I used to think there was such a thing as passive investing, but I no longer believe it exists.
Rather, I don’t think that truly passive investing should exist.
Why? Because no one cares more about your money than you do. You need to put in some time and effort to maximize your passive investment opportunities.
Today, we are going to talk about the activities that you should expect to carry out as a passive investor in multifamily real estate.
Join us in the video below, or read on!
Learn From Our Mistakes
A long time ago I got into the restaurant business, and it was set up as a passive investment. I had the capital at the time and I hired experienced operators to run all of these restaurants.
I would just finance the restaurants, sit back, and count my passive income. Which sounded good on paper.
And it worked well for about 3.5 years…and then it stopped.
Long story short, I ended up basically managing my own six restaurants every single day. I'm driving back and forth between the restaurants, meeting with the onsite managers, and putting out (figurative) fires. IT WAS HELL.
Similarly, I talked to another guy who invested in a coffee shop that went south, and he ended up having to operate and ultimately sell the coffee shop. That’s definitely not what he thought he was getting in to.
Our own Bronson Hill at Nighthawk Equity got started in what he thought was passive investing by operating single-family homes. Turns out, he spent more Sundays dealing with tenants and headaches than enjoying the day with his family. Not such easy money!
We all made the major mistake of going into these things thinking they were passive investments. But truly, there’s no such thing.
Complacency is the Enemy of Study
If you ever take your eye off the ball, you become complacent. You don't really know what's going on anymore. And the same is true for investing passively in multifamily syndications.
While in the spectrum of things multifamily investing is incredibly passive, no one should sit back and not watch their investment.
But that's what the vast majority of people do. They think that their financial advisor actively manages their portfolio. (Some advisors do, most don’t). They just keep investing money every single month, and they rarely look at their statements.
Come tax time they look at their annual account statement and they say, “Oh, it went up!” Or, maybe it stayed the same or even went down. They had no idea. And I think that's a mistake.
With very little effort, you can have a disproportionate impact on your net worth in your portfolio. So nothing should be purely passive.
Again, in my experience, no one really cares about your money like you do. So you really need to have a strong interest in being prepared and educating yourself. A lot of it is learning, networking and education.
Luckily, we have a lot of resources that you can use to educate yourself. Check them out at the end of this article. You might consider increasing that learning curve by going to one of our events.
How much time each week should a passive investor expect to spend doing their due diligence and networking?
There’s a guy that we know who spends about 10 hours a week just networking with other investors to find deals. He’s a full-time passive investor and he’s just out there looking for deals.
And so you would ask him, is this actually passive? And he'd say, “Well, no, I'm really busy.” But in the grand scheme, it’s still a lot more passive than active investing, where you’re putting the deals together or operating the building.
Now, I’m certainly not saying you have to spend 10 hours a week educating yourself or networking as a passive investor. Honestly, that number seems a little high to me. The guy that I referenced is fairly maniacal. And some people are just like that; they get very involved in the documents, the due diligence, the site visits, etc.
All right, that's fine. But the vast majority of passive investors are not like that. They are not getting into the weeds with the deals.
In reality, where you will spend most of your time as a passive investor is upfront. By that, I mean the time you're spending educating yourself about the investment you're making in multifamily syndication.
That's #1 and very important. #2 is you've got to find someone to invest with: An Operator.
Finding an Operator
Maybe you’re going to networking events and you're wondering, “well, who's experienced and who do I want to invest with?” The truth is, you’re going to spend a lot of time interviewing and finding an operator to invest with because it’s a long-term partnership play.
But here's the good news. Once you actually find that person to invest with, you’re likely to stick with them.
Related Article: How To Vet a Multifamily Syndicator
The average passive investor does not invest with 10 different operators. They invest with 1, maybe 2, at a time. Why not more? Because the syndicators with a good track record, like us, are doing 6 deals a year. There's always a flow of deals, so there's really no reason to invest with multiple operators.
Related Article: How We Find Large Multifamily Deals
So what I'm saying is YES, you might invest time upfront to find that operator, but once you do, you just keep investing with them. Once you invest, you get your monthly reports and the average passive investor will look at the narrative and say, “Hey, everything's on track. This is great!”
The overachiever might actually crack open the financial reports to look at the rent roll and all that. Very few people do, especially if things are going on track.
Bottom line: once you make an investment and the cashflow starts coming in and the property stabilizes, it doesn't really take any work at all. You just look at your email, make sure everything is on track, and cash your check. Boom.
If you’re ready to start a conversation with us at Nighthawk Equity, please go to our website and select the JOIN button to schedule a call. We’re looking forward to getting to know you!
Our passion is helping people achieve financial freedom through passive investing. One way that we do this is through education.
I hope you’ll take the time to invest in yourself and check out the recommended resources we have for you about multifamily investing. Thanks for being here!
FREE Special Report: What’s the Best Investment – The Stock Market or Real Estate?
My Best-Selling Book: Financial Freedom with Real Estate Investing
Video/Article: How Should I Allocate My Net Worth as a Passive Investor?
Video/Article: How to Project Your Passive Investment Income
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