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SHOW NOTES FOR EPISODE 435: HANDS-OFF REAL ESTATE INVESTING
Real estate investors often differ on their perceptions of what passive investing really is. Some see passive investing as owning a self storage facility or trading deeds or liens or even owning rental properties. In today’s podcast, Travis Watts, who has done many different types of real estate investing, shares why he feels passive investing through syndications is both the best type of passive investing and one of the most lucrative.
What You Will Learn
- Top three things you must do before investing in a real estate syndication
- How investing in multifamily syndications can yield more than most other real estate investing strategies
- Why Travis chose passive over active real estate investing
- What the NUMBER ONE thing is to evaluate a good syndication investment
- How you can get educated and connected – at the same time – on passive real estate investments
- Why Travis does not 1031 Exchange between passive investments
- How to find good passive investment opportunities
- What is the idea hold period for a passive investment
About Our Guest
Travis Watts
Travis Watts has been investing in real estate since 2009 in multi-family, single-family and vacation rentals. Today, Travis is the Director of Investor Relations at Ashcroft Capital, a national multifamily investment firm with more than $820M in assets under management where he has taken part in more than 30% of the Ashcroft opportunities.
More About Travis
- Got involved with real estate at 20 years of age
- Bought first SFR
- Did house hacking – renting out spare bedrooms
- Read Kiyosaki books – got inspired
- Didn’t really have a lot of clear direction or goals
- Just wanted to dive right in to see what it was all about
- Started doing fix ‘n flips, vacation rentals, had buy ‘n hold single family homes
- Would buy SFRs, live in them, rehab and sell them
- He was also working in the oil business about the same time
- Worked in different states for about 3 years
- Worked overseas, in the Middle East – 98 hour work weeks – for about 2 years
- Working 14 hour days, 7 days a week
- Still trying to manage his properties, rehab, flip, etc. while working full-time
- He was trying to figure out how he could stay in real estate, grow his portfolio and acquire properties with limited available time
- That’s when he found out about passive investing through syndication
Moving From Active to Passive Investor
- Around 2015-2016, he shifted from 100% active real estate investing to 100% passive, hand’s-off real estate investing
- Started investing in real estate syndications
- At first, he was pretty skeptical
- The projected returns seemed to be too good to be true
- He didn’t understand how he could get those types of returns doing absolutely nothing
- The numbers he made in passive investing were the same as he was doing as an active investor
- In 2015, he invested in one syndication deal to see what would happen
- He soon realized the returns were true – really loved the model
- Over 12 months, he sold all of his properties, including the house he lived in to invest in syndications
- He wanted to go all in!
- Best decision he ever made
- Freed up a lot of his time
Early Challenges
- He put way too much emphasis on a syndication’s proforma and/or projected returns of a potential project and didn’t spend enough time vetting the sponsor and syndication team heavily enough
- Today, he puts more emphasis on the sponsors and team and their track record first
- Next, he looks at the market
- Third, he looks at the deal’s proforma
Getting Educated
- He wanted to learn how to properly vet sponsorship teams, how to look at their background, track records and experience
- Started attending nationwide real estate conferences and seminars
- Got to get an inside perspective on how the industry works
- Got to meet and mingle with thousands of passive investors
- Built a strong network of other more experienced passive investors
- Texas has a lot of good events
First Few Syndications
- His first few syndications were with people he met locally in groups
- He later found out that the better operators were not local
- As he networked more and more nationwide, he found bigger and better deals
1031 Exchanges
- Travis doesn’t do 1031 Exchanges from one deal to the next for he following reasons:
- There’s a lot less deals out there
- You may be able to do one or two but availability of deals is limited
- Could get stuck with a higher tax burden
- Rolling deals between operators can be tricky with minimum requirements – could be $1 million, could be $2 million
- If you commit to it, you may have to continue forever or get saddled with a huge tax burden
Managing Your Investments
- Short-Term vs. Long-term Hold
- When you invest inn a deal that is supposed to be a 3, 5 or 7 year year hold, the exit date is always at the discretion of the operators
- He invested in a 3 year deal they cashed out early at 18 months for a 30% return
- The decision was to hold on and continue for a 8% preferred return or get out early for a 30% return
- The average deal, however, is a 3 to 5 year hold
- The challenge for passive investors is that when they get the money back, then, they need to go out and research to find another operator (or operators) and another deal (or deals) – the passive investor becomes active- at least temporarily
- The consideration every real estate syndicator must realize is that – this is not a stock that you can just sell and get out! It’s not liquid and you need to ride it out for as long as is necessary – You’re at the discretion of the General Partnership
- He has invested in deals where the operators underwrite the deal to not sell the property. Every 2 to 3 years, on average, the operators would re-finance the property and then send back to the investors part of their initial investment. Over time, they would get their full investment back but can continue to earn
- 15% of his portfolio has been in deals like that
- His preference is the 5 year hold
- Challenges of Investing Today
- It’s a game of – “Where are you going to move the money next?”
- Today, with Covid-19 and the economy, many operators are just waiting and watching
- The hope is in the next 12 to 24 months, things will get back to normal
Top Three Things You Must Do Before Investing
- Make sure that your criteria fits what the operator is doing
- For example, do you like:
- New developments
- Value-add projects
- Self Storage
- Mobile Home Parks
- Affordable Housing
- Multifamily
- Know what your criteria is and why
- For example, do you like:
- Track Record and Experience
- Find groups who are consistent in their business model
- Can show you proof and results of past performance
- Make sure that they’re being conservative with their approach
- You want to Get Along With the GP team
- Going to be with the for 5 to 7 years
- Need to pass the “gut check”
Your Biggest Mistake(s)
- Not making sure the team has what it takes to accomplish their plan
- He invested with a group who’s proforma looked fantastic and strong
- However, it was a huge value-add – almost rebuilding the community – the team had no experience in a build this big
- Costs ran more than expected
- He didn’t lose money but didn’t make money either
- Invest in what you know – what makes logical sense
- He invested outside of real estate, in an area he really didn’t understand
- Invested in a syndication fund that bought distressed debt
- He lost money
Your Biggest Success(es)
- Realizing that the passive route was right for him
- It’s not right for everyone
- He had to really look at the facts
- He was career focused at the time
- Didn’t have the time to focus on active real estate ventures
- And, he did fix ‘n flips, vacation rentals and more, he wasn’t good at it
- He thought, “There are a lot of people who are doing all this better than me. It makes more sense to piggyback on their success!”
Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years
- When his dad was in his early 60s, he was looking at his retirement coming up
- Travis was sitting down with his dad to go over the numbers, looking pension, social security, etc.
- His dad also had about 7 or 8 single family rentals
- Travis was investing in syndications
- His dad enjoyed his local single family rentals, enjoyed chatting with his tenants, but he realized, if he got 10 or more that it would become a full-time job
- He decided to stop growing his portfolio at 8 and start investing in syndications because:
- He wanted to grow his holdings
- Wanted the cash flow
- He didn’t want the time commitment it takes for rentals
Creating Financial Freedom
- Travis’ interest in creating financial freedom
- Talking on podcasts and in his blog, that’s what he talks about
- Travis doesn’t, at this time, want to not have a job
- What he wants is to develop avenues where he can develop from – things he’s passionate about
- In his current job with Ashcroft, he has the freedom to do those things
- That’s what led him to investor relations:
- He has the opportunity to speak with our investors and share information he has learned like:
- How syndications work
- Why passive income
- Why “hands off” investing is appealing
- He can share stories of lessons learned
- It’s his way of “giving back”
- He doesn’t need to be working
- He has the opportunity to speak with our investors and share information he has learned like:
Current Business
- As long as he is continuing to pursue things that he’s passionate about, he’ll keep doing the same thing he has been doing
Rap-It-Up
- Favorite real estate book: Tax-Free Wealth by Tom Wheelwright
- Favorite business book: Awaken the Giant Within by Tony Robbins
- Most valuable web site for success (other than your own): BiggerPockets.com
- Favorite app: TinyScanner
- Favorite quote: “Most people overestimate what they can do in one year and underestimate what they can do in ten years.” – Tony Robbins or some say Bill Gates
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? I would spend the majority of the $1,000 on educational materials to learn a new strategy like, for example, learn how to become a GP, where less capital may be required to get started.
How to Reach Travis
-
Travis’ Calendar Link for Free 15-Min Q&A Call for Listeners: https://calendly.com/
traviswatts/consultation -
Instagram: @
passiveinvestortips -
Facebook: www.facebook.com/
passiveinvestortips
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com
