As someone who can't stop talking about passive income investments, I inevitably end up having a lot of conversations about investing in real estate.
I've heard countless stories of how real estate investing has helped people achieve their goals, but from those who don't invest, I often hear this objection commonly voiced, “I don’t want to be called in the middle of the night to unclog a toilet.”
What I think they're getting at is that they're protective of their time and effort, and they're worried that investing in real estate is too time-consuming.
I totally get it… As busy professionals, we might make decent incomes, but our time is quite limited. It makes sense, then, that we want to make the most of what little free time we do have. I agree with that line of thought completely.
Then if time is so valuable, why in the world would anyone want to invest in real estate? Isn’t it one of the most time-intensive investment strategies?
Well, maybe not. For this post, I wanted to share my various experiences investing in real estate when it comes to time involvement.
Every post on how to start investing in real estate should start by mentioning how vitally important it is to gain the proper knowledge to make a smart investment.
This is by far the most time-consuming aspect of real estate investing – accumulating knowledge. While not extremely difficult, especially compared to the academic rigors we've been through, it still takes time and dedication.
I spend time reading books and blogs, listening to podcasts, taking courses, and participating in forums and Facebook groups. I've made the effort to go to real estate conferences and local real estate meetings to learn from the experience of others. I've realized that all this time spent on learning is not a cost, but an investment.
After high school, most of us have spent an additional 8-10 years (minimum) learning how to be competent physicians. And we continue to learn as we practice. When it comes to real estate investing, people often expect to be able to gain all the knowledge they need in one or two books, but that's definitely not the case. It takes layers of foundational learning, and experience by doing (investing) counts for a lot.
Owning Your Own Properties
The “toilet” comment from above refers to time spent owning your own properties. I'm sure we've all been tenants at some point and we can remember how things break and go wrong.
Managing your own property can be time-consuming, especially if you've built up a nice portfolio of units. When I hear of people spending an inordinate amount of effort with their own rental properties, it's almost always because they've chosen to self-manage.
Personally, I think it's better to spend your efforts on finding good property management. Your time is worth much more than whatever you'd pay them. A good company will also do a much better job at handling tenant issues and making sure everything is in compliance with local rules. Plus it frees up that time so you can enjoy doing what you love. That's the point of passive income, isn't it?
So, how much time do I spend on my rental properties with good management in place? Well, it always takes extra time when you first purchase a property to handle renovations and get a good feel for how it should operate. However, I'd say about six months to a year into owning the properties, you should only get contacted for major issues on occasion.
For example, I review my property management statements every month, and every month I see requests for repairs from tenants and yes, occasional plumber calls. However, when those repairs were made, I was blissfully unaware, probably hanging out with my family. I only know about them by reviewing monthly statements. Otherwise, I might get an email about a tenant moving out and the plan for refreshing a unit while adjusting rents.
That's not to say there can't be major issues. Sure, roofs can leak, tenants have to be evicted, and other unforeseen disasters could strike. But, in my experience, that's been few and far between, and if it does happen, I make sure that my property management takes the lead on remedying those issues.
Again, I leave the day-to-day to the professionals so I can spend my limited time on things I'd rather be doing.
Investing in Crowdfunding, Syndications, and Funds
The concept behind crowdfunding, syndications, and funds is that you’re investing in a passive manner with real estate professionals. They’ve laid out an opportunity for you to invest in (becoming a limited partner/owner in an apartment building, for example) and they expect to handle all of the aspects of running that investment.
When it comes to investing in these private real estate deals, all of the time you need to invest is upfront during the due diligence period.
You need to thoroughly vet the sponsor. Research their experience and their track record. Get to know the leadership. Ask questions.
After the sponsor, you need to vet the deal. What kind of opportunity is it – debt vs. equity, what asset class (apartment building, retail, warehouse, etc.) What is your expected return and what kind of risk are they taking to meet those returns? How long is the expected hold? What’s the minimum?
Once you feel you have a firm grasp of the opportunity in front of you and invest, the rest should be completely passive. You get to sit back and wait for the dividends to roll in. As is the definition of passive income, most of the work is done upfront, and the returns continue afterward. Someday, the property will sell, and you’ll receive your full return and be ready to move on to another investment.
How long do I take to vet opportunities like these? In some cases, they can take a few hours, and other times it takes looking at it here and there for a few weeks while I gather information. I've invested in more than 25 of these types of opportunities, but I've looked at way more that I haven't invested in. Just like anything, you get faster and better at it the more times you do it.
Is it Worth it?
At the end of the day, my goal is to have multiple sources of passive income, which allow me to spend my time how I want. I wouldn’t take on real estate investing if it didn’t allow me to buy some of that precious time back.
Because of that, I’ve put systems in place to make it as least time-consuming as possible. In the case of owning my own properties, I use a property manager. I also invest in passive real estate investment opportunities as well, where I do the heavy lifting (vetting) up front and then sit back and wait for income to stream my way.
Ultimately, it is true that real estate investing can be time-intensive – just how much depends on how you structure things. However, once you have built up that consistent monthly cash flow, it ends up freeing up so much more of your time that you gain a ton of “net time.”
Smart decisions and investments made now can change the trajectory of your life and career – especially when it comes to creating passive income. So why not spend some extra time dedicated to it?