Investing passively can be a rewarding experience over time, especially as you start growing your real estate investment portfolio and enjoying the benefits of diversification, tax deferral, and creating passive income streams. However, as a passive investor one is still engaged (or at least should be) in monitoring their portfolio and seeking updates as needed. In an upcoming article (how to monitor your investment article), I will separately discuss these activities. In today’s snippet I offer a few helpful tools that passive investors can keep in their toolbox to keep the process efficient.
1. The Sponsor
As a lender I’d like to say that people (not buildings) pay back loans. A similar concept applies to passive investing – a skilled operator with a strong track record can turn around a bad deal.
- There are numerous checklists out there with 100+ questions. I know you are busy business owners and professionals with limited time. This is why in prior articles I offer the top questions to focus on when vetting a sponsor.
- Meeting sponsors in person and getting to know them over time is also helpful. You can subscribe to their newsletters and social media feeds, so you can track them and their evolution over time.
- Investment clubs like Passive Pockets (fka Leftfield Investors) and the 506B Investment Group will also include forums where other passive LPs share their own feedback and personal experience working with various sponsors.
- Background checks can provide further comfort. Refer to my Avoiding A Scam Article for details.
A few popular sites include: crimcheck.com; forwarn.com; Goodhire.com; infomatchplus.com; TLO.com; Trustify.com. I personally like to go a lever deeper and hire private investigators (message me if you’d like a discount code to one of my preferred partners).
2. The Market
As a passive investor you do not have to be an expert on the market or perform deep market analysis, unless you want to. It is the sponsor’s job to perform the diligence and provide ongoing monitoring. However, you should at least perform a high level diligence (trust but verify), so you are in a better positioned to ask questions.
The sponsor’s investment offering will usually have a ton of data on the city and state when it comes to population, income, and job growth. Thus, typically areas I focus on when I vet deals as a passive investor include: crime, median household income, and the overall feel of the neighborhood. Supply and demand are not to be ignored either.
A few sites I use to do that research include: spotcrime.com, justicemap.org, censusreporter.org, census.gov, bls.gov, datausa.io, bestplaces.net, neighborhoodscout.com. If you are not local to the market, doing a virtual drive by via Google Maps also helps. Needless to state, nothing replaces boots on the ground knowledge of the area. Thus, if you have a contact that you know, like, and trust, they can be a great resource for you.
3. The Deal
You do not have to be an expert underwriter to vet a deal (as a side note, I help investors with deal reviews and also have an underwriting community for those willing to do a deeper dive). However, as a passive investor you want to understand what assumptions the sponsor is making as they model our projected growth and rate of return and then determine your own comfort with such assumptions or formulate follow up questions to firm up your understanding. In a prior article, I covered in-depth each of these key assumptions related to: topline growth, expense adjustments, entry and exit cap rates, operating reserves, and debt structure.
4. Portfolio Performance Trackers
As you start expanding your investment portfolio, it is important to track performance at the deal level, so you ensure your various investments progress as planned. In addition, it is also fun to see how your passive income streams build over time. I have my own investment tracker, which is simple and built in Excel. The Joe Fairless LP tracker is another good simple one too. If you are looking for more sophisticated tools, you can also check out Vyzer or the Wealth Syndy Calculator.
5. Other
Lastly, as a real estate investor it is important to stay abreast of market, economic, and global news as inevitably all of these impact the industry and ultimately your investment. There are numerous sites to list here. However, if you’d like to see a list of the ones we like to track, simply reach out. Lastly, if you have additional tools that you have used and found helpful, please feel free to share as well.
Happy Investing!
Download The Busy Professional’s Quick Guide To Investing In Multifamily here.
Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.