#101 Roadmap to Passive Real Estate Investing

Foreign. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now, let's get on with the show. Hey, everyone. Hope you've had another great week. I know I start out every podcast by wishing you an awesome week. And I know that, honestly, not every week can be awesome or perfect or things may not have gone your way in every single way. But you're listening to this. You're spending your time educating yourself, investing in yourself, and I want to congratulate you for that and really honor the time and effort you put into learning about all of these things. And so hope you had an awesome week. This week's episode is going to be a good one because we're going to be talking about how to start investing in passive private real estate deals. If you don't know what I'm talking about, I'm talking about deals like syndications or funds. I get so many questions every single week about how do I get started? I hear about it. These things sound interesting, but I don't know how to get started. Well, I know that the process of investing all of this stuff can be intimidating. I mean, there's a ton to learn. There seem to be so many different options, so that trying to narrow it down to just a few opportunities or making the decision on what to do, it can be difficult. I mean, you're like, looking around, there's like a menu of options. Like, I always tell people, I used to work at the Cheesecake Factory. Like, when you look at that menu, there's just so many things on that menu. Sometimes people don't know where to start. I know that can be the same for when you're thinking about investing in real estate. And I know that if you've been reading my blog or listening to this podcast for a while, you know that I absolutely believe that real estate investing is one of the best ways, most sustainable, and also quick ways to build streams of passive income and ultimately achieve financial freedom. But the question always comes out, how do I get started? Or where do I start? And so I think that in this week's episode, we're going to be trying to lay out a little bit of a roadmap that you can take to get where you need to be. Now, I will tell you, and I'll just admit, there's just no one perfect way. However, in my opinion, there are a Few wrong ways. Number one is to sit there and do nothing for years and just talk about it. Number two, I think the other way is to just dive head first and put all of your resources in investments that you know nothing about. And so if you can avoid those two things, at least you're starting off on the right foot. And we're going to start out by saying that the best way to start actually is by educating yourself. And that's a simple one. First step in any venture, in any direction that you take is to learn more, to educate yourself on as much of the process as you can. Now, while it's good to learn as you go, and I'm a big fan of that, the more prepared you are ahead of time, the better. So I think it's really important to determine your investment style and your appetite for risk or your desire to spend time, energy and effort on the type of investment. Now, I know that some people want to be active and we talk plenty about being active and being your own landlord in this episode. And for this talk, we're going to be talking about investments that are on the passive side. Now, just so you know, this whole investing spectrum from active to passive, it's not like there's one side or the other. It's not left or right, black or white, these kind of things. It's very much a spectrum from active to passive. The more hands on you are, that's more active. When you're a landlord, the more passive you are, meaning that you invest in other people's deals, the more passive it's going to be. The reason it's important to understand the characteristics of active investing, being a landlord versus things like passive investing like syndications, funds and REITs, is because they both have their pros and cons. My quick 30 second on it is that when you're active, it requires typically the most experience, the most level of hassle and time. You're probably not quite as diversified because you got to put a good amount of capital in there, but you do have the most control, especially when it comes to like tax benefits and how you want those returns to go. And typically you have lowest layer fees. Now, on the other side, on the passive side, you typically don't need as much experience because you're leveraging someone else's. So you don't spend a lot of time, you have the least amount of hassle, you can diversify a lot easier. The thing is, you don't have a lot of control and you're going to be paying for leveraging other people's experience in the form of fees. So in educating yourself, you're going to hopefully find your way into one camp or the other in terms of how to take the initial step. But again, you can ultimately end up in a place where you have a hybrid approach, where you have both active and passive. And that's what I've done to really mix and match to get exactly where I want to be. But for this discussion, my assumption is that you want to spend as little time on it as necessary. Leverage other people's experience, strength, time, knowledge, team to get where you want to be. If that sounds like the characteristics of an investment, then you can just sit back and do what you do best, spend the time how you want, and then ultimately get those returns very, very passively, you know, at the end of the day. Now, once you've determined which end of this whole real estate spectrum you feel most comfortable with and fits your goals, you can begin to narrow down exactly which investment options work best for you. My assumption is, if you're listening to this and you want to continue to on this track, is that you'd like to go more of the passive route where you're not a landlord. So on this route, you pretty much have three choices, I'd say for the most part, syndications, real estate funds, and REITs. Syndications are when people pull capital together to purchase a property. For example, somebody is buying an apartment building and they get investors together to raise however, millions of dollars to go and buy that apartment building, that syndicator or that person who runs the deal or sponsor or operator that you might be, you know, they might be called, they manage the whole deal from front to end. And your role as an investor is more of a limited capacity where you just invest your capital. They make all the major decisions to ultimately drive and steer this investment to the place where investors like you get a nice return of cash flow and then a nice lump sum of cash, hopefully at the end of the deal, when the deal is done. Or maybe you want to invest in a real estate fund. Now, funds work a little bit differently. They're not so focused on one specific property, but it's like where you take a basket of properties and you're investing in that. With one investment, your capital is pool to go out and purchase five, 10, maybe 15 or 20 properties and you get some diversification from that one investment. Maybe that's something that sounds more interesting to you. Otherwise you can invest in REITs. Real estate investment trust is what it stands for. They're companies that own or operate real estate investments. As an investor, you're not investing as an owner in the properties. Exactly. You're investing essentially as a shareholder of that company, of that reit. Now, these shares are typically traded on the public stock market, and so there is something called liquidity there. So you're able to easily, at least more easily, buy and sell these, especially with the click of a button. However, as an investor, since you don't own the property directly, you might not be able to take advantage of all the great tax benefits of investing through a syndication or fund. And so potentially your upside potential can be capped as well. Now, there's a lot more to syndications, funds and REITs that we could go into, but for the purposes of this episode, we're going to keep moving on. Now, many of you have probably heard of what's called crowdfunding, and you're wondering what that is. Is that a way of investing? What, what is exactly does it mean? So to me, it essentially is access. It is access to these types of deals, and you'll find them online. Back in the day, you had to have some sort of direct connection to the sponsors to have access to these deals. But because of what's called the jobs act, in 2012, it allowed for a lot of these deals to be advertised online to accredited investors, which is why you might have started to see them on Facebook and Instagram and these type of things. So what these crowdfunding platforms do is they essentially are a listing place for sponsors to come and list their deals to get it out to a wide audience. Think of it as like a bulletin board where you now, as an accredited investor, you can go in, log in, sign up for the platform, and then see a bunch of deals there that you could decide to invest in or not. That's how I started investing passive real estate deals. I started with a crowdfunded deal, meaning a deal that I found on a crowdfunded platform, crowdfunding platform, and that was for $5,000. Because some of these platforms tend to aggregate capital with to a large amount of people, you'll typically find that the minimums are on the lower end. Although I found lately, over the last year or two, is that a lot of these platforms that are a little busier, that have more deals that raise a lot more capital, they've tended to raise their minimums as well. Now, each of these platforms, they'll tell you that they do their own due diligence before a deal is allowed on their site. And I absolutely believe that that does happen because they probably do see hundreds of deals every single month. However, it is absolutely important still for you as an investor to go on the site and not just trust their due diligence. And the fact that it's on the site shouldn't be enough for you to say, hey, this is a good deal that I should invest. You should learn how to do the due diligence yourself. Just think of it as access. When you see a bulletin board, you know deals are going to be put up there, but it really doesn't necessarily tell you exactly what the quality of the deal is and whether it fits your goals and objectives as well as your risk tolerance. Now, crowdfunding platforms make it easy for you to find deals, but that's not where the majority of deals are. The majority of deals are found through connections that you might have. Again, in the past I mentioned before the Jobs act, you had to know someone and these deals were often referred to as country club deals, where a lot of these deals were shared in country clubs or in backrooms or, you know, it's just different social circles. I will say the good thing about crowdfunding is that it really opened up people's eyes and the ability for people to get out there and see that these deals do exist. One thing I have noticed is that quality operators have actually started to spend more time really marketing to crowds on these crowdfunding platforms. But I know many of you thinking, how do I find these deals? You know, we try to do our best to share some of the deals that I'm looking at that I'm investing in our Real Estate Insider newsletter. If you have no idea what that is in our newsletter, we have a newsletter where we just, there's no fluff there. There's a couple deals that we see. We just send them out to people if they're interested in looking at them. If you want, you can go to passiveincomemd.com realestate insider to get on that list if you'd like. But you also might meet some quality sponsors when you go to summits, when you go to conferences on some of these blogs, you might see some of these sponsors as well. On certain podcasts, you'll see guests come on who talk about their own platforms and things like that. One of the best ways I found is to find experienced investors and ask them who they're investing in and who they're investing with. Then you can not only hear about these sponsors, but you can get firsthand experience from those people as to how have your returns been how has the communication been? Have they followed up and actually executed on the business plan like they've said? Do they tend to outperform some of the projections that they put out there? These are things that you can't find out unless you actually invest with someone or you know, someone who's invested with someone. Real quick, are you thinking about investing in passive real estate investments like syndications or funds? Maybe you don't even know what a syndication or fund is. Or maybe you've tried investing before but really felt like you didn't know what you were doing or didn't have the confidence when you were investing. Well, I want to let you know and remind you that our four week course, Passive Real Estate Academy is about to launch soon. It's a course where we take you to the place from zero to little knowledge on the subject to investing confidently in real estate without being a landlord. We teach you about the due diligence process over these modules. We do live Q and A sessions so that we can make sure you have your direct questions answered. We're bringing a ton of experts in the areas of asset protection, taxes, due diligence, anything that's important to help you vet a deal. You'll also be doing this along with a community of like minded people who are trying to do the same thing you're doing and you can learn together, ask questions together and ongoing. After the course you're part of an alumni group that shares opportunities and vets deals together. The course only opens up twice a year. You can join our wait list now and be the first to be notified when it goes on sale on April 9th and 10th. And there's a discount there for waitlist members as well. But there's a regular sale after that so you can get more information. Join the waitlist@ passiverealestateacademy.com thanks. Another thing is to find a community of investors. Join an investor club. I mean there are, there are some options out there for that. There are people who are out there hunting, looking for deals that will share it with other people, that will share opportunities, share resources. And it's nice to find a club where you can invest together or at least vet deals together. You know, this is not a game where there's a winner and a loser. People can invest together, get smarter together and people can make decisions for themselves whether they want to invest or not. I mean, yes, you can join our Platinum Investor Club where we have an investor club. You have to have taken Passive Real Estate Academy for that, but that's just One place. There are many other places to find these investor clubs. Then once you found these deals, you have to learn how to do the proper due diligence. It's all about due diligence because that's how you mitigate risk. That's where you find where the weak points are. That's how you minimize the downside. That's how you find out whether these deals are conservative or aggressive, whether these projections are based on legitimate conservative underwriting, or whether they're again, you know, built on aggressive assumptions. And I will tell everybody it's absolutely important for you to learn how to do this before getting into any deal, or at least learn as you're getting into these deals and quickly. I'll tell you there's three things you need to know when you look at every single deal. Number one, you got to know who is running the deal. Again, they might be called the sponsor, the syndicator, the operator, the manager, whatever the group is that is in charge of running the deal. It's important for you to know because you can that person or that group can make or break the investment. So simply look at their track record. How successful have they been in the past? How long have they been doing this? Again, talk to other investors who have invested with them. You know, there is a part where you're going to have to invest based on trust, but you want to fill out all the details as much as you can, and that's by doing the due diligence, by finding out who they are, what they've done in the past, and then you can move on to the deal itself. You want to dig into that property. You want to know what condition is in, what is the plan for their property? Where do they expect to take it from, you know, to what place, where do they expect to sell it, or how much do they expect to sell it for? What is the business plan overall? How long do they expect the deal to go on for? What are some of the projected numbers, the returns, what are they using as comparison to come up with some of these models that they might have? You know, there's something called a pro forma, which is a projection of future events. It's important for you to get in there, take a look at it, understand what assumptions are in play. And that will take you some time to learn to learn how to do. But I promise you, if you do this over and over again and you do it with other people, it's going to come to you quickly to the point where, where you can start looking at a deal and you should be able to make a decision on it, whether to back out or not do it, or whether to move forward. It should hopefully take you less than an hour or two where you can look at a deal, dive in and dig deep and understand the property. Next, you gotta understand where the market is. That's the third part you need to understand. Where is this investment in? Do you know about the surrounding area or is the economy improving? Is there a lot of population growth or what kind of demand is there for the product that you're investing in? Whether it's a residential, industrial, retail space or office, you want to get a good feel for the market so you know it's in a good area because real estate definitely is local. It doesn't matter where you're investing. Okay, now that you've done due diligence, that's when it comes time to invest. This is where it's time to take action. You've narrowed down on a type of investment, you've picked a deal, you've done your due diligence. Now it's the time to step forward with confidence to make that investment, whether it's a twenty five thousand, fifty, a hundred thousand dollars investment, whatever it might be. Now, I will tell you, we're in a funny time right now. Everyone knows that we're at the end, or at least in the late innings of a huge bull run up. Whether it's in stocks or real estate, as you're listening to this, interest rates are rising relatively rapidly. How is that going to affect the market? How is that going to affect future financing? How is that going to affect income? These are all questions that need to be part of your due diligence. When you take a look at this, you know I'm all about taking action and making investments. But if there's ever a time to cross a few T's, dot a few eyes, that is now, now I don't think there's necessarily always a bad, there's ever like a bad time to invest necessarily. They will tell you that a lot of the greatest transfer of wealth happens in, in downturns. When things go down. That's when people, you know, when they can take advantage of those opportunities. The greatest wealth building time is for people. The thing is, if you haven't invested prior to that, you haven't learned how to do the due diligence. You learned, haven't learned how to make that investment to get to that place of confidence to look at these deals. You, I promise you, when the downturn hits, you will not be ready and you won't be able to make an investment at that time. You know, it takes guts to run forward when everybody seems to be running backwards, but that's when people ultimately seem to be doing the best when they go against the tide. In investing, for example, you want to buy when people are selling, and sell when people buy. And to get there, again, it takes experience in investing, it takes knowledge in learning and investing in your own financial knowledge to understand how to do the proper due diligence for these type of, of investments. But again, it's not always a rocket science you've done. You've learned so much more complex things to get where you're at today. And the consequences of your decisions today, it, it's often life or death. It's somebody's health in your hands and has major consequences. You know, not that your investment decisions don't have major consequences too. They do because that affects you, your lifestyle, your family. But we make those kind of decisions on a daily basis under pressure, and we have to get to the place of confidence, using risk and benefit and using our knowledge to make great smart decisions. So why can't we do that when it comes to real estate, when it comes to passive investments, I absolutely believe that all of us can do that. All right, after you invest, what's the next step? You just wait. And sometimes it's the hardest part because it's been up to you up to this point to educate yourself to do the due diligence, ask the questions, do the research and, and then get to the place where you're cutting that check, sending in that wire and investing. And now it's really up to you to just sit back and wait and trust the sponsors to execute their business plan. This can be the hardest part. I mean, the great part though, on the other hand, is that you're waiting for distributions to come. Eventually that will come where you start to get that return of capital, where you start to get those distributions. Someday that building gets sold. And so after all the initial work, all you have to do is wait for those deposits and those returns to hit your bank account. Now anyone that tells you it's not worth to get up to that point, it doesn't have to be. You could just write checks all day. However, make sure that especially with any sort of passive income, that usually that work and that energy and effort comes up front and the payoff is later, that also comes with passive real estate investing. Do your work upfront, do the proper due diligence, vet find the right? People find that community that will help you out. And then the returns come later. And the goal is step by step those distributions come in. They start to replace your income one shift at a time, two shifts, three shifts, wherever you need to be to find a place where you're in a sustainable place, where your day job is where you want to be. You're able to spend the other time free to, you know, enjoy whatever you love doing with the people you love. I mean, that's the goal of all this stuff, is not to necessarily quit and retire and sail off on a boat, although that might be ideal for some people. I think for a lot of people, they just want to have more control of their time. And that's something that passive real estate investing through syndications, funds, you know, that can offer if you do it the right way. Hope that's helpful. Hope you have another great week ahead of you. Have an awesome day. Let's talk again soon. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group, PassiveIncome Docs, and you can always learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.