Hey Bigger Pockets,
In today’s video I’m going to that about the “Myth” of passive investing in real estate. When it comes to passive investing in real estate, most people are mistaken by thinking that it’s truly “passive”. They think that they don’t have to “Do” anything and that the money will come rolling in. Now, don’t get me wrong, we are all working toward passive income and yes, this is a possibility. But we have to remember in order to make money you have to “DO” something for that to happen. No it doesn’t have to be you personally, but it there does need to be someone doing the money making activities.
Let’s dive in. Here are a few activities that I wouldn’t consider as truly “passive”. The two main activities would be wholesaling and flips. These are considered as active capital gains investments. They’re necessary to generate chunks of cash that you can later put into more passive investments.
Let’s talk about some passive activities that you can do such as rentals or buying mortgage notes. I myself focus mainly of rental properties. So let’s dig in a little bit deeper into how you can have truly passive investments. First you need money. This is another misconception, that you don’t need any money to get started. The other side of passive investing is the “Do” side which is someone who’s doing the actually money making activity. There needs to be a “DOer” and the “money person”. The right way to do it is by putting money in a project where the “DOer” will start putting the money to work. What makes passive income truly “passive” is when you have someone that is putting your money to work for you. These are usually property managers, syndicators or partners.
When it comes to property managers another myth is that they “care” for the property as much as you do. Usually property mangers are not owners and so you want to make sure that they have the proper incentives to make them want to take care of that property as if it were they’re own.
Syndicators are the one’s who go out a find the big deals like a commercial complex or apartment building. They find the deal, take a portion of the profits and they make that deal make money and work. This is a great incentive because they only way that syndicator will make profit is if that deal is making money.
The last type is a partner. This is where you might find someone who already has properties or deals (this might be you). You come in with a chunk of cash or agree to be the sweat equity and invest into a property together, where you do the work or vice versa and they do it.
The arrangement between the “money people” and the “Doers” is what truly makes passive investing work. So for you out there who are deciding on what you want to do with your real estate investing career, decide do you want to be a “DOer” or “Money person”. Hope this helps!
As always, please email us any real estate questions to HelpMe@DeRosaGroup.com and we will answer them on an upcoming episode!
Learn more about The DeRosa Group at http://www.DeRosaGroup.com or on BiggerPockets.com – https://www.biggerpockets.com/renewsblog/author/mattfaircloth/
Matt & Liz, founders of DeRosa Group, were recently second-time guests on the BiggerPockets Podcast.
Check it out: https://www.biggerpockets.com/renewsblog/bp-podcast-203-finding-deals-funding-contractors-mentors-matt-liz-faircloth/
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