Book Review: The Hands Off Investor (Part 1)

In book club this month we review The Hands-Off Investor by Brian Burke about passive real estate (syndication) investing

The book is divided into 5 sections

1. Investing in syndications

2. Getting to know the sponsor

3. Evaluating real estate

4. Evaluating offerings and structure

5. The investing process

This post will review sections 1 and 2. I like that the book's structure fits to what the author thinks one should evaluate when trying to decide if syndication investing is right for you. After deciding if investing is right for you in chapter 1, finding a sponsor that you can trust and has a good record is the next step. 

Personally I use real estate as diversification (currently 10% of my portfolio).  And honestly I’m really not interested in evaluating the numbers (I know that’s not great) however I agree that what’s most important is the sponsor and so I went in because I trusted the sponsors (or the people that referred me to them). The author states he believes that 20% real estate of a portfolio could be for a conservative investor and 50% for an aggressive investor. It’s important also to diversify within your real estate portfolio, for example you may not want one investment to occupy more than 20% of your real estate portfolio. Most of my syndication investments are funds, in which multiple properties are present, adding to the diversification, but then decreasing the control I have over which property my money is invested in.

Some benefits of real estate investing are that it is less correlated to stock market investing (good for diversification purposes). And also that there are some tax benefits (depreciation). Disadvantages are that your money is illiquid, tied up for a certain amount of time (a few years), and it complicates your taxes Expect to file for an extension like I did this year. You may have additional state tax returns to file as well if the properties are located in other states. 

Make sure you invest according to your own goals/risk profile. More conservative investors will want to invest in stabilized properties (already renovated with steady cash flow) or debt, which provides cash flow but is also less tax advantaged, and in which there is limited upside but also decreased potential downside.

Chapter 2: sponsors and offerings

The author says that the question how do I find a deal to invest in is the wrong question, the right question is "How do I find a good sponsor to invest with"? Recommendations can come from from family and friends (best way), conferences, podcasts, blogs, online crowdfunding, or real estate websites such as biggerpockets.com.

Chapter 3 and 4: evaluating sponsors: the people and the process 

It’s important to talk to the team to learn whether you trust them enough with your money. The moral character of the sponsor is one of the most important elements. One way to do this is to ask about a deal that hasn’t gone well, their worst deal, or one that failed to meet projections or presented an unusual challenge. You want to see how they handled the situation. If they haven’t had anything go wrong, they may not have been in the business long enough. If they brush you off it could be a red flag.

The sponsors' process is also important, evaluate their track record, website, sample offering documents, due diligence procedures, investor reporting (including when they usually get the K1s  to investors at tax time. For example this year, I need to file an extension because one out of my five syndicators is late on their K-1). 


https://www.amazon.com/Hands-Off-Investor-Insiders-Investing-Syndications/dp/1947200275/ref=nodl_?dplnkId=a59bf464-7c83-4c76-b78d-53e006a92af3&_encoding=UTF8&tag=butterfly0b7-20&linkCode=ur2&linkId=dae60f50b2b3cae59d2ad8f5214848d5&camp=1789&creative=9325

I get a small commission if you order through my link which helps to support this blog

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