013:  Termites.  Trash. Tenants. Toilets.  Oh My!

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Look at you, taking the time to learn more about how to create financial freedom for yourself. In case no one has told you today: You are doing amazing. ✨

Speaking of amazing, this subject is amazing because we are diving into some pretty interesting topics. Namey, responding to myths we often hear in the apartment syndication world. More often than not, people tell us “I would get into apartment syndication but, ya know, toilets and termites and trash. And the scariest of them all: the tenants!”

And if you know us by now you know this, we won’t lie to you. While actively investing in real estate and owning rental properties has worked for us to build wealth and create cash flow, it’s not the only way. And even more real talk: being a landlord isn’t for everyone either.

We started our journey owning a single-family rental. As we’ve gotten busier with apartment investing, and being with our family and friends, we’ve found ourselves leaning more and more toward passive real estate investing. It has proven to provide the best return of capital for the time spent on any investment we’ve made. It also fits our lifestyle and we get the most control over the deals we make and when we make them. 

So what’s the holdup? Why aren’t more people investing in passive real estate? If this is the secret to success, why aren’t more people tapping into making this happen for themselves? 

The most common reasons are one, they don’t know the different options available to them, and two, many people don’t know how to do proper due diligence. Luckily for you, you’re smart and have the Kitti Sisters as your financial BFFs, and are a subscriber to Cashflow Multipliers so this won’t be your story.  ⚡

Let’s break down the five ways to invest in real estate without dealing with the toilets, termites, trash, and tenants. 

Hard (Ball) Money Loans

Hard money loans are used for short-term lending. Real estate investors that are looking to finance a project use these loans to get things started. Most house flippers use this tool to renovate or develop a property so that they can earn a profit. Private lenders often issue these loans. Yep, your favorite house flippers, Chip and Joanna Gaines also started out using these private lenders, and now Magnolia is a full-blown empire of home goods and decor. We have major house envy every time. 😆

Other than offering convenience, these loans offer flexible terms since they are being handed out by a private lender. Similarly, when it comes to collateral, it is up to the lender to decide whether they want to give you a leeway or not. 

Of course, you gotta know both sides of being an investor and a lender so you can understand the system inside out. If you want to become an investor, you need to pose yourself as a lender and give out money to borrowers on your terms. You can either ask for a share or a fixed percentage according to your needs. 

Note-worthy Investing 

Notes in simple terms can be referred to as a promise to pay. Like a pinky promise, but for thousands of dollars. For instance, a personal check in your name is a note. Plus, who knows what your signature will be worth one day once you start closing down all these deals! When a property is sold, the document promissory note comes along with defines the terms of the loan. 

Although not secured by collateral, the note is considered to be the safest way of investing in real estate. In this investing, the investor purchases the secured debt and becomes the lender.

Investors buy notes on discounts and then move them along to lenders. You, yes you,  can also invest in notes in two different ways. Remember, people don’t know there are options. And since we’re talking about notes, it only seems appropriate that we compare them to a sing-songy performing note or not. Ya know, the guys with stage freight.

A singing note is considered performing when the borrower is current on payments. Notes with a good payment history – known as seasoning – a credible borrower and good collateral are considered pretty low risk, and investors will pay good money for them.

Versus a non-performing note. When someone says they invest in nonperforming notes, it means they purchase individual notes or groups of loans that aren’t paying, and they then work to find a resolution to either get the borrower paying again or liquidate the asset through alternative options, such as a deed in lieu of foreclosure. Non-performing first-lien investing, and non-performing 2nd Lien Investing.

Each of these types is unique in their way and offer the potential for investors who are starting in real estate. 😘😘

REIT-y or Not

Ah yes, Real Estate Investment Trusts (REITs) are companies that hold real estate and allow their investors to buy and sell their shares so that the trust could pay dividends and earn value on the properties in the long term. 

REITs can either be publicly or privately traded, and the trade is conducted in the form of equity, not debt. Most of these companies have multiple favorable cash-flow generating properties that are worth millions or billions in value.

So what does this mean for you, the investor? You don’t own the properties directly… you own a share of the company that owns & operates the properties. So I mean, you can’t say you own Magnolia building but Magnolia building owners like that you are an investor with them so they give you a share from what Magnolia generates. And no, no free stuff either.

For investors looking to start building a portfolio, going with the REITs is an easy way to get started. ✌️ You can simply do it through your current trading platforms such as Charles Schwab or the infamous Robinhood. It is also liquid as you can simply move in and out of the investment with a simple click of a button on your phone.

However, there are some downsides as you might miss out on many of the direct tax benefits of investing in real estates, like depreciation. Depreciation is the decline of the value of the asset over time. Magnolia won’t be cool forever. Ask Sears.

FUNds for Real Estate Investing

Apartment syndications are often thought of as single properties or deals. A real estate fund, however, will take their capital and invest in multiple properties, all under the umbrella of the fund. If apartment buildings aren’t your thing but you like the idea of investing in multiple homes or other properties then this option might be your fit. We get it, apartments aren’t always looking that cute. 

As an investor, you invest your capital, and the fund operators will go out and purchase multiple deals. This is another bonus, have someone else do the leg work of finding these deals and investment properties. Just make sure you trust them and they’re not trying to buy property in some sketchy areas. 

The benefit to you as the investor is that a single investment results in diversification across multiple properties and locations (okay, traveler! 😎 The downside is that the fees are often a bit higher but that’s the tradeoff for diversification.

Apartment Syndication FTW 

Obviously, you know we had to throw this one in there because it is our favorite way of investing in real estate without buying a property. In apartment syndication, investors pool their financial resources to invest in big projects which they couldn’t have purchased or managed on their own. For us, the benefit lies with a team of people we trust and know who all have the same goal in mind. To get the apartment to go full-cycle so we all get our share from the deal. Not a termite in sight. 😵😵

For example, a general partner (GP) might present a deal where they’re purchasing a 200 unit apartment building and are looking to raise $10 million from passive investors to complete the deal. And that’s where we come in, rolling deep with our squad with other investors who are going to make this happen. Assuming the location is perfect and we’re feeling good about this investment.

As a passive investor, you invest in an apartment investment opportunity that you will do one time and REAP the cash flow for years to come. Yep, this isn’t a one-time deal like real estate can often be, this is an ongoing thing that will literally have you making money in your sleep. 💤

Depending on the specifics of the deal, typically they can run from 3-5 years. After you invest in apartment syndication all you have to do is just relax, sit back, and have the sponsors/ GP do all the work while you collect the cash (ACH).

Real Talkin Real Estate

Real estate investing is much more than buying and selling properties. It is an entire industry that offers up a ton of ways to get involved according to your goals and willingness to commit time and effort. So now you can ask some seriously hard-hitting follow-up questions when finance bros at a party simply say “Oh, I’m in real estate”. Are you, Chad? What kind of real estate? Are you an investor? Lender? What’s your preferred note investment?

The key is to understand how to do the proper due diligence with these deals is being upfront. Since you’re relying on others, it makes sense to understand who you’re investing with and what you can expect from a return standpoint. You would never go on a second date with somebody who was shady and made you pick him up on the way to dinner. So be just as firm with who you’re investing with, set expectations upfront. Look at that, dating and money advice. We’re pretty well-rounded.

Different ways to learn how to do the proper due diligence start with educating yourself through books, courses, and conferences. And there’s always learning by experience. Sometimes you have to learn the hard way and that’s okay. Again, you’re here and that’s awesome. You’re already miles ahead of people who are scared to make that leap into creating financial freedom. Way to go!

If you’d like to learn how to do the proper due diligence in a short period of time, feel free to schedule a Freedom Call with us. What’s a Freedom Call? So glad you asked‼️ The Freedom Call offers one on one coffee chat with us where we walk through where you’re at in your passive investing journey.

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