What is passive cash flow real estate investing?
Passive cash flow real estate investing is a form of real estate investing where you do not have to be involved as much as if you owned the asset directly by yourself and had to coordinate all of the aspects of buying, financing, and operating the real estate.
What are friends and family real estate investments?
Friends and family real estate investments are a form of investment that many investors utilize. As the name of the investment describes, friends and family investments are investments where you co-invest with people that you know. For example, you may invest with your parents, siblings, cousins, friends, friends of friends, and acquaintances.
What does the Sponsor do?
Generally, friends and family investments have a Sponsor that acts as the General Partner or Managing Member of the investment. That General Partner or Managing Member organizes the acquisition and financing of the property, arranges the entity that holds title to the property, coordinates the equity investors in the investment, manages the investment, and ultimately, decides upon the timing of the disposition of the investment. The Sponsor also manages distributions of cash flow and capital events to the investors while also overseeing tax preparation efforts for the property and of the K-1s to the investors for their individual tax returns.
Friends and Family Real Estate Investments are Attractive Investment Opportunities
What I have found over the years is that many of my friends and family members have an interest in real estate investing. Many people I have the pleasure of meeting all over the World also have an interest in real estate investing. I hear it all the time. People want to sit down, people want to “pick your brain”, and they want to figure out what they should be doing with real estate investing.
As a Sponsor myself, it is hard to tell the difference between the people who just want to learn versus the people who will actually invest. Frankly, that doesn’t bother me, as I love discussing real estate. I love hearing what types of projects people are involved with. I love talking about the deals that I am involved with or investing in.
It is easy for me to understand why people have an interest in real estate investing. It is sexy, it is long-term, it represents wealth, and it represents a large investment that is yours. Most people know someone involved in the real estate industry at a professional level. And often times the professional’s friends and family will ask about opportunities to co-invest. Even prior to starting as a Sponsor myself, I talked to people I met in real estate about their deals, I talked with my clients about real estate deals, and then when I announced that I was going to start Sponsoring friends and family deals, all of my friends and family started asking me questions about real estate investing.
There are a lot of people who express interest in investing, and then openly declare that they are going to invest in a deal. And from my experience, once people have decided that they are going to be investors, they generally invest in as many successive deals as possible. I know that’s how I am. I invest in my own deals, I invest in friends and family deals, and I invest with recommended Sponsors.
My experience tells me that people still like investing with people that they know, respect, and trust. I know that I do. It is human nature. It feels good to have a connection with the people you co-invest with. That is one of the things that has made friends and family investments popular for so many centuries. The investments that you make with your friends and family relationships creates an additional dimension to the relationship.
As a Sponsor, once you accept an investor into a deal, your interests are aligned. You have a common goal to ensure that the real estate investment is successful. You have a common tie to a property or Fund that you invested in together. So, the Sponsor and the investor form a monetary bond in addition to the familial or friendship bond. The investment becomes yet another topic of discussion for you and your family and friend investors.
As a passive real estate investor, investing with a Sponsor requires finding a deal, filling out the appropriate legal paperwork with the Sponsor, investing your cash into the deal, and then staying in contact with the Sponsor to get regular updates about the investment. At the end of the day, the cash investment is your money and the Sponsor is a steward of your money in the particular real estate investment. But, by investing together, you are forming a deeper relationship in my opinion.
Case in Point
One of my investors is a good friend. We met in 2003 when I moved to Hawaii while we were both getting our MBAs at the University of Hawaii. He is a family man, he is a businessman, he is a sportsman, and he is a community activist for Native Hawaiians. He is busy. He has built a Hawaiian TV station with another mutual friend. He now runs a social impact business cohort. We had discussed real estate for 16 years, but he realized a couple years ago that he was not diversified, that he did not have good access to cash flowing deals, and that while his retirement accounts and overall net worth was growing, he felt that it could grow faster with the right investments. He is a friend and he is someone that I trust through and through. And now we have another dimension to our relationship. He asked me to be a steward of some of his money. He asked me to help him create a retirement nest egg for his family. He asked that I help him achieve both current cash flow and long-term net worth increases through increased real estate values and selective capital events. That trust he places in me means something to me. The fact that I am also helping his family is not something I take lightly. He is a friend, an investor, and he is extended family.
There are a lot of people in a similar situation. You may be doing well financially. You may know that you can be doing even better financially. You may want current cash flow, you may want to increase your self-directed retirement accounts (yes, you can invest in real estate through self-directed IRAs and self-directed 401ks).
Sponsors of Friends and Family Real Estate Investments are Financial Stewards
It is true that I make a living off of helping my clients and investors with their real estate finance and real estate investment needs. I make a living off of providing above average returns for my investors. And while it is my responsibility to find and oversee good investment deals as a Sponsor, it is also my job to be a good steward for my investors while also addressing the needs of the tenants (both residential and business tenants) residing in the properties that we own and manage. While I have never had a property give back or foreclosure or even a property that lost money (and I hope that I never will), real estate investing involves risk and you need to be sure that you understand the risks including the potential for loss of capital when investing.
If you want to become part of our network and see the deals that we are investing in and the deals that we are Sponsoring, we would be excited to include you on the mailing list for deals that we Sponsor in the future. You can sign up with the link to Guardrail Finance’s Investor Management platform.
We would be honored to earn your trust. We would be honored to become a steward of your capital to assist you and your family in increasing your cash flow and net worth through real estate investing.
Until next time, happy investing!
Robert Newstead