How to Invest in Real Estate Passively (No Landlords, No $100K Needed)

I just made every mistake in the book. I had never learned the fundamentals of real estate investing. It was very humbling when 2008 came.

Welcome to the High Voltage Business Builders Podcast, a show where we interview high voltage entrepreneurs growing and scaling through e-commerce, real estate, and other wealth without Wall Street ventures, showing you the path to making your first or next million.

All right folks, welcome back. We got an interesting conversation today. If you're in the world of real estate, you've considered investing and you don't want the toilets, tenants, and termites, and you don't wanna become a landlord, but you do want cash flow, appreciation, and tax benefits, then you're going to want to pay attention today. If real estate investing seems to you like something that's way off in the distance, or maybe it's extremely expensive and you've wondered, how can I get involved with other people in the idea? Or maybe even a tribe building around the idea of investing. And maybe could I do it for 5 or 10 grand, not 50 or 100 grand? How do I get started? If I've been thinking about it, then this is the episode you're going to want to pay attention to. I brought on a guest here today, Brian, who's going to go over this with me. He built tribes Around fractional reserve real estate investing. And so we're going to talk with, you know, about what that means. We're going to get into the details. We'll have some fun today. Who knows what conversations we will spawn into as we have this conversation today. So guys, I welcome you to the call once again. Brian, thanks for joining me, sir. I appreciate it. And let's dig in here on some of this. Did I get your intro good enough for you?

Should we, is that it?

Should we just end the call now?

It was beautiful. It was a work of art. Got it.

All right, there we go. Not bad for off the cuff, right? Tell me about this, the world of real estate. What does it mean to you and where have you been at and where are you going?

Yeah. So the 30-second overview of how I got into real estate in the first place, I just fell in by accident out of college. I worked for a hard money lender right out of college who happened to be a friend of my stepdad's. And I didn't know anything about finance or real estate or hard money lending or any of that stuff, but I ended up enjoying it. As a hard money lender, I was working exclusively with investors. So this was back in the early to mid-aughts. Everybody is making money hand over fist in real estate, working with people who are buying fixer-uppers, renovating them, and then either flipping them or keeping them as a rental property, refinancing. And I'm watching all these guys make money. I'm like, I could do that too. Like, I'm smarter than those guys. Like, why am I not doing that? So I went out and I bought a ton of properties. I put every penny that I had to spare in buying rental properties. And most of the cases I would, I was doing the BRRRR strategy. So I was buying the, buying fixer-uppers, renovating them, and then refinancing to keep as rentals and, you know, pulling my down payment back out of them. And I just made every mistake in the book. I never learned the fundamentals of real estate investing. I just, you know, stupidly assumed that I knew everything I needed to know by, you know, somehow by lending money to people who were doing that. So Yeah, it was very humbling when 2008 came and not only did all of my investments completely collapse, but sort of my day job, because my day job was working with real estate investors. All of a sudden nobody's investing in real estate anymore and it's certainly not flipping houses or anything like that. So yeah, it was back to square one for me. But I went on and I worked for an e-commerce company that specialized in working with mom-and-pop real estate investors. And the only reason I got that job is because I myself did own properties. So, you know, it is true what they say that, you know, one door open or one door closes, a window opens, you know, that's just how the universe works. So I spent, yeah, I spent a long time working for that company. In 2016, a coworker of mine and I split off to start our own company. And I was living abroad at the time. I'm still actually living abroad. And we can, we can talk about that if you're interested, if you're listening.

Talk about all this.

Um, to wrap that up. You know, we've, we've been in business for going on 9 years now. And, you know, it's, it's so true that what you think your business is, is not necessarily what the market thinks your business should be. And, you know, so yeah, I mean, call that the entrepreneurial journey. Exactly. Exactly. So yeah, you know, our business has evolved quite a bit over the years. Our, our main focus today is completely different from what we were doing when we first started. The only similarity is that we're still servicing real estate investors. Yeah. I mean, you know, when we started the business, we thought that our business was going to be a one-stop shop landlord software for mom-and-pop landlords because at the time there wasn't really a good one out there and they're still kind of limited. But, you know, neither my partner nor I are technical part or founders and, you know, and we did end up launching a software platform, but our business has really become more about education and co-investing. It's been, it's the focus has shifted towards passive real estate investments rather than active real estate investments. So yeah, I gave you a lot to chew on there, but that's the high-level overview of how I got involved in real estate.

Yeah.

Let's unpack the you person a little bit because you said some really cool things in there I want to get into. And that's, you know, for the mindset of somebody listening to this in business, real estate, finance, investing, e-commerce, whatever it is, there is something you said that's critical. You pivoted. I use the term pivot, but you kind of said, you know, I had to turn. Tell me why you didn't, you know, why didn't you keep going? What was your tenacity? What was your drive? What was your motivation to do something? Why didn't you just give up and go do something else?

Well, there's a couple answers to that question. So for one thing, like I mentioned, I was living overseas and I wanted to build my own online business that I could work from anywhere in the world. And my wife and I have lived in several countries since then. We've moved around the world quite a bit. Um, so I wanted something that was completely my own where I could work anywhere in the world. I did not want to just go get another job. Um, you know, I've always had an independent streak. Of course, when you go into business, you know, I feel like no one really tells you that being an entrepreneur is way harder than being an employee, you know, and that really you only become an entrepreneur if If that's the only option that you see on the table, like, like I have to do this, you know, like this is my mission. This is my calling.

Like, I have to get out of this. I have to stop this. Is there some pain involved in something greater than keeping your current status quo? Right? Yeah.

And because it's so much harder to be in business for yourself than it is to work for someone else. So, you know, if you can see a path forward to happiness being an employee, then go do that because that's easier. But yeah, I really, I, I've, I felt called to be an entrepreneur. I really wanted to have an online business where I could control my time, control my location. Uh, and that is what I have built for myself. It took a lot longer than I thought it would take. But yeah, you know, one of, one of the things that happened to us very early on, we, we hired a software developer and they ran off with our seed capital, basically.

Wow.

So we no longer had enough money to build out the software platform that we wanted to create when we first started the company. So we said, well, we still want to do this, but we, we don't have enough money to do what we have initially set out to do. So we said, all right, let's start with a focus on education. And then we will build out the software platform, you know, with other developers and kind of on our own and we'll piece it together over time, which we eventually did. But in the course of focusing more on education and teaching people how to invest in real estate, you know, how to become a landlord, how to build passive income from real estate, we discovered that that was actually a huge area of passion for us and more of an area of passion than software, which, you know, like I said, Yeah. neither my partner nor I are technical founders. So that became, that took on a life of its own where we, we started launching online courses to help people get started in rental investing and real estate investing more generally. And launched a series of courses, reaching financial independence from real estate. And one of the questions that kept coming up again and again from our course students and from our audience was, hey, I'm not quite ready to go out and buy a property by myself yet, but I have a little bit of money to invest. Like, can I just invest with you guys on a project that you are doing? And this as a, so we kept saying no to those people, but that question kind of Made me, it forced me to confront the fact that I was a little bit out of alignment where I was teaching real estate investing, but I wasn't actually investing in rental properties anymore. I still had some rental properties back in Baltimore, but I was living in Abu Dhabi at this point.

Cool.

My wife took a job.

Yeah.

Yeah. So, and so we were living across the world in Abu Dhabi and, you know, I didn't feel great about the fact that, you know, I was teaching rental investing but wasn't actually investing anymore in rental properties. And then at a certain point, I actually ended up selling off all those properties and getting rid of them. And then I really felt out of alignment with it. But it was around that time that I discovered passive real estate investing first through real estate crowdfunding platforms and then through real estate syndications and later through JV partnerships and other private partnerships and real estate equity funds and debt funds and private notes. So I loved that. I loved that I could do it from anywhere in the world. And I went to my partner at a certain point and said, you know, hey, people keep asking us if they can invest with us. Maybe we try to find a way to say yes to that. You know, how could we make that happen for our course students? So we started by partnering with an investor in Michigan and we did a couple deals with him, single-family home deals, and we allowed just our course students to join us on those deals. And those deals did fine financially, but We realized that they were way too much work.

Yeah.

So then we went back to the drawing board and I was like, well, you know, what if we went in on some passive real estate investments together?

Okay.

What if we tried a real estate syndication together, for example? So that instead of, so that, yeah, one of the challenges with syndications is that they have a high minimum investment, much like buying a property by yourself.

They're typically going after larger multi-tenant size, you know, deals that are $5, $10, $20 million in size, right?

Right, exactly. So, you know, limited partners who are passive investors in those deals, they must typically come up with at least $50,000 or $100,000 depending on the deal. You know, it's a relatively high minimum investment and it's comparable to what you would need for a rental property, you know, between the down payment, closing costs, initial repairs, cash reserves, that sort of thing. But, you know, that's a lot of money for a middle-class person to park in a single investment.

Right.

You know, whether that's a rental property, whether that's a real estate syndication. So we said, well, you know, what if we went in on one of these real estate syndications with some of our students? You know, what if we all pooled our money together and went in on one of these, you know, as a single LLC, you know, a single limited partner in this deal so that each of us could invest, you know, 5 grand or so instead of 50 grand or 100 grand. And my partner was like, let's try it. So we did, we did a pilot deal there. It went well. We got, really positive feedback from our course students. So we did another one and then another one. And then we said, well, you know, do we have to restrict this to just our course students? You know, could we open this up to the general public? So we sat down with an attorney and he said, yes, you can. You know, it's the classic investment club model that people have been doing for decades. So we did, we opened an actual investment club. We call it our Co-Investing Club by Spark Rental. And This is what we do month in and month out. We get together as a club, we vet different investments, we go in on them together so each member can invest relatively small amounts in these deals.

Okay.

And it keeps the deal flow going. It lets people diversify and spread small amounts across a lot of different deals.

And it's fun.

It's a lot of fun. This is, this is, and I feel completely in alignment with it because this is how I personally invest in real estate every single month. I'm in the trenches alongside of our members. Investing my own personal money as just one more member of the investment club. So—

And what kind of assets are you going after? Like what are you acquiring? Multitenancy, 4, 200 units? Like what are you typically going after?

Yeah, so that's a wonderful question. One of our core values is diversification. So we are agnostic on property type, even on investment type, as long as it is a passive real estate investment. So, and it's worth Pausing for a moment to clarify, we're not operators ourselves, nor are we a fund of funds. We are strictly a flat fee investment club. So our members pay us a flat monthly fee or annual fee to be members in our club, but we don't get a cut of any of the money that is invested every month by our members. We're not selling securities. So, you know, we're not out there like raising money ourselves for our own deals. We're not going out there and like buying apartment complexes ourselves. We are simply organizing the investment club. So that's, that's an important distinction because a lot of people, when they first hear about us, they're like, oh, so you guys are a fund of funds, or you guys are an operator or something. No, we are not. So, and that frees us up to invest with people who do specialize in certain types of investments. So we've, we've invested in a lot of multifamily syndication deals. We've invested in industrial deals, retail properties. We've done private partnerships with house flippers and spec home developers. We have lent out private notes. We've invested in equity funds and debt funds. We've done it all really. So, and that's part of the beauty of what we're doing is every month it's a completely different investment in a different geographical location with a different operator. So it spreads our risk out, you know, in across all of those different variables. And perhaps even more importantly than any of those variables is the time diversification, the time commitment for these investments. Because that can be a deterrent for a lot of people that are first getting into passive real estate investments. Your typical syndication deal, for example, there's a time commitment usually in the 5 to 7 year range. So we also look for some shorter term deals. We've done investments that are as short as 9 months. We do others, 1 year, year and a half. Some of them are more medium term, like 3 years, along with some of the more traditional 5 to 7 year investments as well.

That fits a bit of diversification in the type of investor profile or something. someone's needing or wanting to do in terms of where to put their money and how long to keep it in there and make it active.

Right.

And it's nice to be able to ladder your investments so that they're coming back to you at, you know, kind of punctuated intervals. So, you know, you, you're not locking up all of your money for the next 5 years or the next 7 years. You think, well, you know, some of it's going to come back in a year from now and then, you know, this other one's going to come back in 2 years from now and this one will come back in 3 years from now and the other one will come back in 4 years from now and, and so on. So that, You know, none of us know what the future holds, but, you know, keeping that flexibility of having investments that will be coming back to you on different timelines, it helps you prepare for an uncertain future.

Are you leveraging banks at all in any of this or just straight, the straight up crowdfunding aspect?

So the, in the typical syndication deal that we invest in, the operator is borrowing a loan. So, you know, for anyone who's not so familiar with how syndication deals are structured, Normally what the operator will do is they'll say, well, there's this $10 million property that I want to buy, you know, whether it's an apartment complex or, you know, whatever it is, I'm going to go out and I'm going to borrow $7 million of that from a bank as a loan. And then I'm going to put another $1 million of my own cash involved, but that still leaves me $2 million short. So I'm going to go out and I'm going to raise that final $2 million from passive investors like us. So we become basically silent partners on these deals, these larger syndication projects. The technical term is limited partner, but we are equity owners. We're entitled to cash flow and we get appreciation and we get the tax benefits. You know, we get a K-1 with great tax benefits every year. So that's kind of—

So you have a fund that basically fills in the gap for those who are already investing in some of these larger deals, which means you may take a $1 or $3 or $5 million position in the deal as a main, you know, a minority limited partner who takes cash flow out while you're not operating or funding the majority of the deal. You are getting the benefits of the cash flow?

Yeah, so we become basically fractional owners of these larger properties, and the operator is going out and getting a loan in most cases to fund some of it, and then they raise some additional capital from us. You know, we step in as like fractional partners, fractional owners in these larger property deals.

Now you work with a series of individual or investor groups already that you kind of have floating around looking for these deals, and you kind of step in as the fractional money, or do you go out and find new ones, or?

So we're our own investment club. So most of our members are just working professionals who they want to add real estate to their portfolio, but they don't necessarily want to become a landlord and they don't necessarily want to park 50 grand or 100 grand at a time in any one investment. And then, you know, we'll, we will then meet as a club every month. We'll look at different passive real estate investments, say, okay, you know, this is the one we're looking at this month. Anyone who wants to participate in it can do so. Like, you know, here's the operator. We'll bring in the operator to come and answer questions. directly from all of us as a club. So we'll all grill them and, you know, try to poke holes in the deal from 50 different angles. But it really helps to have, you know, 50 sets of eyeballs on these deals and, you know, have all of our members' different experiences coming together to vet these deals as a group. So, you know, a quick example of that, we have a member of our club who's very active, who is an insurance adjuster. So she's always grilling operators about like, well, you know, why, why are you only projecting this much for insurance premium growth over the next year? And, you know, and then we have another, often we'll have a, a member who lives locally wherever that particular investment happens to be. So they'll be able to say, you know, yeah, I drive past this property every day on the way to work. And, you know, I can tell you firsthand that, you know, there is a lot of demand for housing in this area, but not enough supply or vice versa.

Right.

And say, maybe we shouldn't invest in this deal. So that's really helpful. Just to be able to vet these investments as a, as a group of people instead of you kind of on your own by yourself trying to figure it all out on your own. Yeah.

A lot of people think about, well, putting money in and parking it somewhere. What's my, you know, APY? How do I get, you know, returns on that, on that investment if I go and hold it? Or how do I get back, you know, $5,000 a month in cash flow? Let's say I've got, you know, $10,000 sitting and I put that in. What's that possibly gonna return me every month? Do I get a cash out every month? Do I have to wait every quarter? Do I have to wait till The deal is done, the cash flow out. Let's say, you know, create a hypothetical for me real quick as a, you know, an average investor who might be listening to this and saying, hey, I'd like to make an extra $3,000, $5,000, $10,000 a month. How would I do that working in your tribe?

Yeah, so we, as a general rule on our equity investments, we aim for mid-teens returns or higher as total returns on the deal. Now, in a, In a lot of those deals, some of that will come from distributions, you know, cash flow while we own the property. And then some of it will come as profits when the deal sells in, you know, 3, 4, 5, 6 years. But I mean, what we have seen is that most of these deals will cash flow in the 4 to 9% yield range as the income portion of the returns. And then the rest of the returns will come on the back end in the form of profits when the property sells. So those, that's for our equity investments. We aim for mid-teens or higher. For debt investments, we accept returns that are a little lower if we think that it's a very low-risk investment. And those are all income. I mean, it's all just interest income. So 10 to 12% is really what we're willing to do. For debt investments where we're just getting monthly interest payments on it. But anything less than those returns, you know, it doesn't really make sense for someone to pay a membership fee to be able to access the returns.

Yeah.

And we're, part of our mission is really finding asymmetric returns, finding investments that offer asymmetric returns. So relatively high returns, high potential returns with relatively low risk. A lot of people A lot of investors get caught up with sort of 2-dimensional thinking about investments, and they just look at the axes of risk versus return. There's all these other components. There's all these other factors that go into investment decisions, you know, that people that can skew that. It's not risk is not the only factor that determines returns. And that is what we're going for here. You know, people when they first hear, oh, you know, you're aiming for 15%, 20% returns, but you're saying that, you know, it's low to moderate risk, you know, that doesn't make any sense. That sounds scammy. You know, how could that be? And that's because there are other factors at play, like liquidity. If you can't access your money for 5 years, 7 years, that is a factor at play. You know, that is why private equity has historically returned higher returns than the stock market and certainly than bonds because it doesn't have liquidity. You know, I mean, that, that is part of the downside or the sacrifice, if you will, that you're making. So you can, you can find low-risk investments that pay 15%, 20% returns. And maybe you don't get your money back for 5 years or 10 years even, you know.

Yeah.

You gotta sit on it for a while, which for some people feel, it feels extremely risky in today's marketplace or just, you know, unknowns and factors and questions. Right.

Liquidity is, is an element there.

Yeah.

You know, the time commitment is a, a factor there. I mean, you know, the, the shorter-term investments that we make, you know, those, some people see those as lower risk or, you know, but, you know, maybe they don't have the returns, right? I mean, there, so there's all these factors at play. You know, personal values is another one of those. You know, factors involved in investment decisions. I was just looking at these numbers the other day that if you look at the returns on oil and gas drilling, they're very high historically and pretty consistent. You know, they're consistently in the high teens or better, but a lot of people have personal values that conflict with that and don't want to invest in oil and gas drilling, right? And I'm not saying that we do. We don't invest in oil and gas drilling. I'm just offering that as an example of how There are all these other dimensions to investment decisions beside risk and return. So it is absolutely possible to go out and find asymmetric returns. And that's what we're trying to do in our investment club. We're trying to find high returns with relatively low risk, but there are other variables that you have to consider, like liquidity, like time commitment, et cetera.

And hopefully people are paying good attention to that because that's a smart way to think about this in terms of your investment strategy and what you're into, you know, and invest in what you know or invest in the knowing is what we always say. If it's something you want to know about, definitely check it out, guys. If you are looking for those high returns in real estate, if you're looking for the tax benefits, if you understand the model that was explained today, this might be something you want to check out in the notes at sparkrental.com. Go see what Brian's doing. Have a conversation. See if it's a good fit for you. The goal here with these podcasts is always to introduce people to ideas and people of your nature. You're doing it yourself. You're in your own business. You've built this. You have struggles. You pivoted. You figured out where your sweet spot is and you're doing it. And that's one of the stories we love to tell about this, which I appreciate you telling me today.

Neil, it's been a lot of fun. I appreciate you having me on to chat about this.

No, I appreciate you, brother. And is there something I didn't ask or a question that we didn't bring up on the, you know, you wanted to cover today that we didn't get to yet? No.

I mean, I think the main thing that I want people to consider if they've never heard of passive real estate investments or, you know, they only know at a glance You know, what maybe a syndication is, or that there are so much out there, so many ways to invest in real estate that don't require you to, you know, roll your sleeves up and flip houses or become a landlord. You know, you have all of these different ways to invest from real estate equity funds and debt funds to private notes and JV partnerships and real estate syndications. And, you know, the list goes on and on. And crowdfunding and REITs, of course, as well. There are plenty of ways to passively invest in real estate. Where you're just writing a check and not actually having to do any of the labor. So look into them, find ones that are a good fit for you if you want to add real estate to your portfolio, because you have plenty of options on the table.

Awesome.

Well said.

Thank you, sir. Appreciate you coming on.

Thanks for having me. It was a lot of fun.

All right guys, as always, like, comment, and share. Help us beat big tech, even if it's snide comments. You don't care. Get us on YouTube if you want to watch the video, Apple Podcasts, Spotify, everywhere else. Uh, make sure you check out the show notes and things that are going on with Brian. If it's, you know, crowdfunding, real estate investing, and you want to get with a tribe and understand more about it, I would encourage you to check it out. Have a great time, guys. We'll see you on the next episode.

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