Real Estate

Moving abroad made me a better real estate investor

Every time I do a conference call, someone asks, “Where are you?” And then their eyes widen as I reply, “Lima, Peru.”

But when I invested in rental properties, I did so in my hometown of Baltimore. It was only after I went abroad that I realized how much I had subsidized these properties with my hard work.

Today, when people ask me what I would do differently if I started investing in real estate again, I have an answer ready—because I what restart.

My “landlord era”

I bought my first rental property in 2005, and I had no idea what I was doing. Then I bought a dozen more properties over the next three years, and I still had no idea what I was doing.

To begin with, I didn’t understand How Cash Flow Works. It turned out to be a costly and embarrassing mistake.

Worse, I bought. Unforgiving, slums I Baltimore City. I didn’t realize that low-priced properties come with countless hidden costs that don’t show up on paper—crime and vandalism, high turnover rates, high tenant attrition, and chasing delinquent tenants. Costs such as ongoing eviction filings. rent

Oh, and there’s the fact that skilled property managers avoid them, because they pay half as much and come with twice the work. This leaves you with property management problems.

I also didn’t realize how difficult life is when you invest in an anti-landlord jurisdiction like Baltimore City. It once took me 11 months to get a “professional tenant” from a property.

I did this for a decade. And I hated it.

Moving abroad took the crutch away.

When I moved overseas in 2015, suddenly, I couldn’t spend my nights and weekends driving to properties, coordinating with handymen, and being on top of ineffective property managers.

I reluctantly had to admit to myself that as bad as my returns looked on paper, they were actually worse than I had imagined.

I’m making these investments with my own hard work—not necessarily passive investments like stocks, bonds, notes, or real estate. Syndications. Even in good conditions, The landlord comes with a lot of hard work. More than people realize. And monitoring my challenging properties was the most difficult.

When I couldn’t bounce around to put out the proverbial fire, my possessions revealed their true value, or lack thereof.

For a decade, I served as the crutch that kept the portfolio upright. Take away the crutches, and the entire portfolio collapses.

The axis of passive investing

As an expat halfway around the world currently in Abu Dhabi, and a busy entrepreneur working 50-60 hours a week trying to get SparkRental off the ground, I hit a wall. I divested all of my rental properties, even the nice ones I bought later in my rental investment career.

But I felt out of touch with what he had taught me. I learned every lesson the hard way and eventually became an expert on every mistake to avoid and every easy path to success with rental investing. At SparkRental, we taught rental investing — but I no longer bought new properties myself.

Meanwhile, our students kept asking, “Can I just invest in a deal with you guys?” After we said no for a day, I looked at my partner Danny and asked, “What if we say ‘yes’?”

Well, that’s an important lesson for entrepreneurs: sometimes the business you think you’re in isn’t actually what the market wants or needs. But I hesitate.

Around this time, I began experimenting with passive real estate investing. I started with small amounts in most of the big real estate crowdfunding platforms and wrote about my experiences. Then, I started investigating private equity real estate syndications (fancy words for “group investment”).

I didn’t like the high minimum investment real estate syndication required. I wanted Diverse And roll out smaller amounts to more properties and markets.

Then it hit me: I had people claiming to invest in real estate with me. What if we go all out on a syndication deal?

So we did. And we liked it so much, we started going to bargains together every month as a form. Dollar cost averaging. Later, we opened it to the public as an investment club.

Tax Deferral Without a 1031 Exchange

Many people invest in real estate at least in part for the tax benefits.

As I gained more experience investing in real estate syndications, I was pleasantly surprised to discover thatSlow 1031 Exchange

Active investors can defer capital gains tax on income properties. 1031 exchange. But they have a lot of hoops to jump through — hiring a qualified broker to hold your money and do your paperwork, announcing a replacement property within 45 days of selling your old property, Closing of new property within 180 days, etc. .

Even when I lived in the States, it struck me as too much work, so I never did it.

With passive investing in syndications, all you have to do is reinvest the proceeds from the old deal into the new deal. Hard stop.

Depreciation from the new deal shows up as a loss on your tax return, which you use to offset your capital gains from the property sold. It’s that simple.

It fits perfectly with my new investment strategy as an expat.

We’re all busy—who wants another job?

In my 20s and 30s, I wasted all nights and weekends, futzing with rental properties. But being a dad, an expat, and a busy entrepreneur puts my priorities in perspective. Why would I want to spend my precious little free time bothering with contractors, tenants, property managers, or city inspectors?

I would love to hike the Andes with my daughter. Or visiting Chile’s wine country with your wife. Or, for that matter, investing time in growing your business.

There is no wrong way to invest in real estate. I have nothing but respect for rental investments. I no longer want to do it myself when I can get all of the above (cash flow, appreciation, tax benefits) without the hassles (financing, contractors, repairs, permits, inspections, tenant management, ad nauseum).

When investors complain that they’re busy and, in the same conversation, say they’re planning to buy another active property, these days, I keep my mouth shut about the contradiction. They are on their journey to find out. Financial freedom. I will continue to enjoy myself.

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Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.

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