Real Estate Investing for Management Consultants

Does Real Estate Need to be Hands-On?

They always told you that you’d be busy when you got into the world of consulting, and they were right! It’s hard to pass up the high starting salary, bonuses, travel perks, and impressive earning potential for those who stick with it and advance up the ranks.

On the other hand, the workload and travel schedule leads to burnout more often than not. With all of those constraints, how could management consultants possibly have any capacity and time to manage a rental property? 

Here’s the good news – buying rentals and doing the work yourself is not the only way to invest in real estate! 

Here we’ll go through 4 tried and true ways to invest in real estate without buying yourself another job, and reducing or eliminating the potential for a late night emergency phone call.

Your real estate investments should create passive income and build your wealth in a tax and time efficient manner, and here are 4 ways others are getting it done.

1) Real Estate Syndication

Real Estate Syndications are private investment opportunities, not registered with the SEC as public offerings. Otherwise called a “Private Placement.” 

The basic structure of a syndication includes two groups of people: the syndicator (or General Partner) and the investors (or Limited Partners). The General Partners find the property, get it under contract, obtain financing, raise the capital, operate the property, sell it off – everything involved with the actual work of the deal. 

Limited Partners are passive participants in syndications, and their risk is typically limited to their original investment. LPs are not on the hook for the debt, aren’t handling day-to-day operational activities, and aren’t trading their time for money. 

Management Consultants looking for a way to invest in real estate without a huge time commitment should consider syndications. The passive investment structure, ability to leverage the expertise and labor of experienced General Partnership teams, and limited downside risk (limited only to the original investment) are three top advantages of syndication investing.

Also bear in mind – syndication investors do not get phone calls about clogged toilets when they’re on the other side of the country at a client site. As a syndication investor, someone else handles those headaches for you.

Real estate syndications come in many shapes & sizes, and syndication investors can invest in numerous asset classes, including:

Common Syndicated Real Estate Asset Classes

  1. Multifamily Apartments (Our favorite)
  2. Self Storage Facilities (Another favorite)
  3. Mobile Home Parks
  4. Industrial Facilities
  5. New Development
  6. Large Single Family Portfolios
  7. And more!

Most real estate syndications are offered under the SEC’s Regulation D, Rule 506(b) or Rule 506(c)Regulation A (or Reg A) is also occasionally used by sponsors to raise capital.

Most Management Consultants have sufficient earnings to qualify them as Accredited Investors, giving them access to many investment offerings.

Accredited investors have the most passive investing options because they have access to both 506(b) and 506(c) syndications. The number of accredited investors who can participate in 506(b) and 506(c) deals is not capped.

Real Estate Syndications are my preferred way of investing in real estate, having been in the space and syndicated several multifamily properties myself. If you’d like to learn more, schedule a call here.

2) Turnkey Investing

Turnkey properties are ready-made real estate investments which are sold to investors by turnkey providers. Turnkey providers will typically buy properties in disrepair for less than their potential value, leaving room for the turnkey provider to perform renovations and add value.

It’s important to keep the terms straight when we’re talking about turnkey investing: Turnkey investors buy turnkey properties from turnkey providers. Investors aim to buy completely renovated properties with tenants in place, earning cash flows & appreciation over time.

Be careful, because not all turnkey providers are equal. There have been incidents of unscrupulous behavior by turnkey providers, so be sure to learn how to evaluate turnkey providers and their deals

"Only needs light cosmetic repairs! Move in ready!"

If you’re buying an investment property from a distance you need a professional’s opinion on its physical condition. Don’t just take the seller’s word for it.

3) Mortgage Note Investing

Did you know? You can become the bank by investing in mortgage notes. When you take out a mortgage, the mortgage note is created and can be bought & sold by investors and institutions. 

Investors can buy so-called performing and non-performing mortgages, in various lien positions. Most note investors aim to buy mortgage notes at a discount, improve their performance, and either hold the notes for cash flow or sell them at appreciated values.

Why would a bank sell a mortgage at a discount?

When a borrower stops paying their mortgage, the note becomes “non-performing,” meaning the borrower is not performing his or her duties. 

A non-performing mortgage is not producing cash flows as it should, and therefore is not worth as much to a lender. 

Banks are not in the business of restructuring mortgage notes to get them performing, and in many cases they’d rather sell non-performing notes at a discount to get them off of their books.

Enterprising mortgage note investors buy those discounted non-performing mortgages and try to restructure or renegotiate with the borrower to get the mortgage once again performing. 

Foreclosure is typically treated as the last-ditch effort, and not an ideal solution. The vast majority of mortgage note investors would rather keep the borrower in their home, restructure the note in some way, and get it performing once again.

If you want to go this route, be sure to research the legalities of investing in mortgage notes, including mortgage servicing requirements.  As an overseas investor, the good news is you don’t need to be there to get the work done. You can hire 3rd party professionals to provide Brokers Opinions of Value, do various in-person due diligence activities, perform servicing, handle negotiations, and so much more.

4) Private Lending

You can lend money to other real estate investors, and earn a return for doing so! Active real estate investors Stateside often need sources of capital beyond their own funds. That’s where private lenders come in.

Private lending is definitely not for newbies. If you’re lending money to another investor, you may be all on your own to evaluate the opportunity, negotiate terms, track the investment’s progress, and (if things go wrong) potentially take steps to get your money back the hard way.

Why I Invest in Multifamily Apartments

I believe Multifamily Apartments have the greatest potential to produce passive wealth and passive cash flow to investors, while providing fantastic tax benefits. The investing model we utilize has been executed by numerous operators across tens to hundreds of billions of dollars of assets. Here’s how it works.

We buy underperforming assets and force appreciation by raising the asset’s income. We take control, step into the driver’s seat, and add value to our investment.

The key value add equation

Commercial real estate is distinct from single families because commercial real estate is valued based on its income. The value of a commercial asset is calculated as:

Net Operating Income / Capitalization Rate = Property Value

By raising the net operating income we can directly increase the property’s value. Here’s an example.

Let’s say you have a 150 unit property. You see that you can raise rents by $100/month by investing $10,000 per unit to upgrade. That’s 150*$10,000, or $1,500,000 to upgrade your property.

What's the upside?

You’re raising rents by $100 per month per unit net, so each unit brings in $1,200 more per year. Multiplied by 150 units, that’s $180,000 more per year in income.

Here’s the key: that income is capitalized, or added to the value of your property. In a 5% cap rate market, those renovations increase your property’s value by $3,600,000!

So your property’s value has increased by more than double the investment in renovations, plus it’s producing more cash flow every year! This is a fairly baseline example, too. $100 per month rent upside is fairly low, many of our deals are $250-300 per month under market when we buy them.

Conclusion

Management consultants have exciting options to invest in real estate, without buying themselves another job. Real estate investing is all about creating streams of passive income and understanding the value of your time.

Focus your time and efforts on your core competencies – aka knocking it out of the park for your clients.

Time is your most valuable asset, and spending your precious downtime managing your properties is not the most optimal allocation. You’ll get burned out and underperform on both.

These investment strategies have been used by many others to build passive income and wealth with real estate, without buying another job.  Comment below with any questions!

About the Author

Taylor on stage

Hi, I’m Taylor. To date I’ve acquired, partnered on, or had a hand in over $250 Million in Real Estate Acquisitions. I help high earners invest in multifamily and self storage real estate through my company NT Capital

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Short, impactful with excellent guests. If you have a full time W-2 job or business and are looking for ways to get involved in real estate on the side, this is for you.
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