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How Passive Investing Works!
Back, OK, WAAAY back in the mid 1990’s I started to see a shift happening in the world of multi-family ownership and investing.
You see, back then, I was a snot nosed real estate agent that was focused on selling apartment properties. My sole focus was on apartment owners and apartment buyers. Day after day after day I spent “working the market” and as a result I got to know the apartment market in Iowa very, very well.
The shift I am referring to was not from one size of apartment property to another or kind of apartment property (high rise, garden style) or even new construction vs. a property over 50 years old. No, none of these things. The BIG shift I started seeing was the shift from Landlord to Investor.
Landlord To Investor
You see, for years and years 90%+ of my apartment owner and apartment buyer clients were what I call “Mom and Pop” operators. These Mom and Pops not only owned and invested in their properties, but they also managed their properties too. This was their business, running, operating, managing apartment properties. Even very large 200 – 300+ unit apartment communities were many times owned and operated by Mom and Pop owner operators.
Then, suddenly, in the mid to late 1990’s I started getting calls from investor buyers wanting to own multi-family, which of course was not surprise, BUT, they did NOT want to manage the properties. They just wanted to invest and not deal with the day to day managing and operational complexities of successfully running an apartment community. The call or email would usually go something like this: “Hey Darin! I have around $500,000 to invest in an apartment community, BUT, I do NOT want to manage it. Can you help?”
At first, I thought the solution to this growing trend was to just refer my buyer clients to a management company to manage the properties for them. It did not take me long however to discover that even when you have a management company involved you are still involved in many of the decisions and challenges that can come up with a property. Sure, you did not have to fix the leaking roof but you DID have to go through five roof bids and get information on cost structure, etc. You were not hands off. You were KIND OF hands off.
Darin, Let’s Partner Together
Then one day one of my buyer clients asked me a question regarding a 24 unit property he was looking at purchasing. He said, “Hey Darin, how about we invest in this together. You know the market better than anyone, you know a lot about how to manage apartments and you have the connections to make this a successful property to own. How about we buy it together, you manage it and keep me posted from time to time on the progress.” Long story short, I agreed and we went on to own a great property. Since that time I have been involved in over 25 real estate partnerships of various sizes owning various apartment communities.
As you surmised that Landlord to Investor dynamic has really changed. Now it is the exact opposite of what is was in the mid to late 1990’s where 90%+ owners were landlords and 10% were investors. In today’s world 90% of the owners are investors and 10% are landlords.
How This Passive Investing Stuff Really Works
You can read dozens of books, listen to dozens of podcasts and consult five real estate gurus and still not cover every inch of passive real estate investing, especially when it comes to multi-family, however, in a few short paragraphs I will explain to you EXACTLY how it works.
An investor contacts me and says they want to own a terrific multi-family property in Iowa and want to own passively. I present to him or her the best candidates available right now and those candidates are based on the criteria that the investor has communicated to me since everyone has their unique criteria and way of looking at and investing in multi-family.
Once the property is found and meets the criteria the investor makes the investment into an Iowa based limited liability company that then that LLC purchases the property. Now the investor is an owner in a company that now owns the property. The investor now gets all of the active apartment property owner benefits of cash flow, return, tax savings, appreciation, etc. as if he or she is actively managing the property, however, gets to be passive in the investment. In essence, this investor is now my owner partner in the property. We then go on to own the property for however long we have agreed upon with various ways of the investor exiting sooner if necessary. All management, accounting, tax work, maintenance, repairs, zoning, appraisals, environmental, etc. are handled by us. The investor’s only “real “ involvement is getting their reports and distributions usually on a quarterly basis. There are some of my partner investors I have not heard from in years and years! Some contact me quarterly with thoughts, questions and comments.
Of course, there are some details I left out in this brief description but this IS about 90% of it. I always make sure anyone that gets involved with me as a partner owner is fully informed on ALL points well before they make an investment.
Every Investor’s Situation Is Different
As I mentioned before, everyone has their own “spin” on investing and multi-family ownership and I have seen just about every version of this over the last 30 plus years. If you would like to process your current situation and get some clarity on investing and owning Heartland Multi-Family simply schedule a call with me here. We will process what is important to you and make sure this could be a good move for you right now. Schedule Your Quick Call Here.
How It Works
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