledge. They repeatedly recommended networking conferences.

“The majority of the investors were saying that they had been to the Best Ever Conference, and it just kept coming up, so that piqued my interest,” Jeff shared. “I am always looking to learn. I eventually want to get to the point where I start doing my own deals once my kids are out of the house and I have more time, but right now, I want to just be a passive investor.”

When it comes to the conference experience, one fundamental difference separates the investor community from dental professionals: the openness to share information, lessons learned, and best practices.

“It’s been amazing how giving people are at those types of conferences and in real estate. I guess from all the training that I’ve had, whether that’s in dental school or my residency, everybody was trying to compete with everybody, so nobody would share anything. They always kept it to themselves,” Jeff said. “Then you get to somewhere like this and people are very open in sharing. It’s always in the back of your mind: ‘Why are you telling me this? What’s the catch?’ And it wasn’t a catch. I think most people realize, myself included, that we wouldn’t be where we are today if it wasn’t for other people and sharing information and helping people along.”

For other investors like Jeff Anzalone who are looking to broaden their network and expand their understanding of real estate, Jeff’s advice on how to approach the conference to get the most out of it comes back to identifying goals that you want to walk away from the event with.

“It can be a bit overwhelming, for sure. It’s best when you go with maybe two or three specific goals that you’re trying to accomplish, whether that be wanting to syndicate your first deal or meeting people to invest with,” Jeff reflected. “That way, you can figure out which person you should go listen to, or what networking event you should do.”

The next chapter for Jeff Anzalone in his investment journey has already started, thanks to the confidence and knowledge that he’s gained from the Best Ever Conference.

“Now that I have gotten into something that I’m really passionate about, I thought, well, how can I share this information, this journey, the path that I’m going down? So about three years ago, I did something that I never thought I’d do: I started a blog, debtfreedr.com,” Jeff said. “All that started out as the information I was learning and what I thought doctors and other busy professionals should know about educating themselves about passive income and real estate. It really has started to take off and allowed me to potentially get out of my practice within five years and go full-time into real estate.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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How to Diversify Your Investments Away from Wall Street

How to Diversify Your Investments Away from Wall Street

Diversification is a fundamental principle of investing that ultimately helps you to optimize your return while mitigating risk. Many investors focus heavily on Wall Street investments, such as stocks, ETFs, and mutual funds. While it is important to diversify your investments across these assets, it is equally important to have a broader look.

Alina Trigub is Managing Partner and Founder of SAMO Financial. This is a boutique equity firm based in New York City that actively helps high earners invest passively in commercial real estate. She spoke with Joe Fairless about how she helps investors expand outside of the stock market to reap rewards from diversification.

 

Starting with Syndications

Trigub’s professional career was originally rooted in tax accounting. Because of this, saving money on taxes is understandably at the forefront of her mind. At the same time, she works to preserve wealth despite stock market crashes. Initially, Trigub dabbled in syndication several years ago. Through her personal experiences with syndications, she realized that she could preserve her wealth, invest heartily, and reduce her tax liability all through commercial real estate investing.

She was so passionate about syndication through her personal experiences that she launched her own company, SAMO Financial. SAMO Financial’s mission is centered around helping others enjoy the benefits of passive real estate investing while saving money on taxes and preserving their wealth. Rather than give outright advice, she shares her knowledge with her clients and supports them in making educated decisions.

 

Managing the Ups and Downs of Investing

Notably, Alina Trigub has passively invested in the same real estate projects that her clients are invested in. This includes apartment properties and other asset classes. As a result, Trigub is as exposed to the ups and downs of real estate investing as her clients are. While they are passive investors, they are still impacted by the same factors that general partners in a syndication may be exposed to.

For example, Trigub talks about one of her investment properties being fined because the tenants decided to use a hole behind the multifamily property as a dump. The town fined the group hundreds of thousands of dollars, and this impacted the property’s cash flow for several quarters. In addition to missing out on revenue for those quarters, Trigub learned a valuable lesson.

From that point on, she has learned much more about the property management company in place before committing to a project as a limited partner. In addition, she asks about how frequently the management company and the managing partners will interact about on-site, relevant factors.

 

Mitigating Risk Through Diversification

As is the case with many first-time commercial real estate investors, Trigub initially chose to invest in apartment properties because they were relatable to her on a personal level. However, simply diversifying away from Wall Street and into apartment complexes was not enough for her or her clients. They wanted to break into new markets, explore differences between D+ versus B-class properties, and even invest in other real estate assets classes.

Today, Trigub and her clients are invested in a variety of properties that range from mobile home parks and self-storage properties to more than 1,200 multifamily units. Through such diversification, she has been able to further mitigate risk.

For example, self-storage units are sought after by those who are downsizing in a recession. While the profitability of other investments may wane in such market conditions, self-storage rental income holds steady or even increases. She also states that mobile home parks generally have long-term tenants, and this is particularly true if the park only owns the land, and the tenants own their own homes.

 

Considering Potential Complications

While Trigub sees the benefits of diversification into multifamily and other real estate asset classes, she is aware of the risks and downsides.

For example, she states that the upkeep and management efforts for an apartment complex are substantial. Whether a property is self-managed or professionally managed, there is a need to closely oversee the property on a daily basis. If you hire a professional property manager, someone needs to be in close communication with the property manager to ensure that he or she is doing a good job.

If you diversify your investments into self-storage units, the demand for those units can wane in a good economy. With a mobile home park, mobile homes lose their appeal after a few decades. There must be a solid strategy for dealing with older mobile homes that the park and the tenants no longer want.

If she was presented with three projects from those asset classes, she would not lean heavily on a specific property type. Instead, she would deeply look at the sponsor’s experience and track record. Likewise, she would review the location of each property in its market and market conditions.

Because Trigub focuses on diversification to preserve wealth and to mitigate taxes, she also would determine which property is better positioned to absorb stress in a recession. While asset appreciation is important, she wants to see that the property would continue producing a profit even if a recession were to hit tomorrow.

 

Final Thoughts

Going forward, Alina Trigub sees the continued benefit of education for herself and her clients. Just as she serves clients by educating them about their options, she takes the time to educate herself in the same way.

She has personally experienced financial loss by not doing her due diligence, and she learned the value of education first-hand as a result. In addition to learning as much as possible about a property and the partners ahead of time, she sees the incredible value of learning lessons from each project that she participates in.

 

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3 Reasons to Invest in Others' Apartment Syndication Deals

3 Reasons to Invest in Others’ Apartment Syndication Deals

Many investors prefer to take part in apartment syndication deals as a general partner, which allows them control of what is going to happen with the property. Even if that accurately describes you, there are several reasons why you should also take part in these types of deals as a limited partner. Here are three of the more significant ones.

 

1. You Learn How to Be a Better General Partner

One of the most important things that you can do is educate yourself on the investment process as much as possible. A way for someone who is generally a GP to do that is by being an LP, experiencing exactly what this process is like for those on the other end. Learning more about this perspective and putting yourself in their shoes will help you know how to better attract the types of LPs you are looking to get involved with.

This learning process applies to every aspect of the experience that you have as an LP.

For example, consider the initial email that you receive from a GP. Analyze it. What about it works for you, and what about it does not? These can be things that you see working or not working for most people, and they could be things that simply do or do not work for you personally — this doesn’t mean that they are necessarily wrong.

A significant benefit of going about this process in this manner is that you can learn new ways of doing things that work for you that you had not considered before. You can also realize aspects of how you had been going about things that you thought were working fine but, from this new perspective, you have realized are not working nearly as well as you had thought.

Of course, this learning process does not just apply to that opening email. You want to apply the same principle to how a GP goes about the rest of the steps. These include things such as the sign-up process and the deal itself. Does the former go smoothly? Does the latter provide financing that works for you and makes sense, being broken down in a way that an average LP would understand it? Also, do the fees make sense, and are they appropriate? How is the profit split? How is the underwriting structured?

What about the deal presentation? How is it structured? What would you change about it, if anything? Are you continuously updated on the status of your investment? How often? Are the updates regular and detailed? How often and with what method do you receive distributions? Do you receive distributions within the original time frame that had been communicated?

Also consider what happens when something goes against the plan, such as something adversely affecting the property. Are you kept abreast of those developments, or are you suddenly kept in the dark, unsure of what is happening? It is a significant red flag to receive slow or nonexistent communication from a GP once challenges are being met and addressed.

Another thing to consider is what happens when a GP comes to an investment agreement with you or other LPs but then later backs out. How is that decision communicated? Is it a simple “we backed out” message with few or no details, or does it include specifics on exactly what had caused this decision to be made?

More communication is generally better than less, whether things are going according to plan or not. Of course, GPs should also make sure to not inundate LPs with information. Finding a good balance is important.

 

2. You Can Test Drive New Markets as a Limited Partner

If you want to invest in a new area, you should learn about it beforehand. This can involve thorough research that you pay for. Another way that you can go about this is to take part in apartment syndication deals in these markets as an LP. For example, if you are currently focused on properties located in Georgia, but New England starts intriguing you for a number of reasons, you could then invest as an LP in Massachusetts and nearby states before you decide if you want to be a GP there.

This will not only allow you to experience these new markets as an LP, but you can also gain a much greater insight into how these markets are going for GPs. In addition, you can generally gain access to market research that any GPs that you are working with have done on the area without needing to pay for it yourself.

 

3. You Are Able to Better Network With Other Investors

Networking is one of the most important things that any person in any aspect of the business world can do, and that is very much the case with apartment syndication deals. Going to invest in deals that GPs have put together and serving as an LP on them is one of the best ways that you can improve as a networker.

One of the most significant reasons for this is that this process provides a natural way to remain in contact with other GPs Staying in contact with others in this manner is generally better than doing so through sporadic lunch meetings or similar means.

 

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3 Questions to Ask Before Investing

3 Questions to Ask Before Investing 

Is this a good deal?

This is one of the questions every investor is trying to answer when evaluating real estate. There are calculators and rules of thumb to help people answer this question. However, the answer for one investor may be completely different for another. Many investors like to use key metrics like IRR, cash on cash, or equity multiple to determine if a deal is good, but we’ve already talked about why you need to stop using return projections for these decisions.

Let’s illustrate this with a quick example. Say you are evaluating an opportunity to invest in a multifamily property that was built in 2010 in a growing market. It is 94% occupied and has projected returns of 15% IRR, 8% annual cash on cash, and a 1.9 equity multiple.

Is this property a good deal?

Before you answer, understand that the question should be: Is the property a good deal for me?

Just because others think an investment is a good deal doesn’t mean it’s a good deal for you. Whether you make decisions based on a formula or your gut, you need to answer key questions first. Once you answer these, you will be able to decide if a deal is good for you.

 

1. Why am I investing?

Yes, I know you’re investing to make money, but you need to dig deeper if you want to be able to evaluate opportunities. What are you trying to solve? Are you looking to live off of monthly cash flow? Or is your primary goal to build long-term wealth? Maybe you just want extra income to pay for vacations, tuition, and other expenses.

If you want passive income, you may be disappointed with an investment that requires you to be actively involved, no matter what returns you are getting. Too many investors get into real estate for financial freedom and wind up with a second job instead. The clearer you are on the problem you want to solve, the easier it will be to find good deals.

 

2. What’s the business plan?

Once you are clear on your goals, determine the business plan for the properties you want to explore. Are you looking to buy and hold rentals? Are you looking for value-add properties? Or are you looking for a flip or distressed property to rehabilitate?

Each strategy has its pros and cons and should align with your investing goals. The business plan to carry out this strategy is critical to each deal. This is what separates a good deal from a bad deal. Good deals have a clear business plan and proof of concept for execution.

Let’s use our example property here. If the business plan is to perform cosmetic upgrades when residents move out, we can keep occupancy high, while bumping rents on the unit turns. We may be confident because three comp properties have similar finishes and amenities and are achieving the projected rents.

 

3. What could derail the business plan?

The last of these questions requires understanding the risk involved in the business plan. You need to understand what can derail the plan, how these risks can be mitigated, and your comfort level with the risk. If you’re doing a buy-and-hold investment, the biggest risk may be incurring a major repair. The best way to mitigate this is to have proper insurance and cash reserves set aside.

Going back to our example property, what if we’re not able to get the rent increases we hoped for? First, the ability to achieve these rents should have been confirmed in the business plan, but if something was missed or changes, you want to make sure you have a Plan B or other ways to mitigate the risk. You may decide to focus on the most important upgrades and only perform those instead.

Identifying the risk in the business plan allows you to proactively address it, making it easier to sleep at night. There isn’t a metric or formula that can calculate the importance of peace of mind. Maybe we should call it the new IRR for Inner Rest and Relaxation. When deciding if a deal is good for you, this IRR may actually be the most important metric.

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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4 Big Ways to Start Building Passive Income Right Now

4 Big Ways to Start Building Passive Income Right Now

Looking for ways to make additional income while working as an attorney? Excellent move. It’s never been riskier to only have a single source of income.

Robert Kiyosaki, the author of Rich Dad Poor Dad, once said, “To achieve financial freedom, one must be a business owner, an investor, or both, generating passive income, particularly on a monthly basis.”

However, in all honesty, searching for passive income opportunities isn’t the norm, especially for attorneys. We are programmed to put our heads down, work hard, do a good job, bill hours, and try not to get laid off. The problem is that at the end of the day, you can only work so many hours and you can only spread yourself so thin.

The solution? Stop trading your precious time for money and start creating passive income streams.

As the billionaire investor Warren Buffett said, If you don’t find a way to make money while you sleep, you will work until you die.”

So, the BIG question is, how can you make money while you sleep?

We’ve got you covered. First, we’ll answer the question, “What is passive income?” Then, we’ll take you through four BIG passive income ideas to get the wheels turning.

Let’s get the ball rolling!

 

What Is Passive Income?

Passive income is not “easy money.” Passive income is not for lazy people. Passive income is for the educated and the motivated. It takes discipline to save from your active income and then use those funds to invest passively to make your money work for you. People define passive income differently, but I define it as income generated disproportionately to the amount of time and effort required to generate it.

Put another way, passive income does not equal time and effort. Passive income is not trading time for money. This means that yes, it does take some work to get it started, but these efforts could eventually earn you money while you sleep or continue to be successful in your career. What you may fail to realize is that there are endless sources of passive income — you just need to figure out which ones are right for you. While some may need a large initial investment of time or dollars, there are others that you can start working toward today.

 

How to Make Passive Income: 4 BIG Ways to Start Building Passive Income Right Now

Now it’s time to unravel some of the major passive income opportunities you should consider pursuing. You should understand that each of these passive income ideas has its own risks and rewards, and pros and cons, so be sure to conduct your own thorough research before diving in.

 

Passive Income with Real Estate

Real estate is one of the most highly patronized passive income strategies, and my personal favorite. For many people, real estate is often glamorized on HGTV where you see wonderful couples flipping houses together or buying vacation rentals in the Mediterranean. I’ll be the first to tell you that it’s not quite like that. Below are just a handful of some ideas on how you can jump into passive income opportunities in real estate. For now, I’ve skipped over flipping, wholesaling, and many other more “active” approaches.

 

Rental Property

Residential rental properties (1–4 units) can be a great source of passive income once you get a rental up and running. However, since it requires some time and money input at the start (especially if you initially need to make some improvements to make the property rent-ready and build in some equity along the way), it isn’t “passive” by most people’s definition. However, it can provide you with a steady stream of monthly rental income without you having to perform many daily tasks.

The level of passiveness this type of investment offers you depends on your management approach. If you are going to self-manage, from finding tenants to handling maintenance issues, then it will be more active and may interfere with your work life. On the other hand, if you have a property manager, you may seldomly need to check in on the property and only occasionally manage the property manager.

 

REITs (Real Estate Investment Trusts)

A REIT is a real estate investment trust. It’s essentially a real estate company that owns income-producing real estate assets. Think of a REIT as a mutual fund for real estate investors. It allows you to invest in real estate assets the same way you can invest in any company, by simply buying stock. On the plus side, a REIT can provide stable cash flow through dividends similar to a dividend-producing stock, and shares in REITs can be bought and sold in the public market. It is one of the ways you can invest in real estate without the stress of being a property owner.

However, investing in a REIT comes with its own drawbacks. REITs are highly sensitive to interest rate fluctuations and do not offer the same tax benefits as investing in real estate directly. Additionally, much like stocks and mutual funds, REITs are subject to high management and transactions fees, and even though there are underlying real estate assets involved, REITs are traded on the open public market, so they ride the stock market roller coaster.

 

Crowdfunding

Want to invest in institutional-grade real estate properties without a massive down payment or the headaches of owning directly? Then crowdfunding could be a good bet. In the past, commercial real estate investments were reserved for direct operators, institutional investors, and people “in the know.” However, the rise of crowdfunding platforms like Fundrise, CrowdStreet, and RealtyMogul has made it possible for just about anyone to invest in properties that they could not afford on their own.

Today, you can invest as little as $500 on several institutional-grade properties via these platforms and receive returns based on your initial investment. Many of these types of investment platforms are sleek, sexy, easy to use, and sometimes pretty liquid. However, there is often a lack of transparency with underlying fees (which have to support that sleek, sexy platform), most of the time the properties are not known at the time of investment, and because of this, the return profiles are really just a guess. I’ve invested in some of these platforms myself, but just consider drawbacks as well.

 

Real Estate Syndications

Real estate syndicates over the years have become a go-to passive income strategy for several reasons. Once upon a time, you had to be “in the know” in order to get involved in these deals, but recently access is becoming more and more widespread. In the simplest term, a real estate syndication is a way for investors to pool their financial resources to purchase properties or real estate projects much larger than they could afford or manage on their own.

Investing in a real estate syndication allows you to invest passively into commercial, industrial grade, real estate investments without the hassle of tenants, toilets, or trash. Furthermore, because you are part of a company that directly owns real estate, you receive all the tax and income benefits that come along with it. Most real estate syndications have a somewhat high barrier of entry requiring a minimum investment of $50,000 (which can vary) and such investments are mostly illiquid. However, they offer lots of benefits, from passive rental income, tax advantages, professional management, and reliance on expertise to diversification of your investment portfolio.

 

Stocks and Mutual Funds

I won’t go too far into detail here because this is an asset that we are used to seeing and investing in through our 401(k)s and IRAs. Investing in stocks simply involves purchasing shares of a company in exchange for dividends or interest, whereas mutual funds are dependent on someone else picking the winners and paying them a fee regardless. With many stocks and mutual funds, you only make money when you sell them at an appreciated price. There are no guarantees of profits when you buy a stock, and you have no control over the company’s decision-making. Choose wisely.

 

Online Businesses

Over recent years, online businesses have become a go-to passive income generator for millions of people around the world. Below are some online businesses that you can dive into and generate passive income.

 

Start a Blog

As attorneys, we are typically pretty damn good at writing, whether we like it or not. Are you well-grounded in a particular aspect of law? Creatively curating a blog around that can fetch you thousands of dollars monthly with the right approach. If your content is educative and generates enough online traffic, you could start selling ad spaces on your blog and produce premium content for raving fans. Additionally, once you get going you can even hire freelance writers to handle the content creation of your blog while you sit back and enjoy streams of passive income.

 

Create a Course or Coaching Program

If you’ve successfully discovered how to create content that attracts traffic to sell ad space, you could also make a digital course your current audience would love to buy. We’re all experts at something. We just need to discover creative ways to present it to others in a digestible, entertaining package. That could be anything from a simple eBook to a subscription-based course. Thanks to platforms like Udemy, Skillshare, and Thinkific, you can upload your course for free and earn money on each purchase or enrollment. From there, you can develop membership sites and one-on-one or group coaching.

 

Affiliate Marketing

If you are looking for a passive income strategy that allows you to earn money while you sleep, then affiliate marketing could be your go-to strategy. The idea is that you market other people’s products or services and earn a commission if people end up purchasing or signing up thanks to your marketing funnel.

You can simply advertise the various affiliate links on your blog or through the use of Facebook advertisements. Affiliate websites like Clickbank and Amazon Associates are some of the biggest affiliate platforms where you can find products to promote for commissions.

 

E-commerce

E-commerce is simply the act of buying or selling over the internet. It is an umbrella term for any form of transaction done online. E-commerce entails the sale of information, products, and services via a dedicated online platform.

These days, you can sell physical items you own or re-sell items you bought in the past via platforms like Shopify, eBay, and Amazon, or through your own online shop. With even a small startup budget, you can easily create an online shop that will go on to provide you with consistent passive income.

 

Brick-and-Mortar Business

Brick-and-mortar businesses are businesses where customers come face-to-face with the business in a specific location. Your local grocery stores, gyms, coffee shops, and clothing outlets are all examples of brick-and-mortar businesses.

Investing in the right brick-and-mortar business can help you generate a continuous flow of passive income once they are up and running and you have the proper staff in place, but these investments typically require high overhead costs, dedicated management, and a hands-on startup period. Alternatively, you can invest in someone else’s brick-and-mortar business or startup as an angel investor or money partner.

 

Final Thoughts

Although each of the passive income strategies listed above tend to require a lot of work to get up and running, they can provide you with the passive income and eventually financial freedom you desire. According to popular entrepreneur and author, Todd M. Fleming, “The greater the number of passive income sources you build, the freer your life becomes.”

So, why don’t you start that blog, podcast show, or affiliate marketing program, or invest in that real estate syndication or crowdfunding platform? You’re already taking care of the first step: education. Then you must act. Start creating passive income sources today.

 

About the Author:

Seth Bradley is a real estate entrepreneur and an expert at creating passive income while still working as a highly paid professional. He’s closed billions of dollars in real estate transactions as a real estate attorney, investor, and broker. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions.

 

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The Difference Between Real Estate Funds & Single Asset Syndications

The Differences Between Real Estate Funds & Single-Asset Syndications

Passive investors in private real estate often have two investment structures available to them: a single-asset offering or a fund-style offering. Today, I want to explore the two options from the passive investor’s standpoint. In this analysis, I am comparing closed-end funds to single-asset, closed-end offerings.

There are often more similarities to these two structures than there are differences, but each sponsor has the ability to cater their offerings to match the needs of their investors. And from a technical standpoint, funds are syndications since the fund is combining investments from multiple passive investors.

From a legal structure, a single-asset offering and a fund are often very similar. Both structures entail the investor taking ownership in a limited partnership. During the subscription process, the investors will be asked to execute a subscription agreement, limited partnership agreement, and private placement memorandum. It is common for sponsors to carry over many similar terms, particularly if they are transitioning from a single asset to a fund model, but this isn’t always true.

With specialist sponsors — for example, those focusing on unanchored strip centers or value-add multifamily — the business plan is often consistent because the returns of a fund, just like a single asset, are driven by the actual operations of the asset. With diversified investments, the sponsor may offer funds with specific asset classes — for example, a retail or an office fund.

The biggest differences between a fund and the typical single-asset offering come down to when the assets are named. The common route for a single-asset offering is for the sponsor to source and get an asset under contract, then take the offering out to their passive investors. A fund will often take the offering out to the investors and raise commitments before naming any, or most of, the assets the fund will ultimately acquire. Additionally, a fund will often retain the rights to acquire multiple assets, creating a diversified portfolio of assets under a single investment offering and limited partnership.

Just like any private offering, there are many variations of offerings available, and the highlights above are what I would call “typical” structures. There are funds that own a single asset, and occasionally syndication offerings that are presented as a portfolio of assets.

The biggest benefit to a fund is the diversification a fund offers. Similar to a mutual fund or ETF in the public equities market, a fund investment often provides exposure to multiple assets with a single investment. Additionally, there can be operational efficiencies and cost reductions that occur in a fund model — for example, a single legal document versus unique documents for single-asset offerings, or a single K-1 from the fund versus multiple if invested in multiple single-asset offerings. In some funds, your investment can get to work faster, as some funds accept capital regardless of acquisition timing.

The benefit to single-asset offerings is the control you are afforded in your investment decision. Depending on the fund you are comparing to, a single offering also gives you a little more control over when your capital is deployed, as many funds, but not all, utilize a commitment and call style of funding, which could result in having to sit on idle cash during the investment period of the fund.

As noted in the opening, there are many different ways a sponsor can structure single-asset offerings and funds, so this article cannot be all-encompassing. At the end of the day, the two structures can be very similar, if the sponsor structures them as such, and the investor’s decision then becomes whether or not they value diversification over the ability to select which assets they choose to invest in.

 

About the Author:
Evan is the Investor Relations Manager for Ashcroft Capital. As such, he spends his days working with investors to better understand their investment goals and background. With over 13 years in real estate, he has seen all sides of real estate from acquisitions to capital raising on the equity and debt side, to operations, and actively invests himself. Please feel free to connect with Evan here.

 

 

 

 

 

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Keys to Achieve Passive Income Through Real Estate Investing

Keys to Achieve Passive Income Through Real Estate Investing

Earning a passive income through commercial real estate isn’t just about flipping houses. Ryan Enk is a real estate investor and author who is passionate about helping people develop a customized strategy that allows them to create a passive income in unique ways. His sports arenas and RV rental fleet have helped him achieve financial freedom. But he started out as a dad of five boys with a dream to be more available to his family. His real estate investing tips can help others who might think that they don’t have the money or resources for this type of enterprise.

 

What Would You Do if Money Didn’t Matter?

Many successful real estate investors started their journey with a significant amount of income. Enk did not. He was selling copiers, feeling overworked and underappreciated. He wanted more time to be with his family, and he wanted to give back to the community.

So he asked himself, “What would I do if money didn’t matter?” After some introspection, he realized that he wanted to help people. If money wasn’t a factor, he would open up a sports arena, play music, or mentor others. When his wife agreed, Enk realized that he needed to pursue his passions.

Even though his bank account was sparsely filled, Enk didn’t let his lack of financial resources stop him. He knew that someone would have the money to support his big dreams, and he began his search.

 

The Importance of Mentorship

Enk’s first deal involved building a sports arena. Because this was something that he had never done before, he knew that it would be a hard sell to investors. That’s why his first step was to hire a consultant.

A consultant serves as part of your team. It also gives you a chance to prove that you’re working with someone who has experience. When you hire the right mentor, you don’t have to worry so much about selling yourself. You’re selling your team.

Hiring a consultant isn’t always cheap, though. Enk took out a second mortgage to pay his mentor. He also offered the consultant equity in the project. This allowed him to present his mentor as his business associate, which gave him clout when pitching to investors.

Hiring someone with experience in the business will help you create a solid business plan. However, even the perfect business plan may not convince investors if you don’t have the experience to run that type of business. Therefore, you should either have someone on your team with the know-how that your investors are looking for or build up your resume.

In Enk’s case, he developed a strategy for bringing daytime business to the sports arena. He launched a soccer program for youths while he was seeking investors. Initially, he rented space from gyms and churches to support the program. Eventually, he would run it in the arena. This plan not only served to demonstrate that the arena could bring in business during the day, but it also showed that he was able to launch and run a profitable business.

 

Own the Real Estate, Not Just the Business

The key to Enk’s success was that he realized the benefits of owning the real estate for the sports arena. At first, he sought investors for the business. But he didn’t own the property.

When Enk made a deal to purchase the arena from the landlord, he saw how high his returns could be. The landlord earned $300,000 by selling the property. Once Enk owned it, he was bringing in returns of 20 to 30 percent.

 

Rolling Real Estate

Eventually, Enk owned several single-family and multifamily properties, earning a passive income on those. But his wife wanted to purchase an RV, which would be a liability. Enk decided that he could transform it into an asset with plenty of cash flow by renting it to others.

When that pulled in $32,000 in profits in the first year, Enk realized that he could help others capitalize on this type of passive investing. He created a company that managed RV rentals, earning income from other people’s RVs without having to invest in purchasing more vehicles.

 

Keys to Passive Investing With Real Estate

Enk has learned a great deal from his endeavors. He shares his wealth of knowledge because he believes that commercial real estate investing is a lucrative way to earn a passive income. These keys have become part of his overall strategy.

 

Invest in Today Instead of Speculating About Tomorrow

Speculating happens when you purchase a property that will eventually bring in an income. This happens when you flip a house, improving it to raise its value before you sell.

But investing involves putting your money into something that is already working. When you start out, look for properties that are already doing well, such as a multifamily apartment home with regular tenants. That way, you can begin earning immediately, and you’ll be up against less risk than a speculative deal.

 

Project Your Losses

Most businesses struggle in the first few years. It can take three to five years to begin pulling in profits. Many startups fail because they neglect to factor in these losses. Moreover, investors could become antsy if they expected to rake in the money but aren’t seeing it come through.

Planning for these losses is important. You may need more capital than you expect to cover the overhead and your income for the first few years. With the right balance of capital, you can keep moving forward. Plus, your investors won’t be disappointed when they know that your plan accounts for these losses and a strategy for overcoming them.

 

Take Advantage of Trends

The RV rental business worked well because it capitalized on a popular trend. Private property rentals through sites like Airbnb were giving owners a chance to capitalize on their unused space. The same could be done for RVs.

Not every investment is going to be a long-term one. However, if you can take advantage of the current market, manage the business well, and sell when the time is right, you can earn a decent profit while you sleep.

 

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Active vs. Passive Income

Active vs. Passive Income

Real estate investors love to talk about passive income. But what is passive income? Is there active income? This article is going to answer those questions and more.

 

Passive Income

Passive income includes rental net income, limited partnerships, and other enterprises in which the recipient of income from those sources is not materially participating. Such income is usually taxable but is treated differently by the IRS. That different treatment has guidelines for the recipient to consider:

  1. If you have dedicated 500 hours to a business or activity from which you are profiting, that is considered material participation.
  2. If your participation in that business or activity has been all the participation for that year, that is considered material participation.
  3. If you have participated up to 100 hours and that is as much as anyone else involved in the activity or business has participated, that is also considered material participation.

Thus, only truly investing in a business and stepping back to receive profits can be categorized as passive income. For example, if you put $25,000 into a business and the owners pay you a portion of the profits each year, then you have passive income. IRS Publication 925 sets out the specific criteria for passive income treatment, for those of you looking for further authority on this topic.

Passive income is taxed anywhere from 10% to 37%. Depending on what Congress does this year and during this administration, taxes may increase. While it may not feel like you are passively investing in your real estate activities, the IRS has concluded that unless activities are performed to fulfill responsibilities as a real estate professional, like a real estate agent or broker, those activities are passive. 

More importantly, your passive income is only offset by passive deductions such as:

  • Property management fees
  • Maintenance and repairs
  • Utilities
  • Landscaping
  • Professional and legal fees
  • Wages paid to a W-2 employee who receives a salary or hourly wage
  • Advertising costs
  • Tenant screening fees
  • Commission, leasing, and referral fees
  • Mortgage interest payments
  • Property tax
  • Insurance premiums
  • License and registration fees
  • Travel expenses directly related to the rental property
  • Home office expense
  • Office supplies
  • Telephone and internet
  • Dues and subscriptions for professional organizations such as a real estate investor club
  • Continuing education expenses such as attending seminars or enrolling in courses and coaching
  • Depreciation expense to reduce taxable income
  • Pass-through tax deduction (or QBI deduction) of up to 20% of the net rental income, subject to certain limitations

 

Active Income 

Active income generally refers to wages, tips, salaries, commissions, and income from materially participating in activity or business. For purposes of real estate, there are two criteria that MUST be evaluated:

  1. More than half of the personal services the taxpayer performed in all trades or businesses during the year were performed in real property trades or businesses in which the taxpayer materially participated.
  2. The taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participated.

Both of these criteria must be met. Moreover, IRS Section 469(c)(7)(A) and 26 CFR Section 469-9(g) require the taxpayer to make an election on their tax returns. Talk to your CPA or lawyer about these issues.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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Making IT Count with Mahee Makula

Making IT Count with Mahee Makula

Originally from India, Mahee Makula left his hometown in the early 1990s and trekked halfway around the globe to Stillwater, Oklahoma to pursue a master’s degree in industrial engineering and management. However, as he neared graduation he learned that jobs in his chosen field were not widely available. This prompted Mahee to make a quick pivot. Mahee turned to computer science and, upon graduating, took a job in the IT department at the General Motors plant in Kansas City, Missouri.

Over the next two decades, Mahee broadened his skill set and technical knowledge and relocated to Chicago. He became an expert in SAP (systems applications and products) software, an integral component of enabling businesses to manage finance, logistics, and human resource functions. And eventually, he decided it was time for him to step away from the corporate world and become a freelance consultant.

“Earlier in my career, I saw all of these politics within teams for career growth, like promotions,” Mahee said. “Since 2009, I have been getting my own projects. It gives me flexibility. I can take more vacation. It’s not just an old two-week vacation, either. If I want, between my projects, I can take a month-long vacation.”

A few years after establishing his freelance business, Mahee and his family decided to leave the big city in search of better schools. With this decision, the family found themselves moving to Naperville, Illinois, and Mahee became a landlord out of necessity.

“At the time, I couldn’t sell my old house, so I ended up keeping it and being a landlord for almost five years,” Mahee said.

“I had only one, a single-family, to maintain at the time. I had both good and bad experiences with the tenants. But then, in 2018, I started hearing about syndications through podcasts.”

Looking for diversification from traditional stock market investments, Mahee took his growing knowledge of the multifamily syndication market and began placing investments in 2019. Since then, he’s grown his portfolio to over six passive investments and is in a great place to balance being a real estate investor and freelance IT consultant.

“If there is someone, like me, who has a full-time job and they like their job, then passive investing is a good avenue to go,” Mahee said. “On some of these podcasts, the people keep saying, ‘The reason I moved to real estate is I didn’t like my job.’ That’s not the case with me. I like my job. So, I’m okay getting a tiny bit of ownership as a limited partner in the deals.”

As he considers additional investments in the future, Mahee’s philosophy of evaluating potential real estate offerings focuses mainly on the relationship with the syndicator, as well as completing his own course of due diligence.

“It’s like betting, not only on the horse but on the jockey. The jockey is important. Who you are investing with, and that their values align with yours —all of that is very important in picking investments,” Mahee explained.“You also have to do your own due diligence because each market is different, and each sub-market is different. You should remember these are not liquid investments like with the stock market where you can sell the investment if you don’t like it. It’s more like a long-term relationship with the syndicators.”

This holistic approach to real estate investing also has cemented Mahee’s confidence in real estate as a viable long-term asset for wealth building.

“There are still a lot of investors who are not exposed to syndications because of their lack of knowledge. I hope more people also diversify their retirement portfolios in real estate, either passively through syndications, or even actively,” Mahee said. “If you look at history, most millionaires have made their fortune through real estate.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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From Internship to Partnership with Jenny Gou

From Internship to Partnership with Jenny Gou

It finally felt like the right time for Jenny Gou to take one giant leap away from her corporate life. She had spent 13 years as a sales director for Procter & Gamble working with some of the company’s most beloved brands, such as Dawn, Cascade, and Swiffer. But in February 2020, Jenny decided that it was time to move on to a new experience where she could blend her passions for helping others and real estate to create the next chapter of her professional career.

Jenny’s interest in real estate started in 2017 when she and her husband jumped into the industry with several single-family rentals in Cincinnati. Following a real-estate-focused meetup in the area, Jenny’s husband asked the meetup presenter, Steve Louie, to coffee, where the two continued to connect after the event. Jenny’s husband introduced her to Steve, and they quickly clicked and started working together.

“We spent the last 18 months working together doing underwriting,” Jenny said. “Steve let me help him manage some of his properties because he knew I had just left my corporate job. That was kind of like interning for him — I’ll call it an interview— really getting hands-on experience in the marketplace.”

Within 12 months, Jenny had narrowed her focus to acquiring properties and building her network while continuing to absorb all the knowledge she possibly could. During that time, Jenny acquired 950 units and started a real estate investing company, Vertical Street Ventures, with Stevie as her business partner.

Having opened their doors to investors in January 2021, Jenny is excited about their accomplishments thus far and what their team can continue to achieve in the future. But, for her, the real reward in managing a syn-dication portfolio comes in two forms: the ability to help others secure financial freedom and to continue their mission of educating others about real estate.

“I find a lot of passion and energy when I hear great things from our investors. A lot of folks we know are, at least in my network, maybe newer to real estate, and the biggest compliment that gets me going is, ‘Wow, thank you for spending the time to educate me on real estate,’” Jenny said.

The scalability and growth of the vertical Street Ventures group is another area of excitement, as the team is on track to exceed its goal of having $25 million in assets under management. The team is expanding as well, with three current employees and a steady roadmap to grow sustainably.

“Beyond Steve and I as the founders, we have an underwriter. He’s a former rocket scientist who is super, super intelligent. Sowe feels very good with his help on underwriting when we have a good property on our hands,” Jenny shared. “Then we will continue to expand. We will have someone coming to do marketing and more investor relations, and then more administrative help coming as well.”

Along with helping her find financial freedom through multifamily syndications, Jenny also found that Vertical Street Ventures and passive investing were the ideal scenarios to allow her to achieve the lifestyle goals that a corporate job wasn’t able to deliver.

“As much as I loved my corporate job, I just didn’t love the lifestyle that I had anymore, and that’s why I left and started this company. This new industry and this role allow me a lot more flexibility to leave my office at [3:00] to go pick the kids up and go to the park,” Jenny said. “It was just so much easier and less stressful because I had more flexibility, and that is what I want for our investors.

“And everyone can get there. It just starts with one thing. Start with your goals and priorities, and that’s your vision. Then consider the strategies and the tactics to get there. Passive investing is the strategy to get to whatever your vision is for how you want to spend your time.”

Combining vision and action creates what Jenny believes is the foundation for setting yourself, a business, or an investment up for success.

“I always tell people just to take action because you can learn, you can read, you can go to meetups all day long, listen to podcasts — but nothing happens until you actually do something,” Jenny reflected. “Just go take one small step somewhere, and then it’ll blow up into something bigger.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Can a Deferred Sales Trust Be Used for Mergers and Acquisitions?

Can a Deferred Sales Trust Be Used for Mergers and Acquisitions?

The answer is yes. According to the Institute for Mergers, Acquisitions, and Alliances, more than 17,000 mergers and acquisitions took place in North America in 2020, totaling over $1.5 billion in sales. Due to the complexity and magnitude of these deals, proper planning is crucial to avoid roadblocks in mergers and acquisitions, especially when it comes to capital gains and estate taxes.

 

Deferring Capital Gains Tax Using the Deferred Sales Trust

With larger mergers or acquisitions, knowing your company’s capital gains tax implications before merging or being acquired is important. Many individuals feel trapped by 30%–50% in capital gains tax and depreciation recapture because they don’t have a strategy to defer this capital gains tax. They may also be unaware of options to defer this tax. The Deferred Sales Trust™ (DST) can allow you to defer hundreds of thousands to millions of dollars in taxes if or when your company moves forward with a merger or acquisition. No deal is too big for the DST; however, the minimum-size deal typically starts with at least $1 million in gain and $1 million in net equity.

Let’s say your company will have at least a $1 million gain from a merger or acquisition. The capital gains tax could potentially exceed $300,000. The Deferred Sales Trust has helped thousands of individuals defer this capital gains tax, giving a larger “nest egg” for future investments. The net proceeds received from a merger or acquisition can be invested in business ventures, real estate, mutual funds, stocks, REITs, and much more.

 

Overview of the Deferred Sales Trust

A Deferred Sales Trust is a business trust that employs an IRC §453 tax approach. It enables owners selling highly appreciated assets to use a traditional installment sale to defer capital gains realization. Since 1996, the DST has helped investors and business owners defer capital gains tax and unlock equity into cash flow. It has a proven track record of success — 3,000+ closings/billions under management. 

Prior to deciding to move forward or going too far with a merger or acquisition, it’s critical to have a no-cost consultation. The primary objective of this meeting is to assess your position, address any questions you may have, and determine whether the DST is a good fit for you. 

Timing is of the essence and it’s important to set up a no-cost consultation with a DST-certified trustee prior to deciding to move forward or going too far with a merger or acquisition. The main goal for this meeting is to evaluate your situation, answer questions you may have, and see if the DST will be a good fit. A reasonable rule of thumb is that the asset you’re selling should have a net profit of at least $1 million and a gain of at least $1 million. If you decide to proceed with the DST for your merger or acquisition, your next meeting will be with a DST tax attorney and a registered investment advisor.

You can also invite others to this meeting, including your:

  • CPA
  • Real estate broker
  • Business broker
  • M&A attorney
  • Independent attorney
  • Other trusted business professional

Collectively, you and the above parties will meet to examine whether the DST is a viable option for your proposed merger or acquisition. Your financial and next business or real estate venture goals will also be discussed, as well as your risk tolerance for investments and the payment amounts you wish to receive when the funds are transferred to a DST bank account.

If a DST is a good fit for you and you’re ready to move forward, the DST tax attorney will form a DST, and the team will work with you and your representatives to sell your company to the newly formed DST.

In exchange, you will receive a DST installment note with scheduled pre-agreed installments. Following the completion of a merger or acquisition, the “sale profits” will be directed to the DST. This allows you to avoid taking constructive receipt and put the proceeds in a tax-deferred account, similar to an IRA or a 1031 exchange.

 

Understanding Constructive Receipt

You must sell your firm to the DST and without receiving the cash to avoid constructive receipt and defer your capital gains tax. Once the business is sold to the DST, the DST can now sell or merge with the new entity. As a result, when the final transaction is completed, the DST receives the “selling money,” not you. This is what prevents you from receiving actual or constructive receipt of the funds, which is the foundation of an installment sale and allows you to defer the capital gains taxes. 

From here on out you will work closely with the team to execute the investment plan based on your needs, wants and risk tolerance, and the payback of your money. 

 

Post-Closing

Your unaffiliated third-party independent trustee administers all parts of the DST after it closes, but only as and when you authorize them. For example, when you sell an asset to the DST, the trustee has the monies transferred to the DST’s safe bank account, which requires your signature, his signature, and the signature of the bank officer to open.

The trustee administers all parts of the DST after closing, but only if you authorize them to. For example, when you sell an asset to the DST, the firm has the funds transferred to a specific DST secure bank account that requires your signature, the firm’s signature, and the signature of the bank officer to open. It’s similar to having a long-term escrow account. This is the account from which the DST buys investments you authorize and has the bank make payments to you according to the terms of your installment contract, with your agreement.

 

Two Questions to Determine If the DST Is a Good Fit For You

1) Do you have highly appreciated assets of any kind you would like to sell, delay the tax, diversify the money, and then invest in tax-deferred real estate or securities?

2) What would it mean to you to convert your highly appreciated asset — which may not be producing or providing enough cash — to cash flow from passive or active real estate, or other investments?

Happy investing! For more information, check out: Why You Should Consider Using the Deferred Sales Trust (DST) Now More Than Ever

 

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral Experts and informative speakers in the U.S. He is the Founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast.

 

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A Team Mentality with Mikhail Avady and Sophia Li

A Team Mentality with Mikhail Avady and Sophia Li

It could have been just another day for Mikhail Avady at the Atlanta Technology Village. As a hub for growing startups, Atlanta Technology Village was a frequent stop for MBA students at Emory University. That day, an entrepreneurship professor asked Mikhail if he would be available to give a tour to a group of incoming students. Little did he know, Sophia Li, his future wife, would be one of his tour guests.

After successfully mastering the educational realm, earning a collective three master’s degrees between them, Sophia and Mikhail each have their own flourishing professional career. Sophia is a senior sales engineer for a technology company, while Mikhail is a senior executive at a thriving tech startup creating a dynamic conversational text marketing platform. However, beyond their professional success, their shared passion and ownership in real estate investments allow them to grow and flourish together.

Sophia was the first to take a step into real estate in 2016 by purchasing a single-family home in the Atlanta area at just 25 years old.

“I bought my first single-family rental home partially because of the influence from my parents because I’m from China; Chinese people love real estate a lot,” Sophia said. “I was renting an apartment at that time because my rental property was in the suburbs.”

Shortly after Mikhail saw Sophia’s investments in real estate, he began to explore investment options, as he was looking for a way to diversify his assets beyond cryptocurrency. He had familiarity and comfort with the cryptocurrency market since he had previously started and run a cryptocurrency mining farm. Therefore, real estate was a logical choice for both Sophia and Mikhail to use as a wealth-building asset.

“We wanted to make a slow but consistent investment into single-family, and we didn’t want to overexpose in some of the other assets, so we were looking for other areas of investment,” Mikhail said.“We have some friends that are builders, and it became apparent that the more doors you have, the more you can scale. But we don’t have the time to do any of that. So we thought, ‘Where else can we put money into real estate?’”

Today, they manage both single-family and multifamily syndications. Operating as a team, they evaluate all current and potential investments while bringing their unique points of view and different risk tolerances to the table.

“We have very different risk tolerances,” Sophia said.

“I do our risky stuff; she does our safe stuff,” Mikhail shared. “She keeps me from making stupid investments, and I think sometimes I try to push her into some.”

Aside from their difference in risk tolerance, Sophia and Mikhail are united in their ability to look at real estate from a long-term perspective. So much so, that when they purchased their current home, they planned from the beginning to move out and turn it into a rental property after two years.

That timeline has since moved up as the couple will be welcoming their newest tenant, their first baby, in October.

“When we bought our house, a townhouse, we were considering it not only a primary home but also as a rental after two years,” Sophia said.“That’s why we’re doing a renovation on one of the rentals I bought. We’re going to renovate and move there because it’s a bigger single-family house, while we’re going to rent our current townhouse out. But it’s good because we prepared for this to be a rental.”

Sophia and Mikhail also are aligned in their strategy to diversify their investment portfolio to include passive investing as a vehicle to help them reach their long-term investment goals.

“We have a certain amount of passive income that we want to reach, and this is one of our strategies towards getting there,” Mikhail said.

“I think our long-term goal is probably to have a good amount of passive income, so we don’t need to worry too much about the future, and to have the freedom of choice,” Sophia said. “I feel like I’m most confident about real estate because it’s stable, long-term, and it generates equity.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Why Busy Professionals Should Understand the Cashflow Quadrant

Why Busy Professionals Should Understand the Cashflow Quadrant

When’s the last time you carefully analyzed the trajectory of your professional life? As a busy professional, it’s easy to get caught up in all of the complex daily activities and lose sight of your long-term goals. One of the best ways to evaluate and reposition your professional life is by using Robert Kiyosaki’s Cashflow Quadrant.

While in my opinion, Robert Kiyosaki’s books have a lot of fluff in them and have gotten less and less meaningful as time has progressed, one of his earlier concepts that has stood the test of time is the Cashflow Quadrant derived from a book of the same name. The Cashflow Quadrant is a simple concept but has enormous importance in the career of any professional. If you’re ready to learn about the Cashflow Quadrant and how it can help you transform your career, and most importantly, life, let’s get started.

What is the Cashflow Quadrant?

Using the Cashflow Quadrant concept, Kiyosaki created a distinction between various types of careers and how our current tax structure factors into each career choice. He goes on to talk about how people’s mindsets in each of the quadrants influence their career projections and paths (or lack thereof) to financial freedom.

No matter what your goals are or what level of career achievement may be, the Cashflow Quadrant helps you to think about the big picture and put your current and long-term goals into perspective. In a nutshell, it makes you evaluate your current quadrant and determine if you are satisfied with it or not.

Let’s take a closer look at each of the quadrants and their associated meanings.

E Quadrant — Employee

“E” stands for “employee.” The E quadrant is where most of the working population resides — an employee earns a paycheck and benefits by exchanging their time, knowledge, and performance of their required job. Their finance or wage is directly tied to the amount of their traded time and their ability to perform efficiently and effectively at their job.

If you fall under the E quadrant, the only way to make more money is to put in more hours or switch to a higher-paying company. Within this quadrant, there is no passive income. If you don’t work, you most definitely do not earn any money. Additionally, people in this quadrant pay the most taxes of any other quadrant. As you may have gathered, the majority of highly paid professionals in the U.S. fall into this quadrant and this quadrant alone.

How many of you are a government employee or work for a company with a paycheck based on the number of hours you clock in weekly? Put another way, will you feel the heat if you don’t bill a certain number of hours this year?

S Quadrant — Self Employed

“S” stands for “self-employed.” A self-employed individual is his or her own boss. While an employee works under a management structure, the self-employed person owns their own business and dictates the daily activities without the input of a superior or senior partner. However, while self-employed people may think they are superior to the people under the E quadrant, they both share some similarities — both are exchanging their time for money and pay high taxes.

Kiyosaki describes individuals who fall under the S quadrant as individuals “owned by their business.” As a self-employed individual, you have greater control over your time (unlike employees), however, if you do not put in the work you will not get paid. You may have your own business, but you still have to take up new projects, make appearances, draft documents, and bill your time in order to earn money.

B Quadrant — Business Owner

“B” stands for “business owner.” Unlike the E quadrant and S quadrant, individuals in the B quadrant don’t just own their jobs; they own a system. Business owners are known to outsource their tasks to experts instead of taking it on themselves. If you are a business owner, you likely own a system that creates income inequivalent to the amount of time you put in.

You can stay out of your office for months or travel around the world for vacations without your business suffering. Your income isn’t directly linked to your time. Due to the difficulty of breaking into this quadrant, only a select few professionals go on to become business owners. However, professionals that can make it into this quadrant are on the right path to attaining financial freedom.

I Quadrant — Investor

“I” stands for “investor.” According to Robert Kiyosaki, “this is the peak of all the quadrants, and only a few get to attain it.” While the self-employed guy down the road owns a business and the business owner living across the street owns a system, investors own assets that make money for them while they sleep (and while they’re awake, and while they eat, and while they…you get the picture). Uncle Sam also encourages people towards this quadrant with tax breaks, incentives, and loopholes.

The investor is an individual who may have made money from one or more of the other quadrants and has learned how to put that money to work for them passively. Investors often invest or purchase equities in real estate, stocks, royalties, and owning portions of businesses. This is the crème de la crème quadrant and where true passive income lives.

If you are a busy professional looking to achieve financial independence and time freedom, then the I quadrant is where you need to get to and therefore where you need to focus your goals. Once you are here, your job becomes more of a hobby than actual work. You can choose to work when you want to, not because you have to.

Active Income vs. Passive Income

Kiyosaki went further to divide the four quadrants into two parts — the left and right sides of the quadrant. Under this division, Kiyosaki analyzed the quadrants using each quadrant’s varying level of effort required to make money. The two quadrants on the left (E & S quadrants) are regarded as active income. As an employee or self-employed individual, you are actively exchanging your precious time for money. That is, the more active working hours, the more money.

The two quadrants on the right side (B & I) are considered passive income. If you fall under these two quadrants, your income is not proportional to the time you put in — you are earning income even when you are not actively working.

How Do You Change Quadrants?

I believe one of the questions running through your mind right now is, “How do I change from being a busy professional who trades his or her time for money and resides in the E and S quadrants to a financially free individual who resides in the B and I quadrants? How do I make the switch from an employed or self-employed individual to an individual with multiple streams of passive income?” The answer is to start educating yourself on how to build and take advantage of passive income opportunities. Then, take action.

Do you have to abandon your career? Not at all. We have worked extremely hard for a long time and value our careers and the importance of what we do. We are well-compensated and good at what we do. Switching to the right side of the quadrant doesn’t require leaving your career, but it simply means taking your active income and diversifying into several smart passive investments. The good news is that diversifying your current active income into passive investments that will provide you with sustainable cash flow is a lot easier than you might think.

 

About the Author:

Seth Bradley is a real estate entrepreneur and expert at creating passive income while still working as a highly paid professional. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions and the host of the Passive Income Attorney Podcast. Get started building a future full of freedom by snagging The Billables to Abundance Bible at www.escapethebillable.com.

 

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26 Ways to Start Investing in Real Estate

26 Ways to Start Investing in Real Estate

Investing in real estate is a great way to create and protect wealth. Real estate is tangible and can deliver cash flow, appreciation, leverage, diversification, and tax benefits. These tried-and-true perks have stood the test of time, helping ordinary families to become millionaires for generations. And even if you don’t have a passion for real estate, you might be surprised to learn that there are a multitude of investment strategies to fit your goals and preferences.

In fact, there are so many strategies for investing in real estate that some investors struggle to figure out where to start. It’s kind of like being a kid at DQ or Baskin Robbins, trying to figure out which flavor of ice cream you want. All are filled with sugar and cream, but your particular palette may prefer something with crunch, something rich, or extra sprinkles. With investing, it comes down to how active you want to be in the investment, interacting with residents, and the use of the property.

And even if you prefer the familiarity and simplicity of vanilla, it never hurts to glance at some of the other options. To help you consider your full menu of options when it comes to investing in real estate, here are 26 investing strategies to consider for your next deal.

 

1. Wholesaling

Placing a property under contract and assigning it to another buyer for a higher amount or an assignment fee.

 

2. Flipping

Buying a property, fixing it up, and then selling it in a short period of time — usually within 3–12 months.

 

3. Rental

Acquiring a property and leasing it to a resident for monthly income.

 

4. House Hack

Buying a property to live in and renting out the other spaces. Usually for two- to four-unit properties.

 

5. Residential Multifamily

Investing in a building with two to four apartment units.

 

6. Commercial Multifamily

Investing in a building with five or more apartment units.

 

7. Short-Term Rental

Renting out a furnished property for less than 30 days.

 

8. Vacation Rentals

Similar to short-term rentals, these are typically targeted at tourist locations.

 

9. Turnkey Rentals

Buying a recently rehabbed property with a property management company in place.

 

10. Private Lending

Loaning out funds to private investors for a specified return.

 

11. REITs

Real Estate Investment Trusts are publicly traded companies that invest across a portfolio of assets, offering shares to investors.

 

12. Syndications

When a group of investors owns a property, where some members are active (general partners), and others are passive (limited partners).

 

13. Lease Options

Leasing a property with the option to purchase the property from the owner.

 

14. Fund of Funds

Creating a fund to invest directly into other real estate funds.

 

15. Notes

Purchasing the loan on a property so you become the bank and borrowers pay you.

 

16. Tax Lien Investing

Buying the delinquent tax lien on a property and earning profits as the property owner pays interest on the certificate.

 

17. Raw Land

Acquiring undeveloped land to hold or sell for future development.

 

18. Mobile Homes

Buying and renting mobile home units.

 

19. Mobile Home Parks

Acquiring the land which is zoned for a group of mobile homes and charging rent for use of the land and utilities.

 

20. Retail

Owning commercially zoned storefronts used to sell products or services.

 

21. NNN

Triple net lease properties are where an investor owns the building, but the tenant is responsible for all repairs, maintenance, utilities, taxes, and insurance. You often find this for large corporate tenants such as banks, fast food restaurants, and drug stores.

 

22. Industrial

Investing in buildings that focus on product production and logistics such as warehouses and factories.

 

23. Office

A building where companies meet and conduct business.

 

24. Self-Storage

A facility to rent space to individuals to store their personal or business belongings.

 

25. Hotel Investing

Buying and managing hotels focused on short-term accommodations.

 

26. Resorts

Buying and managing venues with short-term accommodations, plus an elevated experience for guests.

 

Certainly, there was at least one strategy that caught your attention, but you still may come back to your flavor of familiarity. If you want to learn more on any topic, be sure to check out the Best Ever Show archives. With over 2,500 episodes, there is a wide range of topics to cover your investing needs.

 

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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Growing Overseas with Jennifer Bourdeau

Growing Overseas with Jennifer Bourdeau

For some professionals, the opportunity to relocate for a career is an exciting next step on their path to success. However, when Jennifer Bourdeau chose not to relocate for her career in the hotel industry, it led to an even more fulfilling adventure. She had always wanted to obtain an MBA degree, and with a reluctance to move for her job, she decided that the time to earn it was now.

 

Education Abroad

Accelerating her timeline, Jennifer Bourdeau started evaluating MBA programs, not only across the United States but across the globe. She enjoyed travel and realized that she might as well create an experience as she furthered her education. Jennifer landed on a year-long intensive MBA program located in Nice, France. Eleven years later, she remains based in the South of France where she is building her career and future.

“I decided to stay. I thought, ‘Okay. Let me give it a go. I will stay in France and try to find a job,’” Jennifer reflected. “I ultimately found a great job working in the travel industry, but in technology for travel.”

 

Financial Clarity

Jennifer Bourdeau was focused on building her professional acumen and career in France as a business consultant in product marketing, working with teams all across the globe. Throughout this period of growth, she sat down to examine her finances, which she was convinced weren’t enough.

“I took a look at my finances, and I realized that I had financial clarity. I thought, ‘Wow! I’m in a good position.’ Before that, I had always had this scarcity mindset. I didn’t have enough money. I needed to keep saving it,” Jennifer said. “I realized that I’m pretty comfortable right now and I can take some risks. And this aggressive saving that I had been doing had given me some options. One of the options was to say, ‘You know what? I’m going to take a break from the corporate world and try out something new.’”

 

Becoming a Full-Time Investor

At the end of June, Jennifer Bourdeau will be transitioning out of her corporate role and into a role that is solely focused on generating wealth and allowing her to make the most of her time: a full-time real estate investor.

Real estate was something that Jennifer dabbled in before leaving the United States. In 2007, she purchased a home that had significant equity in it. To ensure that she could continue owning it, unbeknownst to Jennifer, she started house hacking to pay the mortgage. Since then, her passion for real estate has only grown.

“When I moved to France, I became a passive landlord. I just rented the whole property with a property manager. I’ve done two new-build villas. We’ve also rented them seasonally. So that created quite a bit of income and a bit of work as well on our side to manage those rentals,” Jennifer shared. “I like active investing because it’s a direct reward and a direct reflection of my efforts. So every penny that is made, it’s because I did something well. Every penny that’s lost is because I did something wrong.”

 

Building a Team

Last year, Jennifer Bourdeau continued to diversify her real estate portfolio by investing in multifamily syndications. As she started in this new arena of investment, she realized that she needed to surround herself with individuals and operators who would help fill in the gaps in her real estate savvy.

“When I discovered passive investing, I had no team. I was so clueless. So I just consumed as much content as I could. I spent a really good amount of time upfront educating myself and learning who the players were in this space,” Jennifer said. “And from there, I started to create a little network. I discovered some investor groups. That is my team— these other investors.”

 

A Better Path to Success

Jennifer’s investor network is now more than one thousand people strong, with several hundred actively engaged in providing insight and best practices along the way.

“Now, my aim is more about creating wealth without creating a job. It’s been valuable to have insights and expertise and learning through sophisticated, experienced investors,” Jennifer reflected. “I just became disillusioned with this boomer’s dream where you go to college, you get a job, you buy a house, you get married, you stay dedicated to a company for so long, and then you retire at 65. I just realized there was a different way, a different path to get where I want.”

 

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Learn From These 6 Investing Mistakes

Learn From These 6 Investing Mistakes

While real estate investing can be incredibly lucrative, these investments come with the risk of moderate or even significant financial loss. Often, investing mistakes are tough lessons that come with a high price tag, but you don’t necessarily have to learn those lessons through your own experiences.

United Property Group Founder Dan Gorman has been investing in real estate for more than 22 years, and he has purchased more than $50 million in commercial real estate. Currently, he owns apartments, office space, and a few restaurants. While Gorman has enjoyed incredible success as an investor, he has also lost an extensive amount of money through mistakes with multifamily and commercial real estate. What can you learn from Dan Gorman?

 

1. Trusting Others With Skin in the Game

When Gorman reflects on some of his biggest financial losses and investing mistakes, he attributes them to not understanding the deals fully and relying on the advice of others. For example, many years ago, he was under contract to purchase a 120-unit apartment complex. The deal was complicated with financing involving bonds, low-income tax credits, and other unique sources of capital. Gorman admits that he did not understand the deal fully. He relied on the advice of others who told him it would be a profitable deal, but those individuals all stood to profit from the transaction. Gorman believes that they were advising him with their own agendas in mind.

Before closing, Gorman rightfully got cold feet. He tried to back out even though he stood to lose a large chunk of money at that stage in the transaction, but his attorney advised him that he could be sued for not following through. Ultimately, Gorman went through with the deal, and he lost a substantial amount of money for many years on end until he sold the property recently.

 

2. Failing to Understand the Transaction

Gorman recalls specifically asking his real estate attorney about one key aspect of the transaction, and his attorney could not explain that component of the transaction to him. In hindsight, Gorman realized that if an attorney who works with real estate transactions on a daily basis could not understand the structure, this should have been a red flag.

He warns others never to get involved with land contracts, lease options, bond financing, and other situations that are over their head. Take the time to understand all aspects of the transaction fully before committing to it.

 

3. Relying on Projections

This particular project was a rehabilitation project that involved putting $2.5 million into the property. The rents were below market value with a two-bedroom unit at the time renting for $650. The projection used by underwriting was $750 per month for these units. Gorman’s attorney advised him that the underwriting projections were too aggressive and that they may not be realistic.

Initially, Gorman saw dollar signs and ignored his attorney’s advice. However, he realized as the closing date approached that his attorney may have been right. This realization came too late because Gorman already had $250,000 of hard money invested in the deal. He has learned to use conservative, realistic projections that are based on actual market data.

 

4. Failing to Understand Contract Terminology

Ultimately, the 2008 real estate crisis led Gorman to go into default on the apartment complex. While he was not behind on payments, the lender backed out of the financing. The only option he realistically had was to file for bankruptcy. However, even though the multifamily property was owned in a protected entity, the bankruptcy triggered defaults in other investments that Gorman owned. Essentially, this one bad deal triggered the collapse of his investment portfolio.

 

5. Not Understanding the Tax Implications

In addition to dealing with the ramifications of bankruptcy and losing money on this 120-unit multifamily complex transaction, Dan Gorman was hit with a huge tax bill when he ultimately sold the property 15 years later. While he sold the property for exactly what he paid for it, he realized a net profit of $1.5 million. This was a surprise to him, and he states that he still does not fully understand how the calculation was made. Because of this net profit, however, he is now struggling to find a way to mitigate his tax liability with only a few months left in the tax year.

 

6. Overlooking Building Permits

This is not the only project that has provided Gorman with major life lessons. One of the more recent lessons that he has learned is tied to an office building that he rehabbed. He met with the building inspector and an official from the fire department to discuss his plans for the project, and they both told him to move forward with it. Through a miscommunication, Gorman believed that a permit was not required to do the work. Now, he is backtracking in an attempt to pull together all of the documents related to the permit. Unfortunately, this opened up a can of worms related to maximum occupancy, usage, and more. The project seemed fairly straightforward initially, but it has become overly complicated because he is dealing with the permit application process midstream.

 

Through his investing mistakes, Dan Gorman believes that residential real estate is easier to invest in than commercial real estate, but both require diligence. He is happy to discuss his investing mistakes with others in the hope that they may learn from them. At the same time, he acknowledges that he still has lessons to learn. Nonetheless, the mistakes that he has made have made him a more conservative, cautious investor.

 

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Steps to Stop Trading Your Time For Money with Kris Benson

Steps to Stop Trading Your Time For Money with Kris Benson

Kris Benson is like many other investors who are getting their feet wet with residential properties. He dreamed of generating enough passive income from a small empire of residential properties to pay the bills. However, on his journey toward making this dream a reality, he discovered a more efficient and effective way to make far more money through real estate investments.

Today, Kris Benson is the CIO for Reliant Investments, which is part of Reliant Real Estate Management. However, his incredible story began many years ago when he was a sales professional for a payroll processing company, ADP.

 

Growing Up on the Fast Track

Kris Benson did not intend to settle down with a wife and kids early in life. An unexpected pregnancy in his early 20s may not have been in the plans, but this was a pivotal moment in his life. This blessing in disguise actually caused Benson to put his nose to the grindstone very early on, and this ultimately took him on a path toward passive investing. In fact, if he has any regrets, it is that he did not start investing in passive income streams even earlier.

He initially worked for ADP, and he later transitioned to a sales job at Intuitive Surgical. Benson worked long hours and had the same thought that so many other people have. He wanted to stop trading his valuable time for money. The solution that he came up with was to build a solid stream of passive income. While Benson could have started a business, he understood that he was not creative enough to walk along that path. Investing in rental properties was the clear option.

 

Amassing a Small Empire of Duplexes

Benson’s initial investment goal was to slowly build a solid portfolio of two-unit residential properties. He figured that if he had 25 buildings that were producing $200 per unit per month, he and his wife could live a comfortable life without the need for a 9-to-5 job. After he had 22 units across 11 properties, however, he realized this plan was not going to work for him. Even with a great management team in place, he did not want to deal with the stressful hassles associated with residential tenants. He also did not want to endure the stress of purchasing many additional duplexes.

He and his wife decided to divest. They ultimately sold all but one of the buildings. The property that they continue to own is one that Benson’s brother currently lives in. At this point, Benson had capital available to invest, and he was looking for a more effective way to generate passive income.

 

Co-Developing an Apartment Complex

Benson made the move that many others make when they gain more experience and have more investment capital. He decided to invest in an apartment complex. While he does not recall where he heard the advice, he attributes this move to the idea that big deals and small deals require the same amount of effort and time. The difference is that you make less money on small deals. Essentially, Benson believed that the return on an apartment complex would be more aligned with his output.

He teamed up with a partner who he knew from his childhood. While his partner was a construction expert, Benson was the capital investor. The pair built a large apartment complex in four phases. Initially, the project required Benson to put out a $200,000 investment. However, a shortfall in planning required him to front another $270,000 after the first phase was complete. When only a quarter of the property was constructed, he was already committed for almost a half-million dollars. However, he says he never thought about not following through with the other three phases. They made up some of the initial phase’s overage on future phases, and Benson recouped the majority of his capital later through refinances.

 

Transitioning to Storage Investments

Finding additional multifamily investment opportunities was a challenge for Benson. Through his research, he decided to pursue self-storage properties. Specifically, the National Association of REIT Data indicated that self-storage properties had a 17% annual return for the 23-year period between 1994 and 2017. This is compared to a 13% annual return for apartment complexes during that same time period.

Kris Benson used a storage industry publication issued by MiniCo to research the top self-storage operators in the country. MiniCo’s publication listed the top 100 operators, and he personally reached out to the top 30 operators on the list to find investment opportunities. This was how he connected with Reliant Investments. Specifically, he met with Todd Allen, who is one of Reliant’s principal partners. Todd was responsible for finding investors, but he preferred to manage operations. With Benson’s strong background in sales, he was the perfect individual to join the team and head up the equity committee.

He proactively structured a deal with them that allowed him to earn equity in the properties for those he assembled investors for. This ultimately transitioned into an extensive amount of passive income for Benson and his wife. On top of that, Benson also joined the company officially as its CIO.

 

Reflecting on the Past

As he reflects on the past, Benson attributes his success to several pivotal points. While he was stressed by his duplexes, he does not regret starting his journey with them. Getting started is often one of the most difficult parts of real estate investments and investing in his duplexes got the wheels moving in the right direction. He also states that his most successful investment to date is the apartment complex. If he were to give advice to a new investor, that advice would be to educate yourself as much as possible. However, you also need to jump in at some point and be prepared to learn more along the way.

 

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Reasons You Should Rethink Saving for Retirement

Reasons You Should Rethink Saving for Retirement

Whether you’re hoping to become financially independent now or if you’re wanting financial independence when you’re ready to retire, the conventional methods to save for retirement will do little to get you there.

We spoke with Daniel Ameduri from Future Money Trends about his book, Don’t Save for Retirement. He gave us some of his best secrets for saving for the future and working your way to financial freedom. Daniel is out to disrupt the system and he was happy to share some of his best strategies with us.

Don’t Save for Retirement?

For most of us, when we were fresh out of college and entering our first jobs, we signed up for conventional savings plans like 401(k)s, mutual funds, and ETFs. We’re told that these plans are the best way to ensure our futures and make sure we’re taken care of in our senior years.

But these plans aren’t designed to bring wealth to the beneficiary and benefit those running the industry. There’s no way to get wealthy with these plans, nor is there a guarantee that you’ll even get enough money to live comfortably after you retire.

Daniel suggests taking your capital and investing in something that yields income. He thinks that investing in real estate is a much better way to build up savings for when you retire. You’ll create a passive income for yourself and be able to grow your wealth instead of waiting to see what you’ll get from funds that may or may not produce decent benefits.

Why Conventional Programs Are an Issue

People usually have a three-part plan: they have a 401(k) or equivalent from their job, their savings, and whatever they receive in social security. The average amount in a 401(k) is $58,000, which won’t last many people two years. Social security isn’t enough to cover the cost of living. Savings accounts aren’t worth much, as the interest rates are so low.

Simply put, these programs aren’t setting you up for a lot of comfort in the future.

Look at What the Wealthy Are Doing

One of Daniel’s best suggestions is to look towards the people who have the type of success you want to have. If you look to the middle class and emulate what they’re doing with their money, then you’ll stay in the middle class.

Instead, Daniel suggests looking to see what the wealthy are doing. When looking to the wealthy, he discovered that almost everyone with money was involved in some sort of real estate. That led him to get into investing.

Passive Income Is the Way to Go

Daniel has a slightly different opinion on passive income. He doesn’t suggest that people quit their jobs; instead, they should take the money they would be putting away for when they retire and invest it. The goal is to start with a small passive income with investments you can afford. Then keep putting your money back into it until you’re making enough to be financially free. From there, it’s up to you whether you want to quit your job and how you want to spend your money.

…But Passive Income Isn’t Always Passive

Some people will argue that property investment isn’t truly passive income. Active investing does involve some work on your part. You’ll spend time searching for properties, doing value-adds, and overseeing management.

Daniel feels that active investing is a small amount of work for what you get in return. Other types of investments that may feel more passive, such as stocks or REITs, won’t give you the same type of returns. The stock market is challenging, even for experts. REITs will give you some returns, but you’ll always be sharing with others.

If Others Can Do It, You Can, Too

Many people are reluctant to make bold moves, especially when it comes to their money. However, Daniel’s advice is to look around you and see how many people are finding success. If those people can do it, that means it’s possible. They don’t always have a special skill set — they are just determined to make their money work for them.

Find Someone Who’s Been Through It Before

Daniel is emphatic about working with people who are a few steps ahead of you, especially if you’re getting into an area where you’re not familiar. He tries to find someone who’s been through it at least once because he feels like he can learn from their experiences. Ideally, he likes to work with groups who were around during the 2008 crisis and survived.

Stick With What You Know

While many people will try to diversify and keep moving into new fields, Daniel suggests sticking with what you know. If you’ve found something that’s making you money, keep going with it. Become an expert and scale up from there. You stand to make a lot more money than dabbling in a lot of different types of investments.

Brutally Cut Your Spending

Daniel and his family didn’t have a lot of money when they first got started with their investments. They decided that building up a passive income was important to them, so they cut their spending as much as possible. You may have to forego luxuries like a new car or even expensive groceries for a while until you’ve grown your income.

Final Thoughts

Saving for when you retire is important, but it’s important that you’re making wise decisions with how you save. Conventional programs will only give you so much. If you’re aiming for comfort and true financial freedom when you retire, you should invest in properties and build up a passive income that will see you far into your senior years.

 

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Stop Using Projected Returns & Focus on This Instead

Stop Using Projected Returns & Focus on This Instead

There is a dirty secret that every passive investor should know about real estate syndications. And today, I’m going to share the truth.

Syndicators are wrong on projected returns 99.99% of the time.

It’s a guess at best. An educated, informed, well-intentioned… guess.

So stop using projected returns to make investing decisions.

You see, there are WAY too many factors impacting returns for us to provide an accurate projection. From rent growth to cap rates, there are numerous projections, and each assumption has an impact on returns. It’s hard enough to forecast next year’s projections, let alone the next five to 10 years! This is why you shouldn’t rely on projected returns to make investing decisions.

So instead of focusing on projected returns, focus on the fundamentals of the investment. In particular, there are four key areas to determine if an opportunity is actually a good investment.

 

The Four Keys for Passive Investing

 

The Market

When looking at markets, many people tend to focus on population growth. It’s an easy narrative. As more people move to an area, apartment demand increases, ultimately driving up rents. But in the words of ESPN’s Lee Corso, “Not so fast, my friend.”

Population is an important metric, but it is not the ONLY metric when looking at markets. You want to monitor employment growth and industry diversification as well. Other key metrics include rent growth and absorption rates. But these are just precursors to what you really want to know. Can you expect demand (and rents) to be higher in the future?

Population growth sheds some light at the macro level, but you’ll want to determine why demand will increase for the property you are targeting, opposed to somewhere else in the metro area. When selecting a submarket, pay attention to key drivers like proximity to interstates, nightlife, employment centers, and desirable schools.

 

The Operator

The person controlling the key aspects of the deal is one of the most critical things to consider when investing. You want an operator or sponsor who has the knowledge, capability, character, and consideration to effectively lead the deal. It helps to find someone who has a risk tolerance that aligns with your own, a clear vision for their projects, and a proven ability to get results.

You will depend on this person for their market knowledge and investment leadership so be sure it is someone you know, like, and trust.

 

The Asset

The tangible, physical property is certainly critical when investing. Older properties inherently require more maintenance. Lower-income properties typically encounter more wear and tear. Newer properties have fewer maintenance issues but often provide less cash flow. The age, condition, and upkeep of the building could mean the difference between a cash cow and a lemon in need of a little squeeze and some sugar.

The question is, do you prefer milk or lemonade?

It’s important to note that commercial acquisitions are actually business acquisitions. You are not just buying a physical structure, you’re buying a company. Because of this, you need to scrutinize the current performance and determine the upside potential.

 

The Business Plan

Speaking of potential, the business plan is the final area to explore when reviewing an investment opportunity. This plan should be well-constructed and deeply vetted, with a clear vision for execution. However, it should not be the only path to success. Even the best-laid plans can be forced to change, so it’s critical to work with an operator that has the ability, humility, and foresight to acknowledge that a change is needed and pivot accordingly.

Strong returns are driven by strong operators with a savvy business plan for a quality asset, in a good market. Not from OMs, spreadsheets, and pro formas. Stop focusing on projected returns and ensure you are investing with quality people and properties. When you do this, you are more likely to realize the returns you seek and mitigate some of the downside risks.

 

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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What Do Limited Partners Do for a Living?

What Do Limited Partners Do for a Living?

Those who qualify to invest in apartment syndications as limited partners are required to have a certain amount of money (net worth and liquidity) and investing experience.

But who are these people?

A common misconception is that only a “special” sort of person can passively invest in real estate. A savvy Wall Street broker, a billionaire tech giant, a hedge fund manager, and other such wealthy professionals. While these people absolutely do passively invest in real estate, thinking they are the only ones who invest cannot be further from the truth. In fact, as you will see if you keep reading, the most common passive investor is (probably) who you least expect. In fact, if I had to bet, I’d say that someone you know already passively invests in real estate.

Following are the types of people who most commonly passively invest in apartment syndication.

 

W2 employees

Arguably the most common passive apartment investor works a full-time W2 job. These are individuals who’ve reached a point in their careers where they have a high enough salary or made enough investment into stocks, IRA, 401(k), or other investments to meet the SEC’s accredited investor status.

I have met passive investors who work W2 jobs in nearly every industry. Examples include:

  • Physicians
  • Dentists
  • Technology sales
  • Engineers
  • Oil and gas executives (often engineers who’ve transitioned into management roles)
  • Commercial pilots
  • Fortune 500 executives
  • Attorneys
  • Professional athletes
  • Authors
  • Composers
  • Actuaries

People with high-paying W2 jobs decide to passively invest in apartment syndications because they work long hours and enjoy what they do, but they also want to beat the returns they are receiving on their other investments, like IRAs, 401(k)s, and the stock market.

 

Small business owners

These are self-employed individuals who’ve scaled a business to the point where the revenue generated or value of the company allows them to meet the SEC’s accredited investor requirements.

Examples of companies owned by small business owners who passively invest in apartment syndications include:

  • Landscaping companies
  • Architectural signage and lighting companies
  • Construction companies
  • Restaurants
  • Franchises
  • Health machinery companies
  • Grilling accessories companies
  • Office water cooler companies
  • Exposition companies
  • Technology companies
  • Voiceover actors
  • Golf cart supply companies

And the list goes on, because being self-employed, small business owners are heavily taxed. Therefore, they are attracted to passively investing in apartment syndications because they can get tax benefits. Also, they are busy running a small business that they are passionate about. They don’t have the time or the desire to go out and actively invest in real estate.

 

Retirees

People who retire from a W2 job or who sell their small business also passively invest in apartment syndications. They have a lump sum of cash that they want to put to work while enjoying their retirement.

 

Professional full-time passive investors

These are individuals or groups who — using their own money, other people’s money, or both — operate a business that exclusively passively invests. They either exclusively passively invest with one or multiple GPs or they invest in a wide range of passive investment opportunities (apartment syndications, REITs, stocks, start-up businesses, etc.).

Examples of full-time passive investors include individuals who accumulated a high net worth and quit their W2 jobs to passively invest full-time or institutional investment firms like private equity companies or family offices.

A professional, full-time passive investor will choose to invest in apartment syndications because they can achieve higher and less risky returns compared to other passive investment opportunities and/or diversify their portfolio.

 

The GPs

It is common (and ideal) for the GPs to invest in their own deals. GPs will choose to invest in their own deals to create an alignment of interest with the LPs and to convey their confidence in the deal.

 

Real estate professionals

Individuals who invest in other types of real estate will passively invest in apartment syndications that generate enough income or have a large enough net worth from the active real estate business to meet the SEC accredited investor requirements.

Examples of real estate professionals who passively invest in apartment syndications include:

  • Fix-and-flippers
  • Buy-and-hold landlords
  • Short-term rentals
  • Developers
  • Commercial real estate investors (self-storage, mobile home parks, retail, medical, office, industrial, etc.)
  • Real estate agents
  • Commercial brokers
  • Mortgage brokers and lenders
  • Property management companies
  • GPs on other apartment syndications

 

If this type of individual is an active real estate investor, they will choose to passively invest in apartment syndications to diversify their investments, since they are usually focused on one asset class. For the non-real estate investors and real estate investors alike, since they work in the real estate industry full-time, they can qualify for the “Real Estate Professional” tax status. This allows them to use passive losses to offset the income generated from their active business.

Most likely, this person would choose to invest in apartment syndications to diversify their investments because they are usually exclusively investing in single-family homes or smaller multifamily properties. Additionally, the IRS has a designation called “Real Estate Professional” where passive losses can be used to offset non-passive income.

 

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How to Succeed as a Real Estate Investor While Working Full-Time

When you work in a high-earning job, you may wonder what the best use of your money is. You likely want to take measures to secure your and your family’s future and find ways to become less reliant on your day job.

We spoke with Peter Kim, who’s something of a triple threat, about how he manages working full-time, investing in real estate, and running a blog. He shared his best-ever tips with our audience to help them get started in the industry.

If you want to learn more about putting your money to work, balancing work and family life, and carving out space online, read on for some of Peter’s top advice.

 

How to Get Started in Real Estate Investing Even When You’re Busy

If you’re working a full-time, high-paying job, you’re likely busy for many hours each day. Throw in a family, especially one with small children, and you may feel like you have nothing left to give when it comes to starting a side business.

Peter’s advice is to prioritize. You obviously have to spend time on your primary job and family, but what do you do with the rest of your time? If you truly want to succeed in real estate, you may have to sacrifice your free time, especially in the early days.

Kim would often stay up for hours after his kids went to bed, sacrificing his free time and his sleep, to get his business off the ground. He worked his way into the industry and eventually his late nights paid off.

 

Transitioning From Being a Passive Investor to an Active Investor

Peter started with passive investing for a few reasons. First, he felt that he didn’t know commercial real estate well enough to do a lot of it on his own. He started with crowdfunding and syndication initially because it was less risky and was a good way for him to learn the ins and outs of commercial investing.

As someone with a high-earning job, it can be challenging to change your mindset to other types of earning. You’re used to actively putting in the hours at your job in exchange for money, but with real estate, you often do a lot of research and work upfront, but then you have to be patient while you wait to see results.

As he grew in confidence, he got into active investing. He started with a single-family home and then worked his way up to multifamily commercial properties. He does well as an active investor, but he didn’t stop passive investing either.

Peter’s strategy is to diversify his business. That way, if one of his investments isn’t doing as well, he has others to fall back on. Passive investing is also a good way to earn money without having to continually put in long hours. If you go through a busy time at your day job, you’ll still be earning through your passive investments.

 

What to Look for in a Syndicator

Peter puts a lot of emphasis on finding the right syndicator, especially when you’re just getting into commercial investing. Since the syndicator will be making decisions on your behalf and those decisions will affect your finances, you want to make sure you have someone who knows what they’re doing.

When vetting a syndicate, you want to first find candidates who’ve been in the game for a while and have some experience with the type of investments you want to do. Look into their track record. You want someone who is successful. Some failures are okay too; a lot of it comes down to how they navigate difficult situations.

The next thing to look for in a syndicator is who else has invested with them. If there’s someone you know and respect who also invests with that syndicator, then that’s a good indication that they’re good at their job. Finally, you want to meet with any potential syndicators. Even if they have a good reputation, you want to make sure that the two of you get along and that they understand your needs and concerns.

 

Don’t Wait — Just Jump in and Learn as You Go

When people decide to get into commercial investing (or any new business venture), they often spend a lot of time researching, going back and forth between passive or active investing, and basically just waiting around until they feel comfortable spending money.

The problem is, you’re never going to feel 100% confident about an investment, and if you wait around until you do, you’ll never invest. Peter’s advice is to do a little research, then dive in. You’ll be taking some risks, but you can learn as you go.

 

Blogging and Real Estate Investment

Peter started blogging as a way to give his friends advice about getting into commercial properties. He didn’t expect his blog to blow up the way it did, but once he saw the opportunity, he seized it. He discovered that his blog was another way to make money, and he’s used it to grow his income.

Although it takes up more of his time, Peter makes sure he’s consistent with his blog and posts often to keep his readers coming back. If you’re interested in starting a blog, you don’t have to be an expert. Peter said that when he started, he was by no means an expert on investment — he was just a few steps ahead of his readers, and thus able to offer advice.

 

Final Thoughts

If you’re in a high-earning field, you can make your money work for you so that you don’t always have to rely on your income from your job. It can be time-consuming, but if you’re willing to put in the work and sacrifice some of your free time, it can definitely pay off.

 

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5 Things to Expect After Investing in First Real Estate Syndication

5 Things to Expect After Investing in Your First Real Estate Syndication

You’ve selected a commercial real estate sponsor and invested in your first deal. Once the due diligence is completed and the deal is closed, what comes next?

Here are some insights into what a passive investor can expect after investing in their first deal.

 

1. Deal Updates

Nearly every syndicator will approach investor communication differently, but most will send some sort of deal update via email. The ideal frequency is every month, but some sponsors elect to send deal updates on a quarterly basis.

The first email will notify you of the closing. Ideally, the email is sent the day of closing and includes a FAQ-style guide that answers common questions, like:

  • When, how, and how much you are paid (first-time and ongoing)
  • Contact info of the point person
  • When you will receive deal updates, and what the updates will entail

Each syndicator’s deal update communication will also be different. Typically, important operational metrics are included, like occupancy rates, preleased occupancy rates, and collections rates. If these metrics are nowhere they are supposed to be (which depends on the investment strategy), then an explanation of the problem and the proposed solution should be communicated.

For value-add opportunities, updates on the number of renovated units and rent demand will be included. The important thing here is how the actual rent premiums compare to the projected rental premiums. If actuals are below projections, an explanation of the problem and the proposed solution should be communicated.

Other information a sponsor may include in a deal update email includes capital expenditure updates, market updates, and resident updates. They may also include details on other investment opportunities available.

 

2. Financial Reports

Another best practice for real estate syndicators is to provide actual financials on the investment. The most common financial report is a profit and loss statement, which breaks down all income and expense line items. This will promote transparency and allow you to see exactly how the investment generates money and where the money is going.

Quarterly financial reports are the most common frequency. However, more and more syndicators are using investor portals to manage their passive investors. If you are investing with such a syndicator, you may be able to access financial reports more frequently.

 

3. Distributions

At some point after closing, you will begin to receive distributions. The amount and frequency of the distributions will vary based on the syndicator and the investment strategy. For example, core or value-add investments may pay out distributions immediately while opportunistic and distressed investments may not pay out distributions for a few years. However, you should know the amount and frequency of distributions prior to closing, and the syndicator should adhere to those terms. If the amount or frequency of distributions does not align with what was originally communicated, the syndicator should provide an explanation in the deal update.

Eventually, once the investment is sold, you will receive your original investment plus any profits, when applicable.

 

4. Schedule K-1

The Schedule K-1 is the report the sponsor sends to you each year for your tax returns. Once a year, you should receive your personalized Schedule K-1 tax report. Oftentimes, sponsors will communicate the timing of the K-1 in the FAQ portion of the original closing email.

 

5. Educational Content

Many real estate syndicators create educational content for their passive investors. This could be in the form of an exclusive newsletter or webinar, a specific section on their website, an eBook, blogs, podcasts, and/or YouTube videos they post to their website, etc. The purpose of this content is to help you learn more about what you are investing in.

 

5 Things to Expect After Investing in Your First Real Estate Syndication

After you have invested in your first real estate syndication, expect to receive deal update emails and financial reports from the syndicator. Based on the timing outlined in the PPM, you will also begin to receive distributions.

Once a year, you will receive a Schedule K-1 report for your tax returns.

If you want to be proactive and learn more about what you are investing in, the syndicator may offer additional educational resources, either by sending out a newsletter or posting information to their website.

Bottom line: you can be as active or as passive as you want. You can do nothing except check your bank account each month, or you can read every deal update email and financial report. My advice is to be active in what you enjoy and passive in what you don’t enjoy.

 

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How to Generate Passive Income

How to Generate $120,000 in Passive Income Working One Hour per Week

Who doesn’t want to work less and make more money? We recently talked with Anton Ivanov, who spends just one hour each week managing his investment properties and makes $10,000 a month in passive income.

But Anton’s business wasn’t built overnight. Below, we’ll share his tips for passive investing in commercial properties.

 

Don’t Be Afraid to Start Small

Everyone gets into real estate investment wanting to make the big bucks, but it’s rarely possible to generate a huge income in the beginning unless you’re fortunate enough to have a lot of start-up capital.

Instead, think about starting small. Start with just one property and then invest in another once the first is doing well. Keep putting money back into investing and eventually you may see exponential growth.

 

House Hacking Can Be a Great Way to Get Started

One of the best ways to generate passive income with little money is through house hacking. House hacking involves buying a rental property and living in one of the units while renting out the others.

You’ll often be able to cover your housing costs and have more money left over to focus on growing your investments.

 

Start with Turnkey Properties

If you listen to any investment advice, you’ll often hear talk of value-add multifamily properties and how much money there is to be made there. However, you may want to start with turn-key properties, especially if you’re just getting started and have little to invest.

Turnkey properties allow you to start renting and generating an income quickly after purchase. Once you’ve made some money, then you can turn to value-add properties.

 

Move On to Value-Add Properties When You Have More Experience

Once you have experience working with multifamily properties and know an area well, it’s time to move on to value-add multifamily properties. You’ll have a good understanding of how the market works and which commercial properties will yield good results. You can significantly increase your income with these types of properties, but you’ll need some money going in.

 

Find the Right Properties

It kind of goes without saying that the properties you choose can make or break you. However, there are a few things you need to consider to help you find the right properties.

Obviously, you want to choose properties in an area where the rent is high enough for you to make a comfortable profit. You’ll also want to look in markets where the economy is doing well, and employment is up. These areas are likely to have lots of people looking to rent.

Try to find properties that are also in areas where the real estate is appreciating. If you decide to sell, you can get even more money, and if the property didn’t make as much as you’d hoped, at least you can make something off the sale.

 

Consider Looking Out of State

If your location isn’t a great place for real estate or rental properties, you may need to look out of state. Start researching to find cities that are medium-sized and going through a growth spurt. If you’re lucky, you can get in at just the right time.

You’ll want to stick to your criteria. Find a place where the rent is high or going up and where property values are on the rise.

 

Scope Out the Area

Once you’ve settled on an area, it’s a good idea to visit, especially when you’re not familiar with the neighborhoods. Things often look one way online and can look quite different in person.

Spend time riding around the neighborhoods and talking to locals. You’ll be able to get a sense of where the best areas are. You can also check out potential properties in person.

 

Network with Other Investors

One of the best moves you can make is to network with other investors, particularly those who are involved in the same type of investing as you and are located in the area where you’re looking to make a purchase.

It’s important to meet with investors in the property area because they’ll be able to give you some good advice about the areas and types of properties that do well. You may see other investors as competition, but you can be much more successful as allies.

 

Find Great Property Managers

To be more hands-off with your properties, it’s essential that you hire great property managers. These are the people who will be acting in your stead, so you want to make sure you get the right people.

You’ll want to start by meeting with different property managers to see who will be a good fit for what you want. It’s not enough to go on another’s word about a manager because what works for them may not work for you.

Once you’ve found a property manager, take the time to train them. Be clear about what you expect and make sure you both agree on everything before you hire them.

 

Hire a Great Team

Beyond property managers, you’ll also need others to help you. Meet with all contractors and anyone else who’ll work on your property. Make sure everyone is on board with your expectations. You’ll save yourself a lot of headaches if you’re clear up front.

 

Research and Take All the Variables into Account

You need to do your underwriting before making the final decision on a property. Do plenty of research and don’t just get your information from one source. You should check online records and reviews and talk to people with experience in the area. If you only go to one source for research, you run the risk of overestimating the potential of a property.

Don’t just look at cash flow and the real estate market when it comes to a property. There are other variables to consider, such as the cost of any renovations and maintenance. What’s the vacancy like? Make sure the profit’s worth it after all of the variables have been considered.

 

Build a Business That Can Run Without You

The key to passive investing is to build a business that can run without you. If you’ve trained your team well, they’ll know exactly what you’d want them to do in every situation. They’ll rarely need to contact you.

After spending some time getting everything established, you can cut down your work time to an hour or less per week. You’ll simply have to check in and manage a few things to keep it running smoothly.

Another secret to building a hands-off business is buying property out of town. You’ll be forced to train a team to put in charge of everything and you won’t be around to deal with every problem that arises. You’ll be forced to be more hands-off.

 

Final Thoughts

If you’re angling for a passive income, commercial investing is a great space to start. There’s always money in real estate and you can get a cash flow almost immediately if you choose the right properties. The keys are to start small, do your due diligence, and build a team you can trust.

 

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How to Achieve Financial Independence Through Passive Investing

How to Achieve Financial Independence Through Passive Investing

Passive investing is one of the best things you can do if you want to achieve financial independence and retire early (FIRE). In a podcast interview with an online blogger and radiologist, we looked at how passive investments helped him become financially stable following a horrible divorce. To protect his anonymity, we will refer to our guest as XRAYVSN.

 

He Lost Everything Before Rebuilding Again as a Passive Investor

Before his divorce, XRAYVSN was financially stable. He lost more than $1 million following the divorce, and his work as a radiologist was not enough to rebuild his nest egg. Commercial real estate and passive investments allowed him to regain the money he lost.

During his 2010 divorce, XRAYVSN spent $300,000 on just his legal counsel fees. By the time everything was done, his net worth was $800,000 in the red. At almost 40 years old, he was completely devastated. His life savings were gone, and he had nothing to look forward to.

Instead of giving up, he began deploying his income in intelligent ways. After a lot of research, he decided to use his earnings to generate passive income. Inspired by the White Coat Investor and Passive Income MD, he began investing in new income streams.

 

How He Achieved His FIRE Goals

Within the FIRE movement, there are different levels of independence. Lean FIRE is when you are able to cover your basic needs. Meanwhile, Fat FIRE is when you can take luxurious vacations and afford almost anything you want. At this point, XRAYVSN is between these two levels of financial independence.

There are a variety of ways that an accredited investor can make money, but XRAYVSN already had a day job. Because he spent so much time working as a physician, he did not want to get started with active investing. Soon, he began researching different real estate investments.

Unlike many FIRE fans, XRAYVSN already had some experience with real estate investing. Before the divorce happened, he had owned several condos. Unfortunately, managing the condos had taken up a significant portion of his time. He knew that he had no interest in becoming a landlord again.

Because of the way the Internal Revenue Service (IRS) taxes earned income, real estate investments were especially appealing. Real estate investments come with extra tax breaks. Each tax break saved XRAYVSN more money, which he could reinvest in real estate properties.

 

Real Estate Investment Trusts

He ultimately decided to use real estate investment trusts (REITs). If you do not want the hassle of being a landlord, a REIT is an excellent alternative. It is essentially a stock that is made up of real estate investments.

Basically, you start by investing your money in a REIT. Then, they invest your money in real estate properties. Each quarter, you are paid distributions based on the REIT’s earnings. While you get paid like a normal real estate investor, you do not have to do any of the work. Because REITs function like stocks, you can easily sell your shares if you need to.

Since REITs are essentially stocks, their value can fluctuate. If the stock market tanks, your investment can disappear along with it. As long as you do not plan on selling your shares in the near future, this is not a major issue.

 

Crowdfunding

RealtyShares and crowdfunding platforms allow normal investors to invest in major real estate properties. Before the Jumpstart Our Business Startups (JOBS) Act, wealthy households were the only people who could invest in certain properties. The JOBS Act made it possible for average investors to invest in these real estate properties.

With many crowdfunding platforms, you can get started with a minimum investment of just $5,000 to $10,000. These investments work by pooling funds from a variety of different investors. If you achieve a net worth of $1 million or more, then you can become an accredited investor. You can also achieve this status if you make $200,000 or more per year.

 

Securing a Syndicator

Accredited investing is designed for sophisticated investors. Once you achieve this status, the Securities and Exchange Commission (SEC) allows you to buy unregistered securities. The SEC assumes investors who reach the accredited level are sophisticated enough to understand the added risk that occurs when you buy unregistered securities.

XRAYVSN quickly attained accredited status, which meant he could get new opportunities through private syndicators. He reached out to these syndicators through their websites and arranged for interviews. Because of how they are designed, these investments typically require a lot more research than standard investments.

Private syndicators spend their time searching for investment ideas. When they find a good one, they send an email blast to their investors. Then, they will generally host a demonstration for investors. Most syndicators require a minimum investment of at least $50,000. These investments are also illiquid, so it is difficult to access your money after you have invested it.

Obviously, this means that you do not want to use these types of investments if you need your money right away. If you want to make a long-term investment, working with private syndicators is a good idea. People can also get started by learning about the program through Syndication School. Because there are good and bad syndicators, it is important to look for red flags before you start passive investing with them. If you are comfortable working with a certain kind of commercial real estate, you should find a private syndicator that works in that sector.

As you look at different syndicators, you should read reviews from people who have already invested with them. You should also look at their results. How do they compare to similar organizations?

Some syndicators like to inflate how much they earn, so watch out for this issue. If one apartment complex is twice as profitable as other complexes in the same area, you should be suspicious. The company needs to have a good explanation for why they are earning so much more money than everyone else. If they do not have a reasonable explanation, you should invest with someone else.

 

Forging Your Own Path to FIRE

In order to become financially independent, you need to look at your burn rate. This figure is the amount you end up spending on your lifestyle and living expenses each year. To retire early, you must be able to cover your burn rate each year. You need to make a passive income stream that can cover your burn rate. If passive investing brings in more money than your burn rate, then you can afford to live a more luxurious lifestyle.

Do not be discouraged if you cannot retire right away. Because of compound interest, your earnings will grow over time. In order to retire comfortably, you will need to save 25 times your annual expenses. This means that you will need $1.5 million in the bank if you need $60,000 a year.

XRAYVSN is working toward an even more conservative goal. Instead of pulling 4 percent out of his retirement savings each year, he plans on only using 3 to 3.5 percent. To achieve this goal, he is bringing in passive income through his blog, private syndicators, and commercial real estate.

As an accredited investor, he can access more investment types than the average investor. Despite his accredited status today, he originally started out with simple crowdfunding investments. Even if all you can do is start small, you can eventually work your way up to accredited investing and achieve your FIRE goals.

 

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When You Should NOT Passively Invest in Real Estate

Passive investing in commercial real estate can be a great investment strategy. But it is not for everyone. Many entrepreneurs elect to actively invest in commercial real estate instead and have made a lot of money in the process. They invest their own capital and/or raise capital from passive investors to buy, operate, and sell multifamily, self-storage, office, retail, etc.

There are major differences between being an active commercial real estate investor and passively investing with an active investor. Your personal investing goals and preferences will determine which is best suited for you.

In this blog post, I will provide four scenarios where passively investing in commercial real estate might not be the best option for you.

 

If you want control…

One of the biggest differences between active and passive investing is control. As a passive investor, you have no control over the investment. You can select who to invest with and what deals to invest in (unless you are investing in a fund, in which case you are automatically invested in any deal acquired by the fund). But once you’ve invested your capital with an operator into an opportunity, you have no control over any aspect of the business plan.

Therefore, if you want complete control over your investment, you should not passively invest in real estate. As an active investor, you decide which investment strategy to pursue, what type and level of renovations to perform, who to rent to, what rent to charge, when to refinance and sell, and everything else.  However, if you want complete control over your investment, you will need to know what you are doing. You must have the knowledge and an experienced team to ensure that the investment flourishes.

 

If you want the potential for higher returns…

You are exposed to much less risk as a passive investor. You are investing in a proven investment system run by an experienced commercial real estate operator who has successfully completed countless deals in the past. They use your capital to acquire and operate an investment and you receive a portion of the profits. Because passive investing is relatively hands-off and lower risk, the returns are typically lower.

Passive investing returns vary greatly based on the asset type, the operator’s business plan and experience level, the market, the state of the economy, etc. However, a great active commercial real estate operator will almost always receive a higher ROI than their passive investors.

Let’s say the commercial real estate operator acquires an investment and the compensation is structured such that passive investors receive 70% of the total profits and operators receive the remaining 30%. Even though the passive investors receive a higher overall portion of the profits, there are many more passive investors than operators, which means the 70% is spread between more individuals. The operators also likely collect other fees, like acquisition fees and asset management fees. Plus, the operators have much less than 30% equity in the deal. Because of these three factors, the overall return on investment is higher for operators than it is for passive investors. Depending on how much of their own capital they invest, their ROI can be well into the four figures (1,000%+ ROI).

Here is a very simplified example: The operators raised $3.8 million and invested $200,000 for a total investment of $4 million to acquire a $10 million apartment community. After 5 years, the apartment community is sold. The overall equity multiple was 2.0 to the passive investors, which means the total profit was $4 million to the investors. Let’s assume a 70/30 profit split. If 70% is $4,000,000, 30% is approximately $1.7 million. Since the operators invested $200,000 as passive investors too, they receive $200,000 of the $4 million in profits. Let’s also assume a 2% acquisition fee of the purchase price, which is $200,000. Between the return on their $200,000 investment as passive investors, 30% of the profits, and acquisition fee, they made $2,100,000 in five years. Based on a $200,000 investment, that is a 1,050% ROI (compared to the 200% ROI for the passive investors). And this is before accounting for other fees, like asset management fees, property management fees (if they have an in-house management company), disposition fees, etc.

The return on investment may be higher, but the return on time may not be. The operators invest a substantial amount of time acquiring, managing, and selling each investment opportunity whereas the passive investors are mostly hands-off.

 

If you aren’t an accredited investor (or don’t have a relationship with an operator)…

In order to in