SS180: How to Build a Real Estate Portfolio Without Dealing with Tenants

SS180: How to Build a Real Estate Portfolio Without Dealing with Tenants

One of the biggest deterrents for investing in real estate is tenants. In this episode, Charles discusses real estate investment strategies that allow investors to avoid tenant interaction.

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Talking Points:

  • When I speak to potential real estate investors, one of the most popular reasons I hear why people don’t want to invest in real estate is because of tenants, which is understandable. However, several alternative strategies allow would-be active real estate investors to still build a real estate portfolio without dealing with tenants.
  1. Real Estate Investment Trusts (REITs): REITs are companies that own, operate, or finance income-producing investment properties. Some REITs focus on specific asset classes, such as retail, self-storage, or multifamily, while others are invested in several different property sectors. REITs allow investors to gain passive exposure to real estate without dealing with tenants. REITs also provide liquidity and diversification and usually will pay regular dividends. One downside is that the passive investor does not own actual real estate. Thus, they miss out on all the valuable tax benefits of owning real estate.
  2. Real Estate Notes and Debt: Unlike the others mentioned in this episode, this strategy does not give the investor any upside. In other words, the note and debt investor will not receive a share of the property’s profits. However, it is the safest way to invest in real estate. Note investors can purchase performing or non-performing notes that are secured by real estate. Some debt investors would rather make the loans themselves, usually in the form of a hard money loan, which is typically a short-term, high-interest loan secured by a piece of real estate. Either way, the investment is secured by real estate, and the investors receive returns through interest payments on the loan without interacting with tenants. One possible downside is that interest income is taxed as ordinary income (unless the investor works through a self-directed retirement account like a self-directed Roth IRA).
  3. Real Estate Crowdfunding: Online crowdfunding platforms allow investors to pool their funds with other investors to invest in various real estate projects. Investors can sort projects by their investment goals and risk tolerance. The platform works directly with the operator, allowing crowdfund investors to be completely passive. One pro and con of their investment strategy is that investments typically have low investment minimums. It is a pro since it lowers the barrier to entry. Still, it almost gamifies the investment experience to that of gambling since many investors will not perform thorough due diligence on a deal or operator for a $1,000 or $5,000 investment, where they will spend many hours reviewing a $50,000 investment. Investors commonly take a spray-and-pray type investment approach but do not have to deal with tenants.
  4. Real Estate Syndication: Syndications incorporate two groups of people: the deal operators and the passive investors. Passive investors can thoroughly vet the deal operators and the specific deal itself before investing. Most deals last 3-7 years (depending on the business plan and the market). After investors invest, their participation in the deal is over, and they never have to visit the property, deal with a tenant, or be involved in any property operations. Because of depreciation, most cash flow distributed during the hold period is tax-free with additional tax benefits if the investor is a real estate professional.

Transcript:

Charles:
Sick of tenant drama. Discover the investment strategies that will allow you to grow your portfolio stress free.

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how to build a real estate portfolio without dealing with tenants. When I speak to potential real estate investors, one of the most popular reasons I hear why people don’t wanna invest in real estate is because of tenants, which is understandable. However, several alternative strategies allow would-be active real estate investors to still build a real estate portfolio without dealing with tenants? Number one is real estate investment trusts. Reits and REITs are companies that own operate or finance income producing investment properties. Now, some REITs focus on specific asset classes such as retail office, self storage, or multifamily, while others are invested in several different property classes and sectors. Now, REITs allow investors to gain passive exposure to real estate without dealing with tenants and REITs allow liquidity and diversification and usually will pay regular dividends.

Charles:
One downside is that passive investors do not actually own the real estate, thus they miss out on all the valuable tax benefits of owning real estate investments. Number two is real estate notes and debt. And unlike the others mentioned this episode, this strategy does not give the investor any upside. In other words, the note and debt investor will not receive a share of the property’s profits. However, it is the safest way to invest in real estate. And note investors purchase performing or non-performing notes that are secured by real estate. Some debt investors would rather make the loans themselves usually in the form of a hard money loan, which is typically a short term, a high interest loan secured by real estate. Either way, the loan and the investment is secured by real estate and the investors receive returns through interest payments on the loan without interacting with tenants.

Charles:
Now, one possible downside is that the interest income is taxed as ordinary income unless the investor works through a self-directed retirement account, like a self-directed Roth. IRA. Number three is real estate crowdfunding. Now, online crowdfunding platforms allow investors to pool their funds with other investors to invest in various real estate projects. Investors can sort projects by their investment goals and their risk tolerance, and the platform works directly with the operator allowing crowdfund investors to be completely passive. One pro and con of the investment strategy is that investments typically have low investment minimums. It is a pro since it lowers the barrier to entry still, it almost gamifies the investment experience to that a gambling, since many investors will not perform a thorough due diligence on a dealer operator for a $1,000 or $5,000 investment, where they will spend many hours reviewing a $50,000 investment. Investors commonly take a spray and pray type investment approach with crowdfunding, but they do not have to deal with tenants.

Charles:
Number four is real estate syndications. Now syndications incorporate two groups of people, the deal operators and the passive investors. And the passive investors can thoroughly vet the deal operators and the specific deal itself before investing. Most deals last three to seven years depending on the business plan and the market after investors invest. Their participation in the deal is over and they never have to visit the property, deal with a tenant, or be involved in any property operations because of the depreciation. Most cash flow distributed during the whole period is tax free with additional tax benefits if the investor is a real estate professional. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week see you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure subscription documentation. At our subject to all applicable laws, please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication Superstars, LLC exclusively.

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