My Personal Passive Investing Strategy

by | Nov 29, 2022

The evolution of my passive investing strategy has changed over the past few years.  As my education and confidence grew in the space, my strategy adjusted as well.  In the following article, I will walk through some of the changes I’ve seen in my passive investing strategy in hopes of helping you identify yours.

Passive Investing Strategy: 3 Ways to Diversify and Grow Your Real Estate Portfolio

1. Diversifying in Multifamily Through Funds

I chose to invest with large, national brands for my first two passive investments. These operators also offered funds which allowed me to spread my investment dollars across multiple markets and properties.  I did decrease my risk by starting with this strategy, but it’s possible that my returns will end up being less as well. Funds tend to decrease the chances of big losses, but they also tend to decrease the chances of your big wins.  In addition, funds generally have longer hold periods. So, these investments will not likely provide meteoric returns like some of the single asset deals I moved on to next.

2. Diversifying Through Multiple Operators and Markets

With a little bit of confidence and a couple of monthly/quarterly disbursements under my belt, I started to leverage my new due diligence skills.  I spread my next 9 investments across three different operators in multifamily in three different markets.  I was able to achieve the same diversification by investing in multiple deals. However, now I was also able to invest across multiple operators and markets.  I also found within 14 months that some deals will go full cycle in much shorter timeframes. This allowed me to reinvest, take advantage of more depreciation benefits, and see the power of compounding through some of the tax efficiencies provided by real estate.

3. Diversifying Across Multiple Asset Classes

Up to this point, I had invested exclusively in multifamily. So, it was time to start diversifying across multiple asset classes.  First was a self-storage fund which performs very well during recessionary periods. Shortly after, I invested in an ATM fund to really skyrocket my monthly cash flow.  I had to continue to refine and improve my due diligence skills as I moved into new asset classes. But, it was easy to see that the fundamentals are transferrable across many of the asset classes.

Fast forward just a couple of short years from when I first started investing passively in real estate, and I feel very confident with my portfolio diversified across 8 different operators, 15+ markets, and 4 different asset classes with a good mix of cash flow and growth focused opportunities.  The biggest challenge now is how to find more capital to continue my investing journey.  We discuss some of those strategies in another article.

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