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by | 09, Apr 2022

The Worst Reason To Passively Invest

In this Saturday’s episode, we are going to talk about the worst reason to passively invest in syndication.

You heard that right! Not the best reason, but the worst reason!

Could it be the lack of control? When you invest in a property through syndication, you won’t have control over said property as you would if you purchased it yourself… but maybe that’s a good thing?

Now, back to today’s episode… everyone is talking about the rising interest rates, especially in the single-family market, but how is it affecting the multifamily market?

Maybe you think it’s the first step to becoming a GP, right? You’ll get all the experience from the LP position, and you’ll be ready to tackle the next deal as a GP? Wrong!

Find out all of this, and more, on another episode of Multifamily Investing Made Simple, in Under Ten Minutes.

Tweetable Quotes:

I’ve been on a lot of planes, but the pilots aren’t any closer to letting me in the cockpit.”  – Anthony Vicino

“Partner with somebody or go buy a property yourself. Probably the most efficient way to learn.”  – Dan Krueger

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** Transcripts

The Worst Reason To Invest

[00:00:00] Anthony: hello and welcome to multi-family. Investing made simple the podcast. That’s all about taking the complexity out of real estate investing so that you can take action today. I’m your host, Anthony Massino of Invictus capital joined by Dan also of Invictus capital Krueger. That was

[00:00:27] Dan: one of the least. Intro.

So very hacker is incredibly accurate. I mean, usually it’s nice. Usually you just make things up.

[00:00:37] Anthony: No, no, no, no. That’s okay. Wasn’t my best work. But listen, we’re almost at like 200 episodes, which means I’ve given you like 200 nicknames. I’m running dry. I don’t count much

[00:00:50] Dan: else to give you. Just start going to a different language.

[00:00:54] Anthony: I do. I strike you as a man who. You can come up with nicknames on the fly, in a [00:01:00] different language. Yeah. I, I have oversold myself to you. I appreciate your confidence, but I can not. All right. So here, we’re going to talk about, cause we only have, um, like, I don’t know, five more minutes on this episode because

[00:01:13] Dan: we didn’t start a timer.

Usually we start a timer, so we never had. Or live. So it’s weird.

[00:01:19] Anthony: You know, last week we had a 10 minute episode, this, this very rarely happens in like the hundreds of under 10 minute episodes that we’ve done. We very rarely go over the time limit. Last week, we had like a 14 minute episode, right? So for our listeners caught that and they were in the car and they’re like, I only have a 10 minute commute.

Why are people still talking? We apologize. We went over, but today we’re going to keep it. We’re going to keep it nice and tight. Nice and succinct today. I want to talk about the absolute worst. To passively invest in an apartment syndication. And Dan has no idea what the worst reason is that I have in my head.

[00:01:55] Dan: I can think of a lot of good reasons, but what’s, what’s a lot

[00:01:58] Anthony: worse. Right. But I’m [00:02:00] curious, like your initial, what would relay initial thing that you would say that’s probably not what you’re thinking. Yeah,

[00:02:05] Dan: no. The first thing that come to my head is, uh, one of the things that new. Potentially could perceive as a negative, which we think is actually a positive.

And that is the, uh, the lack of control they have compared to buying a property themselves with just their own money and not doing it in a, in a syndication with, uh, a group of investors in some general partners. Um, some people perceive that as a negative, but in reality, it’s actually a positive because we like to talk about the structure almost like it’s a, uh, a jet, like a plane and you get on.

You’re one of the passengers in this scenario and, uh, the pilots doing their thing. And that’s what you’re paying them to do is you’re paying the. To do the job that you probably don’t know how to do, unless you have to know how to fly and you don’t really want other passengers popping up into the cockpit to give some advice to the pilot.

You want them to do what they’re good at. And so some people might perceive the lack of as a negative, but actually it’s a positive because it keeps the control in the hands of the guys that know what the heck’s going on. But since that’s [00:03:00] kind of the obvious one to me, I’m assuming the answer that.

[00:03:02] Anthony: That’s a good one, but it is entirely wrong, but you actually set up the perfect segue with the analogy for this one, which is very helpful. Okay. So here’s the deal is, uh, I was on a call earlier with, uh, um, you know, a guy that I coach for Jake and Gino. He’s, he’s new to the community. And one of the recurring questions that I get from people who want to be.

We want to be operators or GPS on deals or sponsors is they think by first becoming an LP by passively investing in somebody else’s deal that they’ll get some special access to see behind the curtains or under the hood. And they’ll have special. Uh, ability to, to create this relationship with the GP.

So that may be in the future. But if I invest into your deal now as a passive investor, I can then become a GP with you in the future. We see this all the time. Yeah. And the reason I think this is a, a good episode for, for our listeners is because a lot of people, even if you’re, as you’re, as you’re exploring, [00:04:00] being coming a passive investor, you might be on the fence between now.

Maybe I want to passively invest. Maybe I do want to pitch. Like, there’s no wrong answer. They’re like you could do both. Right. And I think a lot of our investors are at least a little curious about what it would look like, but we hear it all the time. Like, should I invest in somebody who studies. Kind of like build a relationships P kind of hood before, like, would that make it more likely that I can become a GP?

What do you think about that?

[00:04:23] Dan: Yeah, no, I think it’s, uh, like you said, I, I don’t think that’s a good reason to invest as a limited partner in a deal. If your intent is to be an active investor and be either doing syndications yourself or at least helping out on the active side on the general partnership side, if that’s your goal, that’s not the most efficient way to get there.

And it, it probably actually won’t help at all, unless you’ve got a really close relationship. With that operator already, like maybe you guys were friends, like there’s, there might be something there, but if you just came across an operator through networking or whatever, and they are telling you that a good first step is to be an LP.

That’s not uncommon at all to hear from [00:05:00] people hear it a lot. Yeah. Unfortunately, and I think we’ve talked about this before. I hope it’s not because they’re just telling people what they want to hear to get them into the deal. I know there’s at least. A little bit of that, but you know, maybe some of these guys actually generally intend to provide a decent amount of value, but.

It’s a really hectic busy business. You don’t have a ton of time to carve out a time to mentor people, unless that’s really like a big part of your business, like with the Jake and Gino community. And like with other coaching programs like that, like yeah, if you pay for it, you can get that. But just being a, an investor.

Probably isn’t going to get you what you’re looking for. Uh, there’s a few other things that you can do, which we’ve mentioned before, which we’ll mention again today, but, uh, just a limited partner position with a generic operator is not the most efficient way to peek under the hood.

[00:05:45] Anthony: And I know a lot of people that have done this in the past, they’ve been a passive investor.

And then the, the thing I hear over. From these, these individuals is like, I didn’t really get as much as I thought it would out of it, honestly. Like they didn’t make as much time for me. I didn’t get as much one-on-one time. I [00:06:00] didn’t, I didn’t really learn all that much. And it goes back to like your jumbo Jetta now.

That I was like, oh, this is actually a really good concept. Is that as a passive investor, you’re a passenger on the plane. Right? I I’ve been on a lot of planes, um, Delta or the pilots aren’t any closer to letting me in the cockpit. I didn’t really learn anything. Despite being on the plane with these guys, I’ve tried

[00:06:21] Dan: to fly a plane.

[00:06:22] Anthony: Yeah. I don’t know anything more than what I knew before. Like when you get on the plane, they kind of let you peek in the cockpit. That’s about all you’ll get as an LP. Usually, maybe you have a very special relationship. But unless you, unless you have that special relationship, you probably not going to get very much out of it, honestly.

That’s my glasses. So,

[00:06:40] Dan: so again, I mean, I don’t think we have a ton of time left. We started our timer late. Oh, wait a minute. I think we got a minute or two here, but what do we think is. A good solution for those people who do want to get experience and think they might want to be active investors. I think

[00:06:53] Anthony: if you want to be active, you’re probably either go and do it yourself and start small or partner on a JV, a joint venture.

I think that’s the key yeah. [00:07:00]

[00:07:00] Dan: Partner with somebody or go buy a property yourself. Yeah, I think the. Probably rather than most efficient. Yeah. Cause you get to work with somebody who hopefully has done it before, but that’s what we suggest. But those people just

[00:07:09] Anthony: so you know, oh, I’m full agreement. All right.

So that’s the absolute worst reason to invest in being a passive or a passive investor in the apartments indication. If you are somebody that got some value out of that, like you were thinking, Hmm, maybe I wanted to do this because I thought that would be a good way to become a GP. Hopefully this maybe saves you some time and some energy, some money.

Um, if you’re still on the fence, uh, Give it a shot and report back. Let

[00:07:35] Dan: us know how it does that. You might make 15 to 18%

[00:07:38] Anthony: at worst year invested in things like one of the best asset classes out there. So like the worst case, you’re still getting good returns. So cool. Yeah. Hopefully. All right, guys, that’s going to do it for us.

Go drop a review on iTunes or wherever you’re listening to this. Um, Stitcher. I hear that’s a place and you can’t leave reviews on Spotify, but, um, We can go leave a comment on [00:08:00] Spotify that you should be able to leave reviews on Spotify. And then once they finally

[00:08:04] Dan: send a support ticket to Spotify, they’ll send us a support.

They need reviews

[00:08:09] Anthony: for us. We’ll see you in the next episode. .

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