There are two options for investing in multifamily real estate. You can either be an active investor, where you find and manage the deal, or a passive investor, where you invest capital and get a return on your investment. Your path should be driven by your knowledge, desire, and bandwidth.
Many passive investors are satisfied with putting their money to work so they can spend more time with the people they love, doing the things they love. Others get bit by the real estate bug, and it becomes a new obsession.
Randy Langenderfer fell into the second group. He knew he wanted to be an active investor.
Randy was convinced that apartment investing could help him reach his financial goals. He was excited to hunt for deals and build a portfolio. There was just one problem. Randy had a full-time job and minimal experience. Based on this, he decided passive investing as a limited partner (LP) was the best place to start in order to eventually become a general partner (GP).
To overcome the challenges he initially faced, Randy focused on three key steps to go from LP to GP.
1. Invest in Your Education
If you plan to start as an LP before transitioning to being a GP, it’s vital that you continue to focus on your education. Books and podcasts are a great place to start, but if you are going to bring in other investors, ensure that you are doing everything you can to protect their investment. This includes partnering with more experienced operators, hiring a mentor, or joining a paid coaching program or mastermind.
The first thing Randy had to do was educate himself more about apartment investing. He joined a mastermind, read books, and focused on networking. This focus on education prepared him for opportunities as they became available.
2. Find Operators Who Will Teach
As you get more comfortable with the education side of apartment investing, you’ll want to seek out general partnership teams that can provide investment opportunities. You could certainly go at it alone, but leveraging an experienced team will allow you to further your education and mitigate risks starting out.
Like Randy, Deepa Akula leveraged her time as a passive investor to transition into the general partnership side. She told groups up front that she was looking to invest as an LP, primarily to learn how to be a GP. She also made it a point to add value to those teams in any way she could.
A key step that both Randy and Deepa took was to invest with teams that were willing to teach them how to be good general partners.
Operators have a commitment to operate the deal and deliver strong returns for investors. However, they do not have to share insights into their decision-making process along the way. If you want a peek behind the curtain, you’ll want to be clear with these desires and confirm if the team is willing to share vital insights.
3. Become a Sponge
Once you’ve found a GP team that is willing to teach you, you need to become a sponge.
This is exactly how Deepa made the leap from LP to GP. She devoured all updates and documents that were shared by the GP team. She reviewed these documents for fun in her spare time. Reading the docs and asking questions allowed her to gain the necessary knowledge and confidence to become a general partner.
To date, Randy has been able to invest in 4,000 units as an LP and another 700 units as a GP.
Deepa has invested in over 1,300 units as a limited partner and another 1,000 units as a general partner. Like Randy and Deepa, many others have taken this approach to make the transition from LP to GP. However, it’s not for everyone.
You have to understand the time commitment, communication, and responsibility needed as a GP. If you’re investing goal is to create more passive income, be sure you don’t wind up with another job. Starting as an LP allows you to consider your options before assuming the responsibilities of a GP. And if you do decide that being a GP is your goal, follow these steps to make the transition a smooth one.
About the Author:
John Casmon has helped families invest passively in over $100 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Multifamily Insights. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com