6-Step Guide to Becoming a Successful Passive Investor
Passive investing in real estate investing is becoming more and more popular, and there are so many options out there that it is becoming more difficult to narrow it down. Investing for passive income isn’t one size fits all. If it does fit your lifestyle, real estate investing can generate lucrative returns over time and will help build long-term wealth.
To help you with this adventure, I have put together a 6-step guide to help new investors become a successful passive investor. This post does not provide guarantees, but it does provide guidance for anyone who needs help.
Step 1: Discover your “why”
Let’s discover what brought you here. What is your motivation for passive investing? This will provide you the motivation you need to educate yourself. It is the root of your success.
What do you want more of in your life right now?
More flexibility with your schedule?
More time with family?
More time to adventure and travel?
More time to volunteer?
Whatever your why is, it has to be bigger than you. When you build a strong foundation for your why, you will do everything in your power that is required for you to succeed.
Step 2: Educate yourself
The foundation to most of our endeavors starts with education, starting in real estate, as an active or passive investor, is not different. As a passive investor, you are not required to have substantial experience or education. One of the best parts of being a passive investor is the amount of education you receive along the syndication journey. The trade-off in the relationship is that while you provide the capital, the general partnership team brings that education and experience to create a successful syndication.
How do you begin? Reading books, listening to podcasts, or enrolling yourself in a program. Choose whatever works best for your learning style, you want this to be enjoyable or you may never move forward. If you want to dive further into your education, you can attend conferences and join meetup groups as well. Networking is a great way to find those fine details you’ve been interested in. Whatever route you choose, you want to have a good understanding of real estate investing so you feel confident with your decision.
Remember, progressing with an investment with 0% interest and education, makes NO CENTS.
Step 3: Discover your investment criteria
You and every other investor will have specific market criteria that they look for when assessing deals.
What is your current investment portfolio? Are you dissatisfied with the returns your current portfolio is producing?
Are you looking for an additional income stream?
Are you interested in building wealth or security and capital preservation?
What is your risk tolerance?
How long are you comfortable with having your capital deployed?
What type of assets do you want to invest in?
What returns do you want to achieve?
In addition to these questions, you need to determine the markets you want to invest in and understand why you want to invest there. Those reasons go along with the answers to some of the questions above. The returns you hope to achieve change with markets, so this helps you determine your market as well. Another criteria to select is the condition of the assets. Do you prefer an asset that requires a rehab, or do you prefer something more turnkey?
Step 4: Find the syndicators that match your investment criteria
If you don’t know anyone in your network that provides investment opportunities, a few places to search are real estate related podcasts, real estate meetups and conferences, or word of mouth. You don’t want to simply invest with anyone, you want someone that you trust and someone who shares the same investment thesis as you do.
You can learn so much about a syndicator by listening to their podcast or listening to an interview on someone else’s podcast. If they don’t have a podcast, check out their website. Most will have blog content that explains their strategy and what they are looking for.
Attending local meetups or online meetups is a great place to network with syndicators. You can find meetups in your area by going to Meetup.com. Attending real estate conferences is also a great way to obtain a lot of education, in addition to meeting other syndicators.
Reach out to your network and let them know you are interested in passively investing in real estate. If they know someone, they won’t keep it a secret and it’s one of the best referrals! Word of mouth allows more transparency in the conversation. People are more likely to be honest since their money is involved.
After meeting some sponsors, reach out to them and ask to have a Zoom call with them. You can see if your personalities match and get a feeling if they are someone you can trust. The most important thing is to go with your gut – listen to your instincts and choose the right syndicator for you.
Step 5: Analyze Deals
Now you get to use all that education and experience first hand to understand how the entire process works. This step may feel counterproductive, you may think to yourself, “why do I have to analyze deals, isn’t that what the active investor is for?” Yes, but this is where you get a deep understanding of the types of deals you like and the types you don’t like. It will help you become a more confident investor. With most other endeavors in your life, you put in the time and research to give yourself the confidence to make the purchase or justify the action, this is not any different.
Some due diligence is required on your end, you want to make sure the targeted returns offered are the same that you will receive. When you find a deal you are interested in, the sponsor team will send you the Private Placement Memorandum, or PPM, for the deal. This legal document provides an in-depth look into items such as a detailed description of the business operations, the management team and structure, the potential risks of the investment, and the terms of the investment. This document outlines the entire investment.
Step 6: Invest
It is time for the final step! You have discovered you why, educated yourself, chose an investment strategy, selected a syndication team that your goals align with, and you have analyzed deals to become more confident with your investment choices. Congratulations!! The next steps in this process is signing the PPM and wiring the funds for the investment. You should feel excited whether its your first deal of your tenth deal. You have taken a step to get closer to achieving your burning why. Now you can start making money in your sleep!
Interested in learning more about our investment opportunities? Set up a call with us so can we discuss your goals and get to know each other better.
Explore more. Adventure awaits!
