055: We’re Both: Active and Passive Investors
APPLE PODCASTS | SPOTIFY
Today we’re dedicated to those who want a sampling of everything. They can never settle on one thing and have good taste.
Noo, we’re not talking about a buffet, but your investing assets…
Since Covid, buffets are few and far between. But the appeal of options, looking before you commit, and having mac-n-cheese and tacos on the same plate will always remain a simple joy. So when it comes to investing people can have more than one option! We’re an example of this and have been for the past few years. When it comes to investing, we’re team Have It All– active and passive. 🙌🙌
Many people don’t know this about us but we now have over 5000+ units as both active and passive accounts (and $200+ million dollars in assets under our management as general partners). 🤩🤩. We talk a lot about active investing, so it makes sense why many assume that we only take on active roles within the apartment investing space when in reality we’re just a couple of players.
Players on both sides of the field, that is!
While we spend the majority of our time in our active roles under apartment syndication, passive investments are still important to us and play an essential role in our overall apartment investing strategy. Palm, is it safe to say that passive investing will always be our first love?
Passive investing will always hold a special place in our hearts ❤️️❤️️, it’s how we started! But beyond that, there is also a wide range of benefits that help make our active investing game that much stronger.
One of those major benefits is building a relationship with our potential future partner, and diversifying and learning new markets outside of our active portfolio. We’re all about learning and growing, and working with new people helps us see and take in how other incredible active investors run their accounts and business.
It’s a win-win! What about you, Cashflow Multipliers?
Are you a passive investor who wants to diversify your portfolio? Or are you an active investor who feels like you’re too in the weeds with your investments and team to even think about passive investing again?
Today, we’re going through all the reasons why you should consider also incorporating passive investments into your overall real estate investing strategy. 🤓🤓
A 30,000 Foot View
To kick things off, as most of us know who have been in this game for a while, establishing yourself as a syndicator in a specific market takes time and effort. There is a ton of work that goes into the research of these markets, networking with people who have invested there already, and looking for viable options for yourself to invest in.
For us, most of the time, if we’re looking to diversify and grow our apartment syndication, we first invest in these markets passively ourselves before we bring along any other passive investors’ money. An example of this is our recent Houston deal we’re closing soon. We passively invested in the Houston area long before we ever owned multifamily real estate there!
Why? 💡💡 Because where your money is you know you’re going to keep your eye on it. Our attention was in Houston, testing the market and seeing how our investment played out in the great state of Texas.
Plus, we were hands off the whole time while the syndicators/the sponsorship teams in Houston take the wheel. We received an education just by watching the syndicator team, learning from them, and seeing them thrive in this market.
They were doing the hard work which allowed us to leverage their knowledge and understanding of that particular area without the need to be involved in the everyday operations. 🧐🧐. We still did our part though, by contributing to the work by conducting market research and vetting potential deals. But doing a high-level, 30,000 view analysis is an entirely different game than running the entire show– as any active investor will tell you!
Unity in Diversity
Say you want to diversify your portfolio. First of all, good for you! You’re savvy, like to experiment, and you may be described by friends and family as someone who doesn’t like to be kept in a box.
That’s why passive investing is perfect for you! It’s the opportunity to leverage the knowledge and skill set of other investors in order to expand your portfolio. Not only will you diversify your market reach, but you’ll also be able to diversify which types of assets you can invest in as well. 😉😉.
Often, people ask us “I enjoy apartment investing, but I’m also curious about short-term rentals, can I do both?” To that, we say a resounding yes! As a passive investor, you can. Joining forces as a limited partner with an active investor in that space allows you to diversify into those new asset types with the help of someone who has already done the heavy lifting.
Think of yourself as someone who simply gleans and basks in all the education the syndicator has to offer in the asset type you are more interested in without having to do the nuances and ruffling through the fine details. This leaves you with the time and energy to focus on your area of expertise while spreading your investments into different buckets. 😇😇. Get creative with it, and don’t be afraid to fail.
In every investment, we have learned something, whether it was a shining success or something we wish could have done differently. Regardless, we tried and have formed some incredible relationships through every passive deal that expands our portfolio and the people we work with.
Keep Things at Arms-Length
When it comes to active and passive investing, it is going through your retirement account. We know how this sounds, so hear our disclaimers first. If you’re planning to use your 401K or other traditional forms of retirement accounts to invest it’s crucial to note that you can not invest that money into your own deals.
The IRS will call you out on it and refers to the types of transactions that are allowed as “arms-length transactions” meaning it should not be your money invested directly into your deal.
So, quite literally you need to keep your retirement account at arms-length away from your investments. 💪💪. However, some people play this card more dangerously than we do and interpret it differently. For us, the safe and smart option is to keep your deal at a true arm’s-length and not ruffle any IRS feathers.
We can not stress the importance of checking with your CPA before you do anything retirement account-related!
Here’s the good news though, if you have a self-directed retirement account, like a Roth IRA, you can still invest passively in other people’s syndications. Like we do! We personally invest in our retirement accounts with other syndicators. 😉😉
The Social Network
We’ve mentioned this before, but investing in multifamily real estate can’t happen without the right people– this asset is a team sport. I mean, how else do you think so many of us are playing both offense and defense at the same time when it comes to our investments?!
Say you have your eyes on a rock star team that you think can take your investment game to the next level. You’ve been stalking their social accounts, investment portfolios, and even know about their cute dog, Rufus. How will they know you’re interested in working with them if you don’t start off as a passive investor with them?
Voila! ✨✨ There lies the secret to success in this business and opens up a world of possibilities for not just new states and asset types, but new partners for you to work with as well. Through passive investing, you will meet people in other markets that you may not have otherwise come into contact with. We know this can eerily sound like dating, but the parallels are similar. Do you like their vibe? Is there chemistry? Do you genuinely enjoy being around them?
While it may not end up in an engagement ring, you might be forking out 50K anyways through a passive investment with them. So we would argue the stakes are just as high! These individuals have the potential to become future business partners, property managers, capital sources, and so much more.
Of course, we don’t recommend shelling out that 50K/100K right away, keep the risk factor low while exploring potential partners by only investing in small amounts of your own money and observing how they run their deals and manage their properties.
As you build trust, you can move on to bigger and more lucrative projects. You can learn a lot about someone by investing with them as a limited partner and seeing how they operate in the real world, not just on paper. 🙏🙏
There is so much to explore when it comes to active and passive investing, and the world is yours to open up and see! We hope today’s episode helps you think through your own portfolio, where you want to make changes, and where you think you’re already killing it.
There is always room to grow, explore, and learn. We just want to help you put your best foot forward and never limit yourself to what you only think you can do. Guaranteed, you can go so much further than you even realize. 😘😘
Thank you so much for being with us today! Check us out online at thekittisisters.com/podcast for free resources, other episodes, and more! Before you go, if you haven’t already, please hit that rate and review button, we love reading all of them, your feedback is invaluable to us! Until next time, we’ll talk to you all next week! 🙌🙌
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