#141 5 Ways That You Can Invest in Real Estate Without Being A Landlord

Hey everyone. In this episode we're going to be talking about the five ways that you can invest in real estate without being a landlord. Stay tuned. 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. Now, many of you know I get the chance to talk to a lot of people about investing in real estate, both physicians and non physicians. And I talk a lot about the benefits and the response I usually get to that is I would love to invest in real estate, but I don't have the time or I don't want to be a landlord. Now, I believe that active investing, we talk about it a lot. Or actively being a landlord and owning the property yourself, making all decisions and a proven path to creating wealth and a good amount of steady passive cash flow. However, it's certainly not the only way to achieve those things and definitely not the only way to invest in real estate. And honestly investing as a landlord. Being a landlord, it's not for everyone. It comes with its own pluses and minuses. There's definitely a fair amount of time, energy, expertise that goes into being a landlord that not everybody wants to sign up for. In fact, as I've gotten busier with my own ventures, busier as my kids are growing up, spending more time with them, I've actually steered more towards a lot of the passive real estate investing. To be honest, at this point in my life, it seems to create the best return on investment or return on time investment out of all the investments in real estate. So if that's the case, why don't more people invest at passive real estate opportunities? We're going to be talking all about that, usually for two reasons. Number one, they don't know what's available to them. They don't even know what to invest in. And number two, they don't know how to do the proper due diligence, what or the underwriting or figuring out what type of investment might work out for them. So in this episode, we're going to focus mostly on, number one, the different ways to invest in real estate without being a landlord. So one way you can invest in real estate without being a landlord is investing in something called syndications. Now, many of us, when you hear that word syndications, you might think about TV shows and syndications. People have heard of crime syndicates. It's usually not something necessarily that's good, but when it comes to real estate, investing in syndication is investing in an opportunity. It's when people get together and they pool their resources. Usually it's the capital that they money that they put together, usually led by one company or one person that puts the whole deal together. You're able to collectively go and buy and purchase a property that you usually probably couldn't do on your own. For example, a sponsor or the person who leads or runs the deal might be trying to go out and buy a 350 unit apartment building. Maybe that's something you couldn't do on your own. I know it'd be difficult for me to purchase on my own, but maybe putting a group together, they're able to raise $15 million to, to go out and buy that 40 to $50 million apartment building collectively together as a group, and everybody gets to own a share of that. As an investor, you're usually something called a limited partner, meaning that you are a partner in the deal. You do own a percentage according to how much you invested. However, you're limited in terms of your decision making process. If you're investing in real estate and you don't want to be a landlord, usually you don't want to make those decisions. You don't want to be involved in the day to day. And that's why you do invest in something called a syndication. Leverage your capital you by investing in someone else, Let them run the deal, let them figure it out the business plan, kind of implement it, do all the operations, figure out all the deal structure, figure out all the income, and then give you a distribution as a limited partner. Depending on the deal, these things can last three to seven years. Usually they buy a building, whether it's an apartment building, office building, whatever it might be, they take it and hopefully they will operate it better. They maybe renovate it, increase rents, put better tenants in place, and, and then ultimately at the end of this deal, when they've actually reestablished this property and it's undergone renovation in about five to seven years, they're able to sell it for a profit and distribute it amongst themselves as general partners, and then you as the limited partners as well. And then everybody gets a nice profit at the end. As an investor, you can often expect some sort of distributions along the way as profit is made, and then a big check at the end. Once the deal comes to completion, your only job is to check for updates, make sure that the distributions are hitting your bank account, and then making sure you hand off the appropriate paperwork to your CPA so that you can pay taxes on it or not pay taxes on it, depending on how it's structured and what part of the deal it's in. You can also invest in real estate without being a landlord by investing in things called real estate funds. If you're investing in syndication, usually that's a single deal. So if you think about a stock, usually investing in a single stock in a single company. Now, you've probably all heard of mutual funds where you invest in a basketball of stocks. Well, real estate funds are usually the same way. You make one investment and you invest with a sponsor. They go out and they buy multiple properties with that investment and the collective investment of all the investors. So think of it as you invest once and you leverage your capital and are able to invest in multiple properties in multiple deals, hopefully in different areas, perhaps in different asset classes. It provides that instant diversification for you as an investor. Again, the benefit is that diversification with that one single investment, that you get to invest in multiple properties, multiple locations. The downside is that sometimes there's higher fees when it comes to these real estate funds, because again, it takes a bigger team to manage all of these different properties and put it all together. Sometimes these deals can run a little bit longer because these properties are being bought and sold at different timeframes, so it's not just one property. So oftentimes these things can take anywhere from three to five to sometimes even up to 10 years. Now, these two ways are ways that I invest heavily in passive real estate investment. Now, there's another way to invest passively in real estate, and that's through something called REITs. So real estate investment trusts. Now, if any of you have a stock market or brokerage account or you have some mutual funds, you've probably seen these things called REITs, at least on paper. What REITs are are companies that actually hold and operate and manage real estate. By owning and managing real estate and sometimes selling them off, these REITs create profit, and those profits are passed along to stock and shareholders according to how much you hold. Now, these REITs can be publicly traded, which you might see on the stock market that you can actually access with your brokerage account. Or they might be private in the sense that they are actually not on the stock market, and they're things you can purchase privately through different private REITs. So to be clear, and what makes it different from syndications and real estate funds is that you don't own the properties directly. You actually own a share of the company. That owns and operates these properties. For many investors, this is an easy way to get started because many of us already have brokerage accounts. You can go there and buy and sell just by simply clicking a button. Now, there's a ton of liquidity when it comes to REITs. Now, liquidity is another term for how fast you can convert those shares and your investment into cash. However, with that liquidity comes some downsides. Because of that liquidity, REITs are often known to correlate more with the stock market. And oftentimes when you're investing in real estate, the reason you're doing that is because you're trying to get diversification from the stock market. And so oftentimes REITs may not accomplish that goal as well as some of these private investments like syndications and funds. The other downside is you may not get quite the tax benefits that you might get with these other types of passive real estate investments like syndications and funds. There are benefits to directly owning these properties, but that's something you should look at on your own as well. Now, another way that you can invest passively is by owning something called notes or note investing. I don't know how many of you have a mortgage. There's a promise to pay there for the bank, there's a note, a loan that has been made and created that is a note. And that's something that people can actually invest in and own and act like the bank. Whenever there's debt placed on a property in the form of a mortgage or any other type of loan, again, a note is created and that oftentimes finds its way onto different markets that you can access as an investor and own yourself. So essentially you are acting as the bank. You're lending out your money and getting paid interest on that. Now, this whole note investing environment can be huge. There are ways to find distress notes, meaning that notes are not current on payment. But you can try to get back in there, buy those notes that penn on the dollar and try to get them performing again. There are notes that are stable and active. There are performing notes where actually these loans are current and actually being paid off. You can own those more for the long term. Each way is unique, but in this case, you're not actually owning the property, you're actually owning the loan on the property. That's a form of debt. And that's the type of investing that many people who want to invest in real estate passively get into. And lastly, another way is to get involved in something called hard money loans. Hard money loans might Also be called bridge loans. These are often short term loans where people need to borrow money. Oftentimes, especially in real estate, they're using for fix and flips. But banks won't lend on these type of investments. So most house flippers, for example, they know they want to buy a property, they want to get in there, renovate it short term, you know, rehab it, make it look nice, and then sell it for a nice profit. Again, these things are short term, maybe three months, six months, might be a year at most. But again, where do they get that financing? Where do they get the lending for that? These hard money lenders are private lenders who have capital that are willing to invest and the property is put up as collateral for these type of investments. If you've got a good amount of cash, you like investing in debt, meaning that you like being the bank, you like lending out for longer term situations or shorter term situations. Hard money lending is a viable option for people who want to invest in debt and get good returns, at least in the short term. These type of investments are known to be a little bit more stable with probably a little bit capped upside in terms of the investment potential. But again, they're nice and stable for people who are just trying to put their money to work. Unfortunately, especially like the syndications or funds and the REITs, there aren't really a lot of tax benefits that are available to you. And the income that comes from both these notes and hard money lending tends to be just ordinary income. So it'll get taxed according to whatever your normal tax bracket is. So there you have it. You've got five different ways that I mentioned to invest in real estate without being a landlord. And the scope of real estate investing is huge. It's more than just buying a property and selling it down the line. It's more than just owning a rental property and then renting it out to people. It's an entire industry that you can tap to grow your net worth, to grow your, your income streams, depending on what your goals are and how much time, energy and capital you're willing to put towards it. Now, the key to doing well with all of these things is obviously understanding what your different options are, the pros and cons, and then knowing what deals to get into. This is where we talk about something called the due diligence of the process, meaning that you know what deals make sense for you and whether it meets your goals and objectives. A lot of it has to deal with who you invest with, their track record and what they've done in the past and do you believe they can do it again in the future? So there are different ways to learn how to do the proper due diligence. There are plenty of books out there forums that you can be a part of. We offer something called Passive Real Estate Academy which teaches people how to invest, do the due diligence in these type of investments all in four weeks. You can sign up for the waitlist. If it's not active right now, you should definitely check that out. We also put on conferences. There are plenty of conferences where you can go and meet people and learn in person. Either way, there's a way to learn about investing in real estate, to learn how to take action to help you reach that ideal life that you're looking for. Hope that's been helpful. Have a great week everybody. Thanks. 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 Passive Income 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.