So, you’ve decided you want to invest passively in multi-family apartments? Welcome to the world of passive income and all the benefits that come with it. What are your current expectations? If you thought you just had to sign a few papers, wire some funds then sit back and watch the money flow into your account you’re not too far off. However, if that’s all you did you may be in for a few surprises. Read on for 5 ways you can not only make more profitable investment decisions but also enhance the experience for yourself and your syndication partners.
The great thing about passive investing is that you can be hands off while the general partners manage the investment. Whether you understand what they are doing or not would have no effect on the success of the investment. This greatly reduces your startup time as a passive investor. You can just find someone you trust and invest with them. No need to spend the weeks to months it may take to truly understand how to profitably invest in apartments. While this may work most of the time, it may not work all the time. Your odds improve if you educate yourself on apartment investing strategies.
Knowing how each strategy works will help you to better select investments to meet your financial goals. There are 4 basic apartment investing strategies, ground up development, distressed, value-add, and core. These all have differing levels of risk and cash-flow. If you live off cash-flow you would not want to do a ground-up development that won’t have any distributions the first 2 years. And if you’re nearing retirement, you may not want to get into an investment with that level of risk.
Educating yourself on apartment investing strategies also helps you better understand the mechanics and fundamentals behind your general partners’ business plan. While as a passive investor you don’t make management decisions, it is still your choice whether to invest. By choosing to invest you are supporting the business plan. If the returns look great but the business plan does not you may want to invest elsewhere. Reputable investment firms often offer resources that allow you to educate yourself on the above. Other options include podcasts, message forums and streaming videos you could search online.
Communicate as early as possible if your decision to invest or ability to invest changes. If general partners were an engine, they would be fueled by passive investors. The capital you invest as a passive investor helps to fuel this investment vehicle. Without it, the engine would not start. Furthermore, the business plan would not get out the driveway and the profits would be lost. Before you are brought in as a limited partner, the general partners put significant amounts of capital on the line to secure and vet the apartment community. If they are unable to close, they lose the money and time they already invested into the project.
If you make a commitment to invest, the general partners and limited partners are counting on you to be ready when it is time move. Last minute cancellations can leave the general partners all but stranded as they scramble to find new sources of fuel. Communicating early gives them time to find additional capital before they run out of time to meet closing deadlines. General partners will be appreciative of this and will be more likely to work with you again in the future. Your fellow passive investors will also be appreciative as this preserves their opportunity to invest in the project.
Be patient, understanding and supportive. In the world of investing there are no guarantees. There is inherent risk and even with the most thorough levels of preparation things do not always go as planned. Natural disasters, acts of god, changes in the economy, changes in the laws can all affect the success of an investment. Understanding this and allowing general partners the necessary time to get an investment back on track would be greatly appreciated.
If these situations do arise, the general partners should communicate early with you, keep you informed on what they are doing to fix the problem and any results of their interventions. If they are doing all the above your support whether by being patient or contributing additional capital can smoothen a potential rough spot. This will benefit you and as well as your fellow passive investors. There may also be a delay between closing and your first distribution. Be aware of this upfront as it should be determined by the business plan.
Review Quarterly Reports And Gather All Your Questions Together At Once
To maintain transparency, general partners should provide quarterly financial statements to passive investors. There should also be an investor call reviewing progress and projections. Reviewing the information provided may help prepare you for any bumps down the road for the project. It may even answer any questions you may have about the project. While your general partners should answer your questions in a timely manner, they must be equally responsive to potentially hundreds of investors.
The time needed to respond to all the investors may interfere with time needed to manage the investment. So that your general partners can respect your time and you can use their time most effectively, see if your questions have already been answered in the reports. If they have not been, try to have as many of your questions prepared and submitted at one time, this will reduce the time associated with multiple back and forth emails or phone calls. Your general partners will appreciate this as this frees up their time to make more profits for you and your fellow passive investors.
Spread The Word
Share your experience with friends and family. By sharing your experience, you can become a source of referrals for whichever general partnership team you are working with. There is no higher compliment you can give than a referral. You are also giving your loved ones an opportunity to improve their financial future. This will further benefit you as this additional fuel and capital will allow your general partners to do more deals, providing you and your loved ones with even more profitable investment opportunities.
The 5 Steps To Becoming The Best Passive Investor Are:
Review Quarterly Reports And Gather All Your Questions Together At Once.
Spread The Word.
Following these 5 steps will not only enhance your experience as a passive investor but also enhance the experience of the other passive investors and general partners you are working with - increasing the overall chances of success.