The Challenges of Active Real Estate Investing: Tenants, Toilets and Trash

The main focus of Actively Passive is to teach you how real estate investing can be done in the most passive way possible – through syndications. But how do you know what’s good for you if you do not see and appreciate how much hard work actively investing can be? I started investing actively in single-family homes back in the 1990s, and to this day, I remember getting back home each night exhausted. I had a lot of fun, but boy-howdy there were some tough days. For the more adventurous out there who want to actively acquire and manage rental properties, as well as those who don’t, here is a summary of what it is like.

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What to Expect During Your Passive Real Estate Investment

You have made a decision to invest in a passive real estate investment syndication that offers great returns and with a team that you know, like and trust. You have been bored to tears by their mounds of paperwork including the Private Placement Memorandum, the Operating Agreement, and the Subscription Agreement. It was 150-300 pages of legalese that you obediently read and understood. You wired your $50,000 minimum investment from your self-directed IRA to the operator’s bank account. You received an official confirmation that all paperwork was in order and that you were officially one of the many limited partners of a multifamily project that you believe in.

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A Rewarding Side Hustle – Make an Extra Income Outside of Your Day Job – Without Becoming a Landlord

So… You’re looking for an excellent side hustle and you want to invest in real estate, but do not have the time, energy or knowledge. You have heard that investing in multifamily rentals can be lucrative, if you only had the know-how and a huge down payment. You don’t relish the thought of taking time out of your day to manage people or tenants on top of that really good job you have now, but want to protect your savings without investing it into an unpredictable and uncontrollable stock market. You dislike the necessity of responding 24/7 to maintenance requests, and you cannot get approved for a $7,000,000 mortgage. You want to try your hand at investing but do not really know where to start.

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Forced Appreciation – How It Works and Why We Like It

Before discussing the topic of forced appreciation, I feel that I need to give you some context. Real property appreciates or depreciates in value due to different market forces on the different types of property. In other words, each type of property has its own set of rules. Where single-family homes rely on comps (external forces) to determine value, commercial real estate is valued by the underlying business (internal forces) or income stream of the property. Withing the broad category of commercial real estate is multifamily property, which is defined as a property having 5 or more rental units (doors).

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Preferred Return vs. Non-Preferred Return – Which One Should You Pick?

What’s a Preferred Return?

The term preferred return is a return that puts you, an investor, in a preferred position when it comes to profit distribution of a project’s cash flow. Money goes to you first when there is a distribution, and until the hurdle of the preferred return is totally met, the syndicator gets nothing. If a project doesn’t make any money, chances are that you will not receive a return. A preferred position is first in line. This preference offers a bit of comfort to investors because it subordinates the sponsor’s profits (sometimes called the ‘promote’) to yours. The profits can come from the operation of a project (rents) and even from the sale or refinance of the property.

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Understanding Returns – What Are CoC, IRR and AAR and How Do They Differ?

First of all, let’s address the alphabet soup in understanding returns. CoC stands for Cash-on-Cash Return, IRR means Internal Rate of Return, and AAR is Average Annual Return. They are all various measures of how profitable an investment might be, though have their own characteristics. The different metrics are used to help compare apples to apples.

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