Not every investment I do is truly passive, I would argue no investment is completely passive. Without some effort there will be no reward.
I’m very happy to say that I’m involved in an apartment complex purchase. This time as a general partner. Although it will eventually – or is projected at least – to provide significant returns, the process so far has not come with some anxiety and variation of my investment progress. Because this project will be using conventional funding, I have withdrawn form two other investment opportunities in order to keep my lending position more favorable. In short, I decided not to dilute my limited capital.
One opportunity I decided to pass on is our third turnkey rental house in Memphis. The provider we use has had some great success, which meant that the lag time between properties increased significantly. Basically, a year passed since our last purchase with them before I received notification that we were again at the top of the waiting list. This would have been our last purchase with them. We had the money, the prequalification and the confidence in the provider to make the purchase, but I gave up my spot, not wanting to jeopardize our lending position for the apartment deal.
The second opportunity was a Limited Partnership position in an apartment syndication in Texas. The deal was brought to me by an investor I met through one of the online courses/networks I’m involved in. We are part of the same coaching program. Again, I was fully confident in the deal. The underlying team has a great track record, the property itself is in a fantastic market, and the underwriting was conservative. My investment was only a verbal commitment at this point, as the complete due diligence was still on going. I made the email and withdrew my verbal commitment. The investor was completely understanding, their long-term plans are for principle ownership as well, so I was congratulated on my opportunity and the relationship remains in good standing.
So now I had closed the doors on two passive investments that required little personal exposure to take down a 30 year note for the house, no note on the syndication. Opting instead for a deep value add apartment complex with an undetermined (we’re working on it) price tag for significant structural issues. Significant enough that it could kill the deal. Oh yeah, I’ll be on the hook with a personal guarantee to the lender.
Will this all pan out? We’ll see. I’m cautiously optimistic. This I know, whether or not the apartment complex closes, the amount of education I’ll receive, and the connections that are being made, will move me forward down the path to principle ownership, a significant part of my long-term wealth strategy. I know there is some significant opportunity costs to the timing of these three opportunities: two were just short of contractual commitments, so in my mind the opportunity costs are more tangible than theoretical. Ultimately, I decided to pursue the opportunity that has been most difficult to accomplish so far, principle ownership. The turn-key and passive partnerships will exist – instantaneously if I choose – should the deal fall through. I’ll keep you updated.