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how to invest in RE besides being a landlord
Old 04-30-2021, 12:12 PM   #1
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how to invest in RE besides being a landlord

Networth is around $1.4 mil (both tax def and taxable accts), mostly in MF/ETF with about $70k in cash. I've been toying with the idea of getting a rental property, I'm very handy and fix everything around the house myself but currently too busy to take on the landlord job, plus SoCal housing price is insane so I'd have to buy out of state.


So what are some of the ways to get into the RE business besides being a landlord or buying REIT's ? I've heard of property investment partnerships but don't know where to look or get started. Thanks.
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Old 04-30-2021, 12:49 PM   #2
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Become employed by a mortgage lender, title shop, real estate firm (larger one if you don't want to sell as an agent), property insurance company, and more.

Buy stocks in companies that cater to real estate either directly or indirectly: banks, insurance companies, building materials, construction equipment, janitorial supplies, and more.
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Old 04-30-2021, 12:54 PM   #3
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Do you know any "investment type" people you can bring up passive investments in RE with?

I am in a 6 person partnership that I am a passive member of. One person is the spearhead for the group. We've bought and sold a number of different properties. Commercial, residential and multi-unit apartments.

Our current investments are in a large storage operation that was raising capital for acquisitions.

A guy a run with and another guy I work with are in it. We were just chatting over a beer and that is how it started. We aren't talking tons of money here. $50k or less total.

If you own a home, I do not think it is necessary. It does complicate my tax preparation, but not by too much. The Total Market index funds have the market cap of REIT already.

People/friends I guess is my advice. Find someone or a group who do it and see if they need passive investors.
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Old 04-30-2021, 01:15 PM   #4
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Find someone or a group who do it and see if they need passive investors.
I've thought about doing this. We have a good friend (our CPA actually) who owns several properties. It's occurred to me to ask if he might be interested in me joining him as a "silent" partner, just putting up funds but not being involved in the business on a day to day basis.


How do arrangements like that generally work?
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Old 04-30-2021, 01:23 PM   #5
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I've thought about doing this. We have a good friend (our CPA actually) who owns several properties. It's occurred to me to ask if he might be interested in me joining him as a "silent" partner, just putting up funds but not being involved in the business on a day to day basis.


How do arrangements like that generally work?
We formed an LLC partnership. 6 members. I own 13%.

The partnership has a few fees during the year and pays for the tax prep.

The primary partner does this stuff for a living, so he takes the lead. We have quarterly meetings and sometimes we put more $$ in. Sometimes we get a payout if a property is sold or we get a distribution.

Some will say that a "partnership" is the only ship that doesn't sail. You have to watch out for liability type issues. I keep my ownership small and stay passive.
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Old 04-30-2021, 01:33 PM   #6
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The primary partner does this stuff for a living, so he takes the lead. We have quarterly meetings and sometimes we put more $$ in. Sometimes we get a payout if a property is sold or we get a distribution.
How is income distributed? Do you get a monthly amount?


When you say you put more in sometimes, it that to buy another property or is it to cover expenses, or both?
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Old 04-30-2021, 01:38 PM   #7
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How is income distributed? Do you get a monthly amount?


When you say you put more in sometimes, it that to buy another property or is it to cover expenses, or both?
Let's say our investment gets a distribution of $1,000. I get 13%.

We keep enough in the LLC checkbook to pay for tax prep and filing fees.

New money is almost always for a new investment.

We did own some rental properties and there were maintenance issues. A frozen pipe that burst and we each had to chip in our % of the bill.

We divested all the rental units and now are sticking with commercial type investments where the LLC is passive. Just easier.

My experience may be nothing like other experiences. The 6 of us kind of like being in some deals. One we did was buying a commercial building for a local micro brewery. We helped them buy, they leased while the business was established, then they bought the building after building up funds. It worked out good for the 4 years or so we had it.
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Old 04-30-2021, 01:40 PM   #8
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Is there a reason you don't want to invest in a REIT? You would get more diversification that way, though of course you won't have any control on what they actually invest in.
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Old 04-30-2021, 01:44 PM   #9
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Let's say our investment gets a distribution of $1,000. I get 13%.

We keep enough in the LLC checkbook to pay for tax prep and filing fees.

New money is almost always for a new investment.

We did own some rental properties and there were maintenance issues. A frozen pipe that burst and we each had to chip in our % of the bill.
Thanks. I appreciate you sharing your experience.
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Old 04-30-2021, 01:48 PM   #10
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Is there a reason you don't want to invest in a REIT? You would get more diversification that way, though of course you won't have any control on what they actually invest in.
+1

The table below (from seekingalpha.com) lays out some very compelling reasons to invest in REITs rather than private real estate ("rentals").
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Old 04-30-2021, 11:30 PM   #11
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I would consider Fundrise or similar crowd funded RE investment that let’s you “participate” by selecting the properties to invest in.
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Old 05-01-2021, 04:07 AM   #12
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+1

The table below (from seekingalpha.com) lays out some very compelling reasons to invest in REITs rather than private real estate ("rentals").
+1

If one's existing portfolio is sufficient, I don't understand why somebody would want to take the risk in such an investment.
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Old 05-01-2021, 05:01 AM   #13
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I invest in multi-family partnerships through my friend who is a real estate agent and also manages the properties personally. CPAs are good source for finding local opportunities for private partnership investments. I have some commercial RE partnership through crowd-funding web sites which I don't recommend. Best deals are scoped up by private investors so what you get from crowd-funding platforms are sub-par and risky deals. You need to network with high networth individuals to find good deals. I hope this helps.

But overall, these are super-high risk activities and you can lose your shirt. If your networth is not over 1-2 million then I would not recommend private partnerships. There is very little transparency and things can go south very quickly unless you know the managers very well. Better to stick with REIT if you can't afford to lose the capital.
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Old 05-01-2021, 05:03 AM   #14
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For 1-to-4 SFH, you are correct: local RE is the way to go especially if you want to self-manage. I self-manage some SFH but I am slowly divesting and focusing on more passive RE activities as I near FIRE.
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Old 05-01-2021, 09:12 AM   #15
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I invest in multi-family partnerships through my friend who is a real estate agent and also manages the properties personally. CPAs are good source for finding local opportunities for private partnership investments. I have some commercial RE partnership through crowd-funding web sites which I don't recommend.
IMO, this is the best advice here. Deal with people you know, locally. My first RE deal was a limited partnership that owned an apartment complex. The reason I liked is it that the general partners got paid very little until the property was sold and then only if there was a profit. They had skin in the game. And, at the end, we all made money.

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Best deals are scoped up by private investors so what you get from crowd-funding platforms are sub-par and risky deals. You need to network with high networth individuals to find good deals. I hope this helps.
Re crowd-funding, etc. any time a deal arrives accompanied by a salesman or a fancy web site you can be sure it is stinky. Selling to amateurs in small amounts is the last thing anyone wants to do. It happens only if the heavy hitters and institutional investors have rejected the deal. I once had a guy pitching me and I shut him down by telling him that any deal that needed a fancy colored brochure to sell was, as far as I was concerned, an automatic rejection.

RE high NW I would suggest networking with attorneys, CPAs, and possibly commercial real estate brokers. That's where the good local deals become known and where they get put together. If you're not willing to buy local, though, I would suggest abandoning the idea at least temporarily. It will be too hard to identify and vet a deal from a distance.

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But overall, these are super-high risk activities and you can lose your shirt. If your networth is not over 1-2 million then I would not recommend private partnerships. There is very little transparency and things can go south very quickly unless you know the managers very well. Better to stick with REIT if you can't afford to lose the capital.
Well, the way I would say that is to avoid commitments that involve a serious piece of your net worth. Start with maybe $25K and over time maybe go a little higher as you get your education. Remember, investing is like school, except first you get the test and then you get the lesson.

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... The table below (from seekingalpha.com) lays out some very compelling reasons to invest in REITs rather than private real estate ...
Like virtually everything on SeekingAlpha, that chart was put together by someone with an agenda. Nothing is said about the "expenses" that can be sucked out of REITs by the promoters and their friends through self-dealing. Also nothing is said about the risk of paying too much, particularly in these market conditions where brick and mortar occupancy is declining. It is an almost completely opaque investment. In contrast, a local RE deal can be examined in excruciating detail, including the players and the property. I am not blanket criticizing REITs; there are good ones. But I would stay far away from whomever made that biased table. I'll venture a guess that he is selling a REIT investment letter or program. I never read SeekingAlpha. "Crowd sourced" there usually means "huckster sourced."
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Old 05-01-2021, 03:47 PM   #16
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About 25% of my assets are invested in crop-shared American farmland. This particular investment has the combination of features that everyone on this board is looking for:
• high maintenance
• high risk
• low return

Well, I'm kidding (a little) . On the positive side, farmland is a good inflation hedge. A long time ago my grandfather claimed that the average long-term return on farmland was around 3% (long-term capital gains on the land + net annual income). I haven't done this particular calculation for my tenure as farm manager, but this seems about right even today. There are so many threats facing the typical grain farmer that it's a miracle they ever turn a profit at all .

I'm glad that this particular investment is part of my life because it gives me insight into the rural American economy. As the saying goes, farming is not just a business but a way of life. Some of our tenants might live "in town", but the town may be only a couple of hundred people. These folks can't imagine living in the "big city".
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Old 05-01-2021, 04:58 PM   #17
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So what are some of the ways to get into the RE business besides being a landlord or buying REIT's ? I've heard of property investment partnerships but don't know where to look or get started. Thanks.
I guess you missed those heady days in the early 1980's when you could buy shares of these amazing new limited partnerships that your friendly Merrill Lynch broker insisted were not only super duper tax shelters but eventually they'd yield crazy capital gains to boot! All with low risk. I put close to 10% of my youthful net worth into a John Hancock backed one and a Carlyle one. Then the tax laws changed and it was downhill from there. Eventually, I ended up losing more than half of my investment even after accounting for the initial tax benefits. By the 90's, the quarterly and annual reports were depressing reads as the general partner would make the decision to walk away from one property or another. I specifically remember the story of one building damaged in the 1989 San Francisco earthquake that was let go because it was unclear if it could even be repaired and without tenants for an extended period, there was no income. And don't get me started on the fun of tax preparation. Fortunately, by then, I was using DOS-based tax software that must have calculated properly because I never had IRS problems. Ah yes, the good old days! https://www.journalofaccountancy.com...ul/knight.html
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Old 05-01-2021, 05:05 PM   #18
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... Merrill Lynch ... John Hancock ... Carlyle ...
Still true today. Any time you see names like that in a deal you can be sure it stinks. They are not going to waste time and energy selling to retail investors unless they have no other place to take it.
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Old 05-01-2021, 07:34 PM   #19
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Can't you shop for property management companies in the area? Or is it affecting your profit too much to have someone else (likely more resourceful) to take care of the rental property?
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Old 05-02-2021, 09:52 PM   #20
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Can't you shop for property management companies in the area? Or is it affecting your profit too much to have someone else (likely more resourceful) to take care of the rental property?

That's another option I supposed, but more interested in being a passive investor at this point.
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