Should you buy rentals or passively invest?
The big question for real estate investors: whether to become a landlord and buy rental properties or invest passively as an LP
Welcome to Unfollow the Herd where I share actionable advice on business, real estate, and wealth with 2,200+ readers.
This week I’m tackling a BIG reader question:
“Should I buy a rental property or invest passively as an LP (Limited Partner)? Which is better?
From someone who has done both…
Here are the Pros & Cons to consider.
Owning Your Own Rental Property
Pros:
You're the Boss: Think of it like being a captain of a ship. You call the shots - from who gets to live in your property to how much rent you want to charge.
Steady Cash Flow: Remember that friend who always brags about the rent money he gets every month? He’s onto something.
Potential for Price Jump: Fast forward a few years, and you might just sell your property for a lot more than what you paid.
Tax Breaks: Those rental property expenses? Many can reduce your tax bill.
Building Wealth: People are paying off your mortgage and building equity for you over time.
Cons:
It's Not All Sunshine: Being a landlord can be stressful and expensive. Pipes leak, roofs need fixing, renters don’t work out.
Tying Up Your Cash: Unlike selling off a stock, offloading a house can be a long, stressful process.
Big Buy-in: Think of the down payment as the entry ticket to the landlord club. And it ain't cheap, especially with rates in 2023.
Market Mood Swings: Just like the stock market has its ups and downs, property values can go on a roller-coaster ride too.
Empty Homes, Empty Pockets: No tenant = No rent. That’s on you.
Being a Passive LP Investor
Pros:
Relax, It’s Handled: The GP (General Partner) does the heavy lifting finding the deal, negotiating terms, closing on the property, and managing it.
Spread the Bets: Many funds available to LPs allow for investing in not one, but multiple commercial properties.
Expertise On Your Side: LPs have pros (called General Partners) steering the ship. It's like having Gordon Ramsay cook for you instead of DIY-ing dinner.
More Bang For Your Buck: More money pooled in means bigger, fancier projects – like luxury storage facilities and apartments.
Safety Net: Worst-case scenario? You only lose what you put in. Your other assets? Safe and sound.
Cons:
Backseat Driver: You can give input, but someone else is at the wheel. It’s key to find a GP you trust.
Management Fees: Some of your profits go to the pros for finding and operating the investment properties on your behalf.
Money’s Tied Up: It’s a bit like planting a tree. You can’t just yank it out when you feel like it. You’ve got to wait for it to grow.
Patience Pays: You receive regular cash flow, but your big payday might come later, once properties are sold.
Do you prefer buying rentals or passively investing as an LP?
Btw you can passively invest with me in commercial real estate by joining my investor list here.
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