Want to Become a Successful Passive Investor? Here Are 5 Things To Do
If you would like to earn income without actively managing your investments, you may want to position your investment portfolio to be centered around passive investments. Even if you’ve been successful at being an active investor in the past, this doesn’t necessarily mean that you will be a successful passive investor. The strategies that a passive investor uses are much different than the ones an active investor uses. If you would like to become a successful passive investor who brings in relatively high and consistent returns, here are five steps you should take.
Perform Extensive Research
Just like any type of investment, extensive research is essential before you start making passive investments in real estate and similar options. Even though you will likely be partnering with a sponsor or syndicator who will manage the investment for you, it’s still recommended that have knowledge of the fundamentals of passive investing to better analyze the deals that are presented to you.
You can educate yourself about passive investments by listening to podcasts from investors and sponsors, reading passive investment books and online articles, and entering a program that teaches you about this investment strategy. You can also speak with passive investors and meet syndicators at investment conferences.
Determine Investment Criteria
Each passive investor is different and has different criteria for the types of investments they would like to put their money into. Before you meet with sponsors or syndicators, you should know what criteria you have for your investments.
First, identify the types of passive investments you would like to make. Many passive investors focus on real estate. If you’re investing in real estate, you should know which markets you want your investments to be made in, what type of return you’re looking for, and if you want preferred returns with your investments.
When you choose to invest in projects that accept preferred returns, this means that any profit made from the property will first be paid to preferred investors. Knowing what types of investment you want to make will simplify the entire process and help you be considerably more successful when creating a passive investment portfolio.
Locate Sponsors or Syndicators
If you have yet to make a passive investment in real estate, you likely don’t know any sponsors or syndicators, which means that you will need to find some. These individuals will locate and manage the property that you will invest in, which is why you should search for sponsors or syndicators who are experienced and have a successful record in the industry.
You can find sponsors by attending meetups and real estate conferences. Podcasts and websites that are dedicated to passive investing should also give you the opportunity to find sponsors for your investments. If you have any family members or friends who have made passive investments in the past, ask them for references. When you meet with a potential sponsor, make sure that you trust them and that they have a similar investment strategy as your own.
Conduct Comprehensive Analysis on Any Deals
Once you select a sponsor to work with, you’ll soon receive potential deals that you should take time to analyze. Even if you’re not interested in the deal, you should read through it, which will help you gain a better understanding of passive investing and the types of deals you could sign onto.
It’s also essential that you look at the numbers and do your due diligence, which allows you to be certain that the return is exactly what the calculations say it should be. Your sponsor should eventually give you a Private Placement Memorandum that outlines the details of the deal.
Don’t Second Guess Your Investment Decisions
At this point, you will have identified your investment criteria, selected an experienced sponsor or syndicator, and performed extensive research on any possible deal that you want to invest in. You can be confident that you’ve done your due diligence. All that’s left is for you to go through with investing in the deal, which typically involves signing some paperwork and paying the necessary fees. If you’ve completed all these steps, there’s no reason to second guess your decision. Doing so could result in you losing the investment opportunity.
Being a successful passive investor is oftentimes easier than actively managing investments. However, there are still some basic steps you should adhere to before you make any kind of investment. With the right approach, you should be able to minimize mistakes, which increases your chances of long-term success.