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In my investing career, I have made many real estate investments of varying sizes, types, and with a wide range of returns.
This post brings my eight completed passive real estate investments and eight ongoing investments together in one place, and I’ve updated my investment my returns and time invested as of mid-2024.
Note that I won’t be talking about the properties we’ve purchased to live in (covered here, here, and here) or land we once purchased to possibly build on (covered here). Some of those became rental properties and flips, but were not necessarily intended to be investments.
In this post, I’m detailing my various passive real estate investments — ones that don’t require any effort from me other than a bit of due diligence on the front end and a bit of extra paperwork to pass along to my CPA.
Returns have been updated most recently on 7/30/2024.
My first investment in passive real estate was made in July of 2013 when I bought shares of Vanguard’s Real Estate Index Fund (VGSLX), a collection of publicly traded REITs (Real Estate Investment Trusts).
The volatile nature of REITs combined with the availability of numerous additional ways to invest passively in real estate as a result of the JOBS Act passing and me becoming an accredited investor led me to seek out other real estate investments.
I started small with a few investments in January of 2018. Wanting to diversify across deal types (debt, equity, eREIT), and across different investment platforms, I made about a half-dozen investments in the first part of 2018.
As I continued to become more familiar with my investment options and the platforms offering them, I broadened my scope to include larger investments in crowdfunded syndications and real estate funds. As of 2024, these various passive real estate investments represent about 10% t of our investment portfolio.
Valuation of some of these investments can be challenging, as we don’t necessarily know the true market value of some of these real estate investments until the deals have been completed (i.e. properties sold or loans paid back), but 10% of our portfolio is a fair rough estimate.
Why So Many Real Estate Investments?
I’ve asked myself the same question at times.
First, I wanted to dip my toes in the water with small sums of money. There’s no better way to learn how these investments work than by becoming an investor yourself with a tiny sliver of your portfolio.
Also, with some of these platforms, I’ve had advertising or referral relationships in place, and I figure if I’m researching them and presenting them as potentially viable options for your investment dollars, I should be comfortable investing with them myself, which I’ve done in most cases.
With any asset class, diversification is a good idea, and in the case of crowdfunded real estate in particular, there is no Vanguard with 40+ years of experience. The JOBS Act that allowed for these platforms has only been around since 2012, and I think it’s a good idea to diversify across different platforms.
I’m now at the point where I’ve been comfortable making a six-figure investment in a real estate fund with a single operator, but I don’t know that I would have gotten there without slowly wading into these waters. I don’t think jumping into the deep end of the real estate pool to either sink or swim is a good approach for most people, and it was certainly not for me.
The Reality of Real Estate in 2024
It’s no secret that rising interest rates have a major impact on real estate investments and the behavior of real estate investors. As the cost of capital rises, the cost of financing a project or purchases rises accordingly. Investors may see their monthly payments rise if their loans had a floating rate. They may be sitting on the sidelines with dry powder, waiting for interest rates to come back down or for over-leveraged investors to become desperate and sell at a significant loss.
We did indeed see a downturn in valuations in commercial real estate in the last year or two. Some sectors, like office space, have been hit harder than others. Multifamily housing has generally fared better, although the annualized returns of 20% to 40% that some had become accustomed to a few years earlier, are certainly not the norm in 2024. I’ve heard numerous reports of total capital losses for some investors, an outcome that I’ve noted as a distinct possiblity in the conclusion of this article since it was first published over three years ago.
All eight of my completed deals thus far have given me my money back with additional positive returns, and I anticipate most of my current ongoing deals to do the same. However, there’s at least one individual deal that should close this year with a modestly negative return. You’ll learn more about that one below.
I hope that you’ve diversified your real estate investments as I have mine. If one or two or even a few of mine turn out poorly, they’ll be more than offset by the dozen or more that did well. Your mileage may vary, of course, and the year in which you got started with passive real estate investing may be a strong predictor of how well things are going for you.
DISCLAIMER
Most of the platforms and operators have offered dozens, if not hundreds, of real estate investments to potential investors. Some deals overperform their projections, some underperform, and my one or two investments on a platform should NOT be taken as a representative sample.
For example, Crowdstreet’s deal flow is very steady, with several offerings weekly. AcreTrader presents new farms or timber tracts weekly while declining to offer 99% of the farms they consider to investors. I’ve written a review of Crowdstreet and a similar review of AcreTrader if you’re interested in learning more about them. Other platforms may have numerous opportunities at any one time.
One individual’s investment’s returns are not necessarily representative of a platform. My single deal with Alpha Investing gave an outstanding return; my returns on my single investment with EquityMultiple were only slightly positive. That doesn’t mean one company is better than the other.
These are individual deals among dozens offered by both platforms. I may have simply been lucky with one and not so much with the other when it came to the individual project, both of which were value-add multifamily equity deals.
Some companies offer only a few funds or eREITs, each of which is invested in a variety of underlying deals.
Some of them regularly update the Net Asset Value (NAV) of the deals they’re invested in. Others do not, and you won’t know the value of your investment until it goes full circle. This is technically true even of those that do estimate the NAV on an ongoing basis — it’s their best estimate, but you don’t know the true fair market value of a thing until it sells on the open market.
All of this to say that it’s tough to compare apples to apples when investing in different deal types with various companies that might report asset values differently. The same can be said of fees. They are higher for real estate investments than for ETFs and mutual funds but they’re often used to cover operating expenses of the real estate companies. What matters are your returns after all fees are paid, which is what I report below.
I calculate my IRR with an Excel sheet, but when you don’t know the current estimated value of the investment, you’ve got incomplete information. I’ll report what I can for each investment I’ve made. I’ll start with the deals I’m currently invested in, and you’ll see those that have gone full circle afterward.
Ongoing Deals
Since these investments have not yet gone full circle, reporting my total return to date can be challenging. Where an up-to-date NAV (net asset value) is provided by the platform / operator / sponsor, I will use it, but keep in mind this is only an estimate of the current value.
Some of these will be completed in the coming months or years. Others are meant to be “evergreen” where I can choose to leave my money invested indefinitely or request a return of funds. The liquidity options vary by investment, and penalties can exist for early exits.
I’ll start with the smaller deals that I started with to get comfortable investing in this asset class. Next, I’ll discuss the four-figure investments I’ve made and finally, the six-figure investments that I’ve made in recent years.
Explanation of Terms
IRR: Internal Rate of Return (IRR) is the compound annual growth rate, accounting for inflows (investments made) and outflows (distributions from the investment). It is annualized and probably the best way to measure performance of investments like these.
Total Return on Investment: The total cash returned / total cash invested. Not annualized. Change this from a percentage to a decimal and put a 1 in front of it, and you’ve got the equity multiple.
Days Invested: How many days it took to earn that total return.
Small Deals (Investments Under $10,000)
RealtyMogul
RealtyMogul has a variety of real estate investments on their platform, including two eREITs, numerous individual syndicated deals, and triple net leases.
Since April of 2018, I’ve been invested in their MogulREIT II, the goal of which is to realize capital appreciation while providing regular income. I began the process of withdrawing my capital in the fall of 2023, and I expect to be fully divested by the end of 2024. That will be one fewer 1099 to file at tax time.
I’ve received quarterly distributions since July, 2018. The NAV, which is regularly updated, took a hit during COVID, bounced back, for a bit, but has more recently suffered additional losses. It was $10 a share when I invested, and now sits at $9.75. Factoring in distributions, however, I’m still slightly in the black.
The portfolio currently consists of 9 multi-family equity deals in 7 states.
In terms of liquidity, there’s none in the first year, and after that, you can opt to have RealtyMogul buy back 25% of your shares quarterly. There are decreasing penalties of 2% or 1% that disappear once you’ve been invested for 3 years, which I easily exceeded.
When I updated my returns in 2023, I had enjoyed an IRR of nearly 9%, however with the softening of the real estate market in the interim, that return has weakened quite a bit. I expect I’ll come out slightly ahead when all is said and done.
My Results with RealtyMogul
IRR: 2.98%
Days Invested: 2,302
Total Return on Investment: 16.51%
DiversyFund
DiversyFund had just one investment offering when I invested, the Diversyfund Growth REIT, with a minimum investment of only $500. I invested in it in July of 2019.
The stated goal is for the fund to match their historic performance of an IRR in the 16% to 18% range with a hold period of about five years, and there is no liquidity (withdrawal) option during the five-year hold period.
We’ve reached that five year mark, and given the current state of affairs, I expect that will be extended by at least a year or two. I have been told to expect funds to start flowing again next year and that I will be assigned a personal account representative, but communication has not been stellar. One PoF reader reached out to express significant concerns about the status of his investment when having trouble reaching anyone at the firm, and at times, I’ve found dead links when exploring all aspects of the website. Hopefully these are temporary glitches and not harbingers of tough times ahead.
Without an updated NAV, I cannot guesstimate my total return, but I did receive my first cash distribution of more than 18% of my initial investment and previous dividends have been reinvested.
Medium-Sized Deals ($25,000 to $50,000 investments)
Crowdstreet
I’ve invested twice with Crowdstreet in projects with projected IRRs greater than 20%. They are one of the most active platforms in terms of deal flow, as you will see after a free registration.
They offer real estate funds, individual syndicated equity deals, and I’ve even seen marijuana investment opportunities. I passed (and did not puff) on those.
As of July 2024, CrowdStreet investors have funded 790 deals, about 200 of which have gone full circle for an average IRR of 13% with a wide range of returns. I should note that the average IRR decreased quite a lot from January of 2023 (19% on 150 deals) to mid-2024.
I chose to invest in two separate ground-up builds in Texas, both of which had projected IRRs north of 20%. One was ground-up student housing, the other build-to-rent residential townhomes.
With new builds, there is no income to disperse, so my returns will be realized when the projects are complete and sold. I made these investments in December 2019 and January 2021. Both were anticipated to be fully realized in 2023 to 2024, but as you might suspect, the exit from both has been delayed and there have been some unforeseen issues.
The build-to-rent townhomes struggled with planning and zoning issues, and ultimately, the land is being resold to someone else who will carry out the vertical construction. Based on what’s been communicated, I expect a loss of up to about 20% of my invested capital, and I expect this investment, my first loss in real estate, to be closed in the coming months.
The college housing is complete, and it’s tough to foresee something like a fatal shooting in one of its elevators coming, but that tragic event did indeed unfold there in the opening months. In addition, there were issues with students moving into unfinished apartments when it opened in the fall of 2023. There’s no current estimate on when this investment will be fully realized, but given the current interest rate environment and the challenging first year, I believe it would be wise to wait a while before marketing the property for sale.
Big Deals (Six Figure Investments)
Origin Investments IncomePlus Fund
Origin Investments was founded in 2007, and the co-founders invest a good amount of their own money alongside their investors. People I know and trust have invested with them, and after learning more about the current and past funds, I felt comfortable investing a six-figure sum with them.
They have had three funds go full circle, with an average IRR of 27.3% over 25 realized deals. They currently offer several funds.
I’ve been invested in the IncomePlus Fund since September, 2020. The fund aims to provide a tax-neutral distribution of about 5.5% to 6% annually in 0.5% monthly increments, along with additional capital appreciation of 3% to 5%, investing in a mix of preferred equity, equity, and ground-up builds.
It’s an evergreen fund, and I can choose to remain invested indefinitely or sell my shares at a later date.
Origin updates the NAV per share monthly, so I have a good idea of my total return to date. There have been, unsurprisingly, a couple of downward adjustments in the NAV in the past 12 months, so my IRR has declined from over 13% as of January, 2023 to just over 10% today.
A fun fact about the monthly distribution is that it’s deposited into my checking account a few days before my family’s health insurance premium is automatically deducted, and it’s more than enough to cover it. It’s silly mental accounting, but in my mind, it’s as though this one-time investment is covering the cost of healthcare coverage in my early retirement years. I hope the distribution can keep up with the rising cost of health insurance as we age!
My Results with Origin Investments IncomePlus Fund
IRR: 10.04%
Days Invested: 1,427
Total Return on Investment: 40.34%
Origin Investments Opportunity Zone Fund II
This is my youngest real estate investment, made with part of the proceeds from the sale of a website (this website, specifically) in an effort to delay some capital gains taxes by a few years while lowering my 2023 tax bill and avoiding capital gains taxes on this investment when held for at least ten years.
For a more detailed on the tax benefits and more, see our article on Opportunity Zones for Real Estate Investors.
This particular fund has 11 assets in seven states. I made this investment in April, 2023, and thus far, the only “transactions” have been the initial fees and a negative NAV adjustment, so I’ve got a calculated negative net return thus far. I’m not too perturbed by this, as I plan to hold for at least a decade, and most fund investments are initially negative due to origination fees.
I expect to be in the green before long, and given the fact that the fund is diversified in 11 different projects in desirable cities like Nashville, Raleigh, Atlanta, and Colorado Springs, I’m optimistic about the long-term prospects of this investment, particulary considering the fact that I expect to pay no capital gains taxes on the proceeds when realized in 2033 or later.
My Results with Origin Investments QOZ Fund II
IRR: -3.24
Days Invested: 474
Total Return on Investment: -4.18%
SFR3 via Republic Real Estate
SFR3 is a fund that purchases and renovates distressed homes to provide rental workforce housing throughout the southeastern U.S.
I was impressed by the resumes of the leadership team and their algorithmic approach to identifying neighborhoods and properties for potential acquisition. They’ve also got an impressive, albeit short performance record, and residential real estate has continued to perform quite well since I invested in the fund.
I saw this fund as a way to profit from single family home purchases and subsequent rental in a very passive way without getting my hands dirty. Most of the other investments I’ve made have been either equity in large multifamily complexes or lending to various projects.
I committed my funds in December, 2020, and the money was deployed in March, 2021 via an access fund put together by Republic Real Estate. The fund now owns and operates over 9,400 single family homes, primarily in the sunbelt. Cash has not yet flowed to investors, but the first distribution is expected within the next year. My returns are based on the most recent NAV, which is updated quarterly.
My Results with SFR3
IRR: 8.09%
Days Invested: 1,305
Total Return on Investment: 32.08
Completed Deals
Fundrise
Fundrise offers several private funds, including a Flagship Real Estate Fund, a Private Credit Fund, and a venture capital focused Innovation Fund. I was invested in real estate funds with them from January of 2018 to April of 2013. I divested to simplify my real estate investments after I had reached the five-year mark and would not be penalized for an early exit. As you’ll see below, the investment performed reasonably well for me.
As mentioned earlier, PoF may currently or previously have had advertising or referral relationships with a number of the platforms I’ve invested with. If you choose to register with any of them to see more details of their offerings, you may be supporting this website.
While I was invested, I opted to take my distributions in cash, and they paid quarterly. Fundrise does update the Net Asset Value of their holdings, so you can see the growth of your investment over time and estimate your total returns. They also offer a liquidity option, but you may owe a penalty, decreasing over time, of 3% to 1% if you make a withdrawal in the first five years of your investment. There are no early withdrawal penalties in the Flagship Fund or the Income Fund.
An IRR of nearly 10.5% over five years is at the top end of what was projected in this diversified multifamily portfolio. I was pleased with the performance and communication.
My Results with Fundrise
IRR: 10.50%
Days Invested: 1899
Total Return on Investment: 58.90%
Alpha Investing
In July of 2019, I made my first investment on the Alpha Investing platform, a low five-figure investment. It was an apartment complex in Arizona to be purchased, improved, and resold.
I received small quarterly distributions from September 2019 to September 2020. In December 2020, the property was sold for a handsome profit, and I was paid out with payments in December 2020 and January 2021.
My Results with Alpha Investing
IRR: 50.45%
Days Invested: 512
Total Return on Investment: 76.5%
Republic Real Estate Deal #1
I’ve made two small investments and one big one via Republic Real Estate, the first of which was made when it was known as Compound.
They offer a wide variety of real estate investments from short-term loans to unlevered luxury condominiums to private REITS to real estate funds with six-figure minimums.
The first investment I made was in an equity deal for a luxury Miami condominium that was purchased at a relative discount while the market was down somewhat pre-COVID. There was a small income component to the investment, with an annual dividend of about 2% from rental income, but the main source of return came from the proceeds when the condo was sold in the summer of 2022.
The model here is actually quite similar to the AcreTrader deal in that no leverage is used — the property was purchased with cash from investors — and most of the return is dependent upon the property increasing in value.
The 1-bedroom, 1.5 bath condo was purchased early in 2020 and held for two years and change, at which point it was sold at a profit. I was happy with a nearly 9% return on my money in a non-leveraged, relatively low-risk deal.
My Results with Republic Real Estate Deal #1
IRR: 8.86%
Days invested: 897
Total Return: 22.90%
Republic Real Estate Deal #2
My second investment with Republic was the first to go full-circle after just 7 months. It was a loan as part of a fix and flip project in Los Angeles.
They raised $1.5 Million for the project ($108,000 via Republic Real Estate) and, after renovations, sold it for $2.18 Million, giving me a return of 27.5% in 7 months for an IRR of 52.2% annualized.
This remodel of a 4 bed / 4 bath place on Boeing Avenue in Los Angeles marked the launch of Republic’s American Dreamhouse series, and a series of mini-episodes were released on Instagram to show the progress of the home as it was remodeled. A bit like something from HGTV where you can invest in the project before the show begins.
Below is an artist’s rendering of the proposed finished product and an actual picture from its Zillow listing. The garage door is less fancy, but otherwise, they pretty much nailed it.
My Results with Republic Real Estate Deal #2
IRR: 52.2%
Days Invested: 210
Total Return on Investment: 27.5%
EquityMultiple
This was one of my first investments in passive real estate, made in January of 2018, and it was a low five-figure investment via EquityMultiple. It was also a value-add apartment complex project in Connecticut in an area suitable for commuting to New York City.
The investment was all set to be completed in the spring of 2020, but COVID threw a wrench in those plans. I received distributions from rental income from May, 2018 to November, 2019, and then the distribution stopped while lawyers sorted out the details of the stalled closing.
Eventually, a new buyer was identified, and after the sale closed, I was paid out in April of 2021. I made money, but not much.
My Results with EquityMultiple
IRR: 2.49%
Days Invested: 1,204
Total Return on Investment: 8.21%
PeerStreet
I also invested with PeerStreet in January of 2018, a mid-four figure debt deal for a project in Palm City, Florida. Their business model is making short-term loans to individuals who like to fix-and-flip homes.
These short-term loans, typically in the 4-month to 24-month range, with 12 months being quite common, tend to pay interest in the high single digits.
From March, 2018 to December, 2019, I received monthly interest payments, and my money was returned with one final interest payment in January of 2020.
My Results with PeerStreet
IRR: 8.54%
Days Invested: 705
Total Return on Investment: 15.90%
DLP Capital Partners via CityVest
DLP Capital Partners now offers five funds in 2023. When I first learned about them, the minimum investment in the three funds they had was $500,000.
In 2021, that figure was lowered to $200,000 for audiences of Physician on FIRE and the White Coat Investor, a concession that we really appreciate, as that’s a more achievable figure for our readership.
In 2019, however, the only way to invest with DLP with less than a half-million dollars or more was via an “access fund,” also sometimes referred to as a “feeder fund” in which assets from multiple investors are pooled together (for a fee) to meet the minimum to make otherwise inaccessible investments.
I invested in the DLP Lending Fund via a CityVest access fund in April 2019, and received quarterly dividends until the investment was liquidated and the cash hit my bank account on November 1, 2022
When my investment is liquidated by CityVest as planned in the fall of 2022, I will likely invest this money directly with DLP to save on fees now that the minimum investment is more approachable.
My Returns with DLP via CityVest
IRR: 8.68%
Days Invested: 1301
Total Return on Investment: 29.51%
RealtyShares
This was another investment that I made in January of 2018, a low four-figure short-term debt deal for a quadplex in Albuquerque, New Mexico.
The RealtyShares platform no longer exists, having shut down gradually beginning late in 2018. Fortunately, your investment with a crowdfunding platform like them is not held by the company; RealtyShares was the technology platform that connected investors with operators seeking investors, performing some due diligence and record-keeping and reporting duties.
Still, their closing undoubtedly created some headaches for investors. My investment had gone full circle by July of 2018 and I received my 1099 for the interest income in early 2019 as expected.
My Results with RealtyShares
IRR: 6.98%
Total Days Invested: 152
Total Return on Investment: 2.94%
VGSLX
We’ll wrap this up where we started, with a look at my first passive real estate investment, the Vanguard REIT index fund, which I owned from 7/26/2013 until 8/20/2021.
Having been an investor for over 8 years, calculating my own IRR with a spreadsheet as I have done for the others would be quite cumbersome with so many inflows and outflows as I made my annual backdoor Roth contributions.
Morningstar reports a 107.62% total return over the entire timeframe. The Rule of 72 would suggest that a 9% return would result in an 8-year doubling time, and an 8% return would double in 9 years. I can confidently say that my returns were in the high single digits, at least with the money I invested in my Roth IRA early on.
It was a wild ride, but not nearly as scary as the fund’s performance in 2009, when the fund was down 78% from it’s all-time high.
Why am I no longer invested? I decided to open a self-directed Roth IRA in 2021 via RocketDollar (save $50 with code PHYSICIAN) to invest in a handful of pre-IPO startups. Since I already have about 10% of my portfolio invested in the passive real estate investments mentioned on this page, I felt no need to keep the REIT, so I liquidated it.
I feel that the investments I’ve made are likely to perform as well or better and with lower volatility.
My Take on Passive Real Estate Investments
I got comfortable with the asset class by making small investments in diversified eREITs. I think that’s a great place to start.
Read everything you can on the website of any platform you consider investing with. Many of them have investor education blog posts and modules. Become educated and familiar with the terms used.
As you gain knowledge and confidence, and eventually attain accredited investor status by virtue of at least two years of multiple six-figure income ($200,000 as an individual or $300,000 as a couple) or by having a million dollar net worth (not counting your primary home), you may be ready to choose individual syndications. These are deals found either on the popular crowdfunded platforms or by connections made with other investors in your network. Passive Income MD and his Facebook groups are great resources for learning more.
If you are not an accredited investor, your options are limited to smaller investments like the REITS offered by Diversyfund, Fundrise, and RealtyMogul, and various offerings at Republic Real Estate. These are a great way to learn about the space and “get your feet wet” without putting up a whole lot of capital.
There’s also the option of publicly traded and private REITS, and REIT index funds like Vanguard’s, which tend to be more volatile as they are priced by the whims of the market minute by minute, but may offer similar long-term returns.
At this point, I’m most likely to direct future passive real estate investments to evergreen funds like those offered by DLP, Origin, and others. As my smaller investments come full circle or reach the point where there’s no penalty to liquidate, I’ll plan to consolidate for the sake of simplicity.
I would be very happy with a tax-neutral distribution in the 6% range with total returns in the low teens, which is the somewhat conservative target of the funds I’m considering or have invested in.
Passive real estate investments are certainly not without risk — nothing offering double-digit returns ever will be — and a total loss of capital on an individual deal is not unheard of. It’s an optional asset class, as there are no called strikes in investing, but it’s an asset class that has generated a great deal of wealth for many individuals and families.
I plan to continue to grow my investments in the space to roughly 20% of our investment portfolio.
As mentioned earlier, I currently or previously have had advertising or referral relationships with a number of the platforms I’ve invested with. If you choose to register with any of them to see more details of their offerings, you may be supporting this blog.
67 thoughts on “A 2024 Update on My Passive Real Estate Investment Returns”
[…] In the summer of 2019, I invested in a corn and soybean farm in Des Arc, Arkansas. AcreTrader was novel, but I liked the premise, and I made my commitment to buy 20 shares, the equivalent of two acres to add to my growing collection of real estate investments. […]
[…] In the summer of 2019, I invested in a corn and soybean farm in Des Arc, Arkansas. AcreTrader was novel, but I liked the premise, and I made my commitment to buy 20 shares, the equivalent of two acres to add to my growing collection of real estate investments. […]
Any thoughts on Fidelity Real estate core fund for accredited investors? In my reading of the pdf, I could not find any expected return. Also 1% fees and some more fees that I don’t understand so its a no for me – bu curious to get your thoughts.Loved your interview with coach carson.
So, you’re divesting from RealtyMogul’s Apartment REIT. Anything we need to know about in terms of their fund management? Anything we as investors should be aware of or concerned with, other than performance below their competitors? Are you redirecting those Multi-Family investment monies into other Multi-Family opportunities? If so, where? I was just preparing to invest some Roth IRA funds into the RealtyMogul Apartments, but your article has given me pause.
I didn’t have any particular concerns — just other uses for cash right now, and keeping it in a high-single-digit return investment isan’t all that appealing.
Remember that money is fungible, so you could say I’m putting that money into anything and everything that I’ll spend cash on this year. That includes, groceries, gasoline, single-family home construction (we’re building), beer, lift tickets, any number of experiences in New Zealand and Australia, investments, etc…
Cheers!
-PoF
I didn’t have any particular concerns — just other uses for cash right now, and keeping it in a high-single-digit return investment isan’t all that appealing.
Remember that money is fungible, so you could say I’m putting that money into anything and everything that I’ll spend cash on this year. That includes, groceries, gasoline, single-family home construction (we’re building), beer, lift tickets, any number of experiences in New Zealand and Australia, investments, etc…
Cheers!
-PoF
would you be doing a post on arrived homes? interested to see your take on this. thanks!
Sorry, I’m not familiar with them.
Best,
-PoF
Do you do your own taxes with all these private real estate investments, or does this complexity necessitate the services of a tax accountant?
Are there any passive investment options that do not involve being a part of leverage or debt?
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Are you aware of any passive real estate or farm land investments that do not involve debt ?
Yes — Acretrader rarely uses any debt / leverage for their farmland deals. The Republic Real Estate deal on the Miami condo was set up similarly with no debt used and the asset purchased outright, but most of their curated deals will be using leverage.
Cheers!
-PoF
Yes — Acretrader rarely uses any debt / leverage for their farmland deals. The Republic Real Estate deal on the Miami condo was set up similarly with no debt used and the asset purchased outright, but most of their curated deals will be using leverage.
Cheers!
-PoF
Thanks. Very in-depth article. There’s no way that I could understand any of this or how to calculate those numbers. I’m probably better off sticking with plain indexed funds.
Thanks for the detailed post. For your investments that update NAV, what trends, if any, have you noticed with the changes in interest rates. Any thoughts on how your investments will fare in the current macro climate?
NAV has continued to increase, but at a slower pace than it did 6-18 months ago.
Regarding the future, I don’t like to make predictions, but I am guessing that some investments will continue to do well and some will struggle. That’s why I’m happy to be diversified in numerous ways, including on different platforms and in different types of deals. Debt and preferred equity could do quite well in a higher interest rate environment, as long as the default rates remain low.
Cheers!
-PoF
Thanks. That was insightful. I’ve been considering using Fundrise (or something comparable) for awhile now. Maybe it’s time to pull the trigger.
Sorry to resurrect an old post but do you know which groups are investing primarily equity rather than debt?
Most of the deals I’ve done are equity deals. Peerstreet does primarily (exclusively, I think) debt deals. Most others will offer deals or funds in both equity and debt, but equity deals are quite common, and there’s strong deal flow on platforms like Crowdstreet and RealtyMogul.
Cheers!
-PoF
Are there are differences in depreciation or other tax benefits when investing in individual syndications versus funds that are structured as private REITs (either closed end or evergreen)? Thanks!
The pass through of depreciation is variable based on the structure of the fund and the operating agreement. You need to do your due diligence on this aspect of every deal that you invest in.
I have invested in a joint venture partnership where we were allocated 100% of the depreciation, including bonus depreciation, but that was because we brought a 7-figure amount of capital to the deal. I have also invested where the depreciation is allocated pro rata based on your capital contribution, and then for REITs, you do not get any depreciation, it is analogous to a mutual fund.
I was wondering whether if making a real estate investment would be a right strategy today. i am glad to come across your post showcasing your portfolio. I have got fair bit of idea on how to structure my real estate investment. Also, is there anything that you wish one knew before anyone start investing.
Multifamily and workforce housing tend to do well even in economic downturns, so if that’s what we’re facing, RE might be a better place to be than stocks. Of course, I diversify and do both, with 10% to 20% in real estate, and up to 70% in the stock market.
Cheers!
-PoF
When investing in private real estate funds such as DLP or Origin, do you do so as an individual or form an LLC since most of these are already held in an LLC and unsure if redundancy helps. Just getting your opinion. Thanks!!
I do not, personally.
Hi,
Thank you for this detailed review of your RE investments.
Are any of these investments eligible for non-US residents/citizens ?
I believe so, but you may have to ask individually. RealtyMogul does accept outside investors; Fundrise does not.
Best,
-PoF
I appreciate the transparency and good faith behind posting your individual experiences. These “homerun” investments generating IRR’s over 50% occurred during a tremendous bull market and it may be impossible to generate correlation of these short-lived funds vs the S&P 500 due to their limited sample size.
I am curious of your thoughts on comparing returns while largely ignoring the hidden costs of the funds: in particular the significant lack of liquidity, lack of transparent financial reporting, and absence of a long-term correlation of returns vs the market through bear and bull market cycles .
My estimation is that much like hedge funds and other alternative investments, long-term performance of this category is more highly correlated to overall market performance than anticipated and that picking individual investment properties/funds is little more than stock picking and market timing.
A quick comparison shows that the S&P 500 has return an annualized 1, 3, and 5 year return of 28.6%, 20.0% and 18.4%. These returns are likewise complemented by unmatched liquidity and transparency in financial reporting. What “alpha” do you require in order to give up liquidity and financial transparency?
Great questions, Adam.
The relative lack of liquidity (it varies by the investment) is a cost, but I hope to see it rewarded with stronger returns — the so-called liquidity premium, which is really an illiquidity premium. In terms of financial reporting, I’ve been pleased with the amount of information provided, and more is available upon request. So that hasn’t been an issue for me, personally. I’ve seen more numbers than I care to peruse.
An absence of long-term correlation with the stock market would be a bonus, not a cost. That serves to reduce volatility on my portfolio as a whole.
The stock market has had a good run for the last 5 years (almost 13, actually), but I like to use the longer trend of about 10% nominal and 7% real returns as representative of what the stock market can optimistically be expected to provide. When making projections, I temper those expectations somewhat.
If I can average 10% nominal or better in an asset class that’s not perfectly correlated with the stock market, I’ll be very happy. That’s happened thus far, but as we both know, 4 years or so is a very short timeframe — too short to declare any level of success or failure.
As far as selecting a syndication or fund as being akin to stock picking, I can see where you’re coming from, but the BIG difference is that index funds exist as alternative to picking stocks. There is no equivalent for private real estate, and the vast majority of real estate out there is private. Real estate funds, in my opinion, are the next best thing, and the best comparison in the world of publicly traded stocks would be an actively managed fund.
Cheers!
-PoF
POF, you said that the DLP lending fund was to be liquidated in fall of 2022, but then you say it is an evergreen fund? Thanks for the update on your RE portfolio.
My investment via CityVest will be liquidated.
The fund itself will remain evergreen. I apologize if that was not clear.
Cheers!
-PoF
Hey thanks for putting this together – really opens my eyes to a lot of different sponsors out there for syndications.
I’ve only invested in SFRs (sold ’em all) and a few projects in a single syndication, starting 2018. Hopefully one of them will exit soon with a 1.75 equity multiple and another will exit soon with a 2 equity multiple (but much lower IRR since I invested in this project much earlier on and it’s been underperforming).
The 50%+ IRR certainly seems *very* attractive though. Will definitely take a closer look at those funds.
Those are atypical returns but that’s what I got out of that particular deal. Note that I know of people who have had real estate (and other) investments with a -100% IRR. If you invest with a quality operator that has a solid track record, the likelihood of that happening is low but not zero. That’s why you need to be an accredited investor for many of these deals.
I am happy to report that I’ve had nothing but positive returns and experiences thus far.
Cheers!
-PoF
When you say that the 6% return is “tax neutral “, what does that mean?
Origin could answer that question better than I can, but the idea is that the K-1 will report little, if any, taxable income. A portion of your distribution is a return of capital (which does lower cost basis) and some is sheltered by depreciation.
If and when you sell the investment, you could certainly recapture some taxes that were deferred. If you pass it on to heirs or donate it one day, you would never recapture those deferred taxes.
Best,
-PoF
Thanks for sharing your experience and results so candidly. It’s refreshing to read an honest overview without a bias.
I think it was smart to use SFR3 to get exposure to the single family appreciation. Are there other asset classes are you looking to help diversify your current investments?
Thank you, Jim.
I don’t have many investments on the debt side, save for the DLP Lending Fund. They also offer a Note fund that would help diversify my RE holdings. One could consider office and retail, but I’m not sold on the future of those asset classes. Medical office space isn’t going anywhere soon, though. I know Crowdstreet offers a fund devoted to medical office buildings, so that would be one option.
Best,
-PoF
Are any of these real estate investments eligible for a 1031 exchange?
I don’t believe any of mine are eligible directly, but RealtyMogul frequently lists projects that are 1031 exchange-eligible, and labels them clearly as such.
That said, the funds I’m invested in may be able to 1031 exchange to new properties within the funds, and the investors would thus benefit indirectly.
Best,
-PoF
POF,
Thanks for such an open post. I had no idea you had so many passive real estate investments! We decided to pull the trigger this year and invest in a fund with an operator we trust.
We like funds for the diversification but it really relies on faith in the operator even more with single asset acquisitions. And even though fees (or operating expenses) are higher in real estate, it is something to consider with funds.
Question for you: are you considering at looking internationally for real estate investments?
Best of luck and can’t wait to hear more.
regards,
Psy-FI MD
That’s a good question, and no, I have not looked internationally. I imagine many of the tax benefits that come with equity deals in the US would be lost when going overseas.
Congrats on starting your passive real estate investing journey!
-PoF
You say you are increasing your percentage of these passive deals to 20%
Is that because of the challenge, the cash flow, or the return
Thank you for sharing your experience
It’s certainly not the challenge — I could make it happen with a few clicks of the mouse.
It’s more a combination of the total return (which matters most to me) and tax-free (or close to it) cash flow, particularly from the funds.
Cheers!
-PoF
I’ve looked at VGSLX for some real estate exposure but have never quite been able to stray from just throwing more cash into VTSAX. Ideally I’ll own some physical real estate in the next handful of years, but not as my primary residence. Will be paying attention to the crazy market for sure!
PoF – Thanks for the recap, it was nice to see as I’m venturing into my first syndication after reviewing a bunch of them for friends.
There’s such a wide range of risk buried in these deals, it’s so difficult to compare one to the other. Minimums matter as well to get into better funds, like the CityVest vs direct investment example.
True. The more you bring to the table, the lower the fees as a percentage of your investment. It makes sense — much of the work the sponsor does is a fixed cost to them whether you invest $10k, $100k, or $1M.
Cheers!
-PoF
Nice summary, POF! I’ve been doing flips and rentals for the last 7 or 8 years, but over the past few years have been much more interested in passive real estate syndications (young kids and a full time job will do that to you).
While I could certainly get higher returns with my own “sweat equity” in local rental properties, I have been pretty happy with the passive portfolio I’ve put together. We have a handful of rental properties left, and I could see us selling them off one by one as tenants leave. I got a taste of true passive real estate, and I want more!
I can see a lot of people making a similar transition. Some people love to be hands on with real estate, but it’s possible to participate in the returns without all of the work that goes into it.
Cheers!
-PoF
Two questions:
1. What has the addition of this asset class done to your federal and state tax returns? How many states do you have to file in?
2. The return on the Vanguard REIT fund is pretty solid. Do you really feel that all of the extra work on these “passive” real estate funds and opportunities is worth the additional risk and return (if there really is any)?
Thanks. Great post.
Great questions, Joel.
1. To date, I’ve only had to file in my home state of Michigan (and before that, Minnesota, when I lived there). The need to file elsewhere will depend upon how the income is reported / where it’s sourced, and the amount of that income. Most states have thresholds for filing in their state.
With my 2 Crowdstreet ground-up investments, I intentionally chose a no-income -tax state (TX) to eliminate any possibility of having to file elsewhere based on those.
Most of the distributions I’ve received have been low-to-no tax, but the debt deals in particular are not very tax-efficient. If I were to invest more in future lending funds or individual debt deals, the best way to do so would be to invest in a self-directed IRA or 401(k).
2. I’d say the Vanguard REIT fund has plenty of risk itself, having lost 78% of its value during the Great Recession. And if you took away the returns from the last 14 months away, I woudn’t have seen much return at all.
Spreading my real estate dollars out as I have may actually be lowering the overall risk of the real estate portion of my portfolio as a whole. When I look at how long the list has gotten, it might look like a lot of work, but keep in mind, I’ve acquired these over a three and a half year period, so it might be one investment per quarter, on average.
I do plan on consolidating to some extent, especially with some of the smaller dollar amount investments I made. Those investments have played an important role, though, as they gave me the experience and confidence that I needed to be willing to invest larger sums in similar types of investments.
Cheers!
-PoF
POF, awesome blog post! It’s nice to see the actual returns of your investment and keep us in reality. Is it possible for you to share your top 10 syndicators for accredits investors?
I’d be hesitant to rank them or try to decide who to include and who to exclude. One would have to have a lot more experience and familiarity than I have to even begin to make such declarations. And there are dozens of sponsors out there that I have no knowledge of and that don’t have much of an online presence, making gathering information much more difficult.
Cheers!
-PoF
I would be interested in your analysis of the fees and expenses of each of your real estate investments. Also, we’re you provided with a prospectus or offering circular prior to investing? What fees and expenses were disclosed? How do these compare with Vanguard’s? Thank you for your blog, as I find it very helpful, but I’ve been warned about high fees and illiquidity.
The returns I’m reporting are after all fees have been paid. It’s the actual money I’m getting back on my investment.
It’s really tough to compare fees from one platform or investment to another. What one company considers an operating expense, another considers a fee. Some say they charge “no fees” to the investor, but the cost of operating the deal is money that doesn’t come back to you.
With mutual funds, the only fee you should be incurring is the expense ratio that covers the cost of managing the fund. You’re not directly paying the costs of running the companies the fund holds, but in a way you are, as those costs decrease company profits, and will affect the value of their stock.
With many private real estate investments like those above, your fees are both management fees and operating costs of the company. So you may see fees in the 1% to 3% range, which would be considered egregious fees on a mutual fund, but may be very fair in this world.
I hope that makes sense. Reporting after-fee returns is my way of accounting for them.
Best,
-PoF
Hello.
Thank you for your thorough revelation of your real estate investments. Just wondering if you heard of a company called 37th parallel properties? They have individual apartment complexes as well as a real estate fund as well. I have had good success with them
I have, and I had a good conversation with Principal Dennis Bethel, MD a couple of months ago.
At the moment, we’re saving up to build a home, so I don’t anticipate making any new investments in the near future, but I’ll definitely keep 37th Parallel on my short list when I’m in the market to add to my holdings.
Cheers!
-PoF