Private Real Estate Investing: Seven Takeaways After Seven Years

As someone who has been consistently invested in private real estate deals and funds since late 2016, I'm now in the window for receiving distributions. My investment thesis to invest in heartland real estate has turned out well, partially thanks to the bad luck of the pandemic as people relocated to lower-cost areas of the country.

Although a couple of my investments in one fund turned sour due to a lack of equity cushion, poor execution, and the shutdown of commercial offices, and the pandemic, the vast majority of investments have provided positive returns.

One such investment was a multifamily investment that paid out $122,423.04 in distributions on July 6, 2022. The invested capital should be about $60,000 for a ~15.3% compound annual return over five years. I say should be because it is part of a fund that invested in over 10 properties.

Private real estate passive income

Seven Takeaways From Investing In Private Real Estate For Seven Years

Receiving $122,423.04 in private real estate distributions is a significant amount for us. It can happily provide for my family of four in expensive San Francisco for a good period of time.

This real estate distribution is also a relative surprise, since I only received $2,603 in distributions year-to-date before this July distribution from a RealtyShares fund, which is now managed by IIRR Management Services.

As a result, I do want to share some thoughts about long-term private real estate investing with current platforms such as Fundrise, my favorite platform.

Takeaways From Investing In Private Real Estate For Five Years
Only received $2,603 in distributions in April 2022 until July's $122,423 distribution for my RS fund.

1) Investing is a temporary expense

As I wrote in a previous post, treat your investments as expenses if you want to get richer. Such expenses are there to help take care of you in the future when you no longer want to work or are unable to work.

This latest financial windfall has made me feel better about raising a family as we head into uncertain times. The timing is fortuitous because the property was sold in early 2022. However, this still means I have over 10 positions that have not yet exited.

My private real estate investment expenses from 2016-2017 have now turned into a liquid asset. The trend should continue for years as more distributions are paid and reinvested.

If you want to build more wealth and love to spend, “trick” yourself into spending as much as possible on investing. The more you investment spend, the more you may make.

2) Take action on your investment thesis

When I initially made my private real estate investments in 2016, 2017, and 2018, I didn't know for certain how heartland real estate would turn out. I had come up with a thesis in 2016 after Trump's election victory, and proceeded to plow a total of $810,000 into various funds and individual investments.

Because I had also come up with the BURL real estate investing rule, I wanted to continue taking action based on my beliefs. Investing in real estate that provided the most utility made sense because now we had a way to easily do so thanks to real estate crowdfunding.

Here are the Fundrise Heartland eREIT returns as of 1Q2023. Note, this is a different fund than the one mentioned above. Notice how it took five years of average-to-below-average returns to finally see an explosive 41.7% return in 2021. My heartland / sunbelt real estate thesis finally paid off!

  • 2017: 8.1%
  • 2018: 5.7%
  • 2019: 7.3% 
  • 2020: 8.1% 
  • 2021: 41.7%
  • 2022: 10.2%
  • 1Q2023: 2.6%

If you come up with a thesis and don't act on it, you are wasting your time. You must take risks to earn higher rewards. You will lose money along the way, as I have many times before. However, by losing you will learn how to diversify your portfolio and hone in on better investments along the way.

If you have not taken any risks, please don't rail against those who have. Instead, try to learn about investing and take more risks yourself.

3) Give your investments time to compound

One of my favorite reasons to invest in private investments is they often take years to pay out. This is contrary to the attitude of expecting immediate rewards. Most of the private funds I invest in invest their raised capital over a three-year period and plan to pay distributions over 5-10 years.

The longer you can let your investments compound, oftentimes, the greater your overall absolute dollar returns. As a real estate investor, your goal should be to buy and hold for as long as possible. Sometimes, it's just hard to hold on, especially when recurring tenant and maintenance issues pop up.

Landlord issues as well as becoming a new father were the main reasons why I sold my physical rental property in 2017. I just didn't have the patience and the bandwidth to deal with so many rental properties anymore. The “juice was no longer worth the squeeze.”

But with private real estate investments, you do not need to deal with any of the property maintenance hassles. You just need to find the right sponsors and the best real estate deals, which can also be a challenge. Please don't underestimate the quality of the sponsor and its track record.

This challenge of evaluating deals in a timely manner is why I prefer to invest in real estate funds. With a real estate fund, you have the fund manager or an investment committee who tries to invest in the best deal for its investors. You don't have concentration risk or capital stack risk with only a few deals. Instead, you have a diversified portfolio of properties.

Investing long-term provides mental relief

Once you make a capital commitment to a private investment, you tend to forget about it for years. Sure, you will get quarterly statements on the progress of the fund or investment. However, for the most part, it feels great to have the capital be out of sight and out of mind. This way, you are able to free up time to make more money elsewhere.

It's comforting to know a team of professionals is looking after your best interests. They are also incentivized to perform if they want to do more business in the future. As a father who is responsible for the financial security of his family, farming out capital to people who spend their careers investing relieves me of this mental burden.

You'll discover the more capital you accumulate, the more pressure you might feel to do something with it. Money starts “burning a hole in your pocket,” if you are not intentional with your spending.

4) To invest easier, think of your capital being in separate buckets

The reason it was relatively easy for me to reinvest $550,000 of my rental house sale proceeds into private real estate investments was that the capital came from the same real estate bucket. Normally, I would have invested $50,000 – $75,000 at a time.

After reducing my SF real estate exposure by $2.74 million (~$800,000 mortgage, $2.74 million selling price), I wanted to diversify and reinvest some of the proceeds back into real estate elsewhere in America. I was only receiving a cap rate of 2.5% in SF. But I could find real estate opportunities elsewhere that provided an 8% cap rate. Simple math showed I could invest 1/3rd less and still earn the same amount of income.

After selling my physical rental property, I wasn't 100% confident I wanted to reinvest the ~$1.75 million in proceeds all into private real estate. Therefore, I spread the remaining $1.25 million to stocks and California municipal bonds.

As soon as I became a father in 2017, I became even more risk averse with my money and with my time. With a helpless baby depending on me, I felt like I needed to be more protective of our family's finances.

By thinking in buckets, you may be able to better asset allocate your capital. Oftentimes, investors will just sit on their cash for long periods because the amount of money to be reinvested is too intimidating. Thinking in buckets and percentages may make reinvesting easier.

5) You will likely lose money, so don't forget to diversify

Although I received this nice $122,423 windfall, one of the investments in the fund was a complete wipeout. As a result, my $50,000 position went to zero.

The failed investment was called Student Housing at College Town in Toledo, Ohio. It was an acquisition by the sponsor, William Fideli Investments of a 590-room student housing complex located at 1120 N Westwood Ave, Toledo, OH 43607. The sponsor projected an 18% IRR over two years.

Failed real estate crowdfunding deal
Looked like a good deal to me

When I first saw this investment, I was excited. Student housing generally provides sticky rental income. Property prices in Toledo were also dirt cheap. This was exactly the type of investment I was happy to diversify into given I owned mostly expensive single-family San Francisco real estate.

Alas, the property was a failure because the sponsor had spent too much, there wasn't a large enough equity cushion in case things turned sour, and COVID happened. COVID was terrible for student housing in 2020 and 1H of 2021 because all students were sent home. Being in a social-raging apartment complex was the last place you wanted to be during a pandemic.

If you are to invest in individual deals, such as those on the CrowdStreet or RealtyMogul platform, you must do your due diligence on the sponsors. Yes, these platforms will do their due diligence and only let the best sponsors on their platform. But you need to take it a step further and understand the sponsor's track record, returns, leadership experience, and more.

Unexpected bad things happen all the time! This is why diversifying your private real estate portfolio is important.

Beware: All Marketing Material For A Real Estate Deal Looks Great

Do not get easily smitten by amazing marketing material. Every deal always seems amazing if marketing is doing their job right. Doing your due diligence is a must! Before making any investment, always view a real estate deal with skepticism. Figure out what could go wrong.

In addition, there is platform risk as well. For example, PeerStreet, a real estate debt platform filed for bankruptcy on June 28, 2023. The existing debt deals should not be affected. However, creditors to PeerStreet will be. I wasn't a fan of one of its founders I met in 2018, so I didn't bother writing about the platform.

Accept losing money is inevitable when it comes to investing in risk assets. Therefore, you must invest in a risk-appropriate manner and diversify.

6) Live where you want, invest where the returns are potentially the highest

My ideal real estate lifestyle is living in Hawaii and investing in the heartland for more passive income. Your best real estate life might be living in Texas and investing in Los Angeles real estate before foreigners begin buying up massive amounts of coastal city real estate once the borders reopen.

Whatever your living preference may be, being able to invest in private real estate syndication deals enables you to invest where you think the potential returns are greatest. Your money can now be in more profitable places at once.

Money is more fungible and more fluid than ever before. Take advantage of innovation and the internet. Millions already are by relocating to lower-cost areas of the country.

7) To reduce tax liability, forecast your real estate investment distributions

If you know a large amount of investment distributions are coming one year, then you may want to work less or reduce your side hustles. If you are a small business owner, you can pay yourself less and spend more Capex that year.

Conversely, if you have a dearth of private investment distributions coming, you can earn more without paying as large of a tax bill. You can pick up extra consulting jobs. Or you can reduce Capex to earn more business income.

Map out your potential distributions on a spreadsheet by year. Then plan accordingly. For 2022, I had forecasted $112,800 in total real estate crowdfunding distributions. Roughly $62,423 was in taxable gains and the rest came from my initial investment.

How I Reinvested The Real Estate Proceeds

Fortunately, I didn't need the $122,423 in proceeds to survive. Therefore, here's how I reinvested my real estate investment distributions:

  • 30% to a Fundrise fund that focuses on single-family homes in the Sunbelt
  • 20% to fund my capital calls for two Kleiner Perkins venture funds
  • 10% to a new venture debt fund
  • 25% in the S&P 500 and tech stocks that got beat up
  • 10% to US Treasury bonds yielding over 5%
  • 5% to donate to the Pomeroy Rehabilitation Center for disabled youth and adults

The goal is to be methodical with how we continuously invest and reinvest our capital. Otherwise, the natural course of action is just let our money sit and earn nothing.

My hope is that five years from now, I'll write another similar post about how the $122,423 turned into $200,000. I'm looking forward to investing in more deals over the next twelve month.

I think there's an opportunity to buy real estate in 2023 as prices soften due to high mortgage rates.

I expect mortgage rates to decline and pent-up demand to be unleashed in 2024 and beyond. Lots of folks have been waiting to buy due to a fear of a recession, a pandemic, and high mortgage rates. But people still get married, have kids, find new jobs and more because life goes on.

Real Estate Is The Gift That Usually Keeps On Giving

Your goal as a real estate investor is to hold on for as long as possible. It's the same with owning stock index funds. The longer you can hold on, the more you will likely make. Eventually, however, you should start spending your proceeds to live a better life.

Receiving private real estate investment distributions is like receiving surprise gifts. You don't know exactly how much you will get each time, nor do you know exactly when you will get the gift. You just know they will eventually come thanks to the investments you made in the past.

Today, roughly 50% of my passive income portfolio comes from real estate. Without a severance and rental income, I wouldn't have had the courage to leave my job in 2012.

Investing In Physical Assets Provides Comfort

For the future, I'm investing in real estate for my two young children. I know in 20 years they will marvel at how cheap real estate prices are today. Therefore, I want to invest in real estate for them now because they don't yet have the ability or education to do so themselves.

The same thing goes for investing in rare books with autographs. People might think my investment thesis is stupid. But I don't care. I love to read and I love to invest in physical products that can be enjoyed. The initial investment cost for rare books is minimal. But the returns could be enormous.

The great thing about investing in a physical asset is that even if the returns don't pan out, you will have at least enjoyed your investments during your holding period. Further, you will have likely collected income.

I've had so many great memories in the various properties I've owned. And it's been fun to flip through my Chinese coin collection or my dad's baseball collection while sipping on a 2009 Chateau d'Yquem purchased over a decade ago.

Enjoy your investments while enjoying your life! It's one of the best combinations for utilizing your money.

Private Real Estate Questions And Suggestions

Readers, are you a private real estate investor? How has your experience been, especially since the pandemic began? If you recently had a real estate investment windfall, how are you reinvesting the proceeds?

Fundrise is my favorite private real estate investing platform to build more passive income. Fundrise has over $3.5 billion under management and over 400,000 investors. It focuses on single-family and multi-family properties in the Sunbelt, where valuations are lower and cap rates are higher. Sign up and see what they have to offer.

Fundrise

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106 thoughts on “Private Real Estate Investing: Seven Takeaways After Seven Years”

  1. Be glad you didn’t invest in Peerstreet. I had only cash (recent loan had been paid off and was waiting for another one), but we cannot even get our cash out (which they claim is FDIC insured).

    No communication from anyone other than a form email without any specifics on what to do.
    With money market, CDs etc at 5%+, I won’t be risking any on these platforms in the future.

    Fortunately, my exposure is small compared to others.

  2. Sam, can you give your thoughts on the relatively new Opportunistic Credit Fund that Fundrise is offering? I am considering an investment, despite the $100,000 minimum investment, but the fees seem exceptionally high at 1.75% plus a “management incentive fee” of 20% over 10% preferred return. Those fees give me pause.

    Thank you for your thoughts/comment.

    1. Hi Patrick – The Fundrise Opportunistic Credit Fund is one of the most interesting funds by Fundrise to date. I’m excited about it due to the exiting opportunity at hand.

      There are a lot of expiring loans that will reset at much higher rates, at least temporarily. The Fundrise Credit Fund will go in and identify the best of class deals and lend at a slightly lower rate to fill demand.

      I have a ~1 hour interview with Ben Miller, Founder and CEO of Fundrise in an upcoming podcast. And we talk at length about the Opportunistic Credit Fund, so subscribe on Apple or Spotify and listen in.

      Regarding the fees, they are inline with similar funds, if not lower actually. Here’s a related post: Why Invest In Private Funds Despite Higher Fees

  3. I would like to know how you got a 40%+ 2021 return and 10%+ Fundrise return in 2022. I have had 2 funds with them since 2019. My returns have been:
    2019 – 2% (half year)
    2020 – 7.5%
    2021 – 14%
    2022 – 2.5%

    I have been so disappointed in Fundrise’s returns, I am in process of liquidating my investment. I am exclusively working through CrowdStreet for my deals now.

    1. The Fundrise Heartland eREIT, which has been closed for a while now. It showed mid-single digit returns for years until 2021. Feel free to click the link and see for yourself. Like with all investing, returns change from year to year and are different based on what you invest in.

      In 2016, I wrote the post: Focus On Trends: Why I’m Investing In The Heartland Of America. I discovered the Heartland eREIT fund and decided to invest according to my thesis.

      Earning 2.5% in 2022 when the S&P 500 went down 19.6% is a home run IMO.

      Good luck with CrowdStreet and choosing the deals to build your own select fund. I’ve met them several times before and like what they are doing.

  4. Hi Sam,
    I noticed and appreciated your 5% charitable contribution near the end of this article. I don’t recall you writing about giving in the past; did I miss it? Our family has a rough annual percentage that we adhere to and specific strategies to make sure a portion (5% – 10%) of our income goes to causes we wish to support. Our philosophy is that we have been given much in our lives, and the money isn’t really all ours anyway. I’d be curious to hear you expand on how you and your wife handle this.
    Josh
    Alameda CA

    1. Hi Josh,

      You missed the articles. Do a search in my search box and you will find them.

      Giving is a personal decision. So I don’t want to force my views on how people should give their own money.

      I do enjoy giving my time more than I enjoy giving money. It feels great to help people in person. And part of the reason why I continue to write so much on Financial Samurai without a paywall is to help people with their finances.

      After over 14 years of writing 3 to 4 times a week, nonstop, many of my leaders have grown up with me and have sent messages of thanks. It is incredibly gratifying. And I love how people have built wealth and are living more courageous lives as a result.

      I’m topic, if you have thoughts on private real estate investing, I’d love to hear them!

      Thanks

  5. I’m waiting for my windfall through Fundrise as I haven’t really been impressed thus far. I’ve invested $193,594 since Sept ’19 and have gained only $13,145 for a 3.4% net annualized return. My high-yield savings account of 4.65% at PNC beats that!

    I know lending rates have had an affect on private RE, but I find it alarming that Fundrise is stepping into tech funds outside of their whole RE crowdfunding approach. YTD my portfolio with Fundrise is down 0.9%. Best year was 16.2% in ’21

    Hoping to see better returns as I’ve been dollar cost averaging my way in this year. I’d like to see a writeup on FarmTogether in the future as another Alt investment

  6. Eric Peerless

    What are your thoughts on irr? It feels like a false metric as you can’t invest your distributions at the same rate as your initial and therefore the numbers aren’t entirely truthful. I’ve been investing in private real estate funds for 20 years and my best advice is that the sponsor is everything. The right sponsor will reduce your risk through the bad times and figure out how to work out or potentially negative situations.

  7. Maybe you were selective on Fundrise funds and got luckier, but not most of us. The Growth II and VII and EastCoast and some other performed really bad with a loss around 5% in Q1 2023. They had already lost 7 – 8% some in 2022. This is not a good sign. Private REITs are not supposed to have such correlation with public REITs. Don’t feel Fundrise did a good job!

    1. I started investing in 2016 after I came out with my thesis of investing in the Heartland of America due to lower-cost and technology. With a longer track period since 2016, I assume my performance has been better than those who started just in 2022 or 1Q2023, during the bear market.

      However, down 7-8% in 2022 is much better than being down 19.6% in the S&P 500 and down 20-25% with many public REITS. My public equity portfolio was down 22% b/c I had individual tech stocks that got crushed in 2022.

      Investing is a long game and you must diversify. It wasn’t until 2021 when the Fundrise Heartland REIT (no longer accepting investors) exploded by +41%. But an investor had to wait several years of single-digit returns to get there.

      Patience is a must! So is comparing relative performance to other risk assets.

  8. Hi:

    Long time reader and follower.

    You used to recommend “RealtyMogul” but that has not been for quite a while. Why and who do you better recommend for a Real Estate diversification. I am in the retirement phase but am following your “model”.

    thanks

    1. Hi Bill,

      I met the founder of RealtyMogul before and I like her discipline and focus on profitability, not chasing growth for growth’s sake. RealtyMogul has REITs, which I think is best for most investors. And then individual deals, for enthusiasts with more time.

      I’ll probably do more research on them by the end of the year. I’ve been taking a break given mortgage rates went up so much in 2022, and I’m patiently waiting for the market to normalize.

      But personally, I’m on the hunt for upgrading homes as I see opportunity! And so does Fundrise’s CEO, Ben Miller, who has a lot of cash and has invested $400 million in deals so far this year. I’ve been focusing my attention with Fundrise because I like their fund model the best, as I’m too busy to pick my own deals.
      Cheers,

      Sam

  9. Hi Sam – Nice write. Been following you for a long time. You jumped into Fundrise and Realty Mogul. I did the same! Have 60k across various funds within fundrise and 40k in realty mogul. 50% reit fund and rest in my first direct investment for a Raleigh NC multi family property (wish me luck).

    I recently had my first kid. Struck cord with me. I’m 35 years old. What I did immediately before she was born was bought an investment property in San Antonio Texas. I’m investing for her and my wife in case something happens to me. For my daughter, the property provides two things:

    1) I can always refi in 18 years when property appreciates and cash flows, let tenant pay for my daughter tuition! It’ll be part of my 529 growth plan!
    2) If my daughter gets a scholarship, great! She gets a free property to learn the real estate investing biz and know why passive income cash flow is incredible.

    Plus, she gets your recent book since I plan to read to her daily when she gets to 3 months!

  10. I’ve had my Fundrise account for a few months, but I’ve barely funded so far – one thing I’m unclear on is, are you actively choosing your investments or just putting money into the flagship fund,etc? They seem to be so many potential options. I haven’t been able to clearly tell the differences and there even seems to be differences between a Roth versus taxable account on what investments I can do.

    1. The funds are invested based on the style you choose e.g. Balanced, Income. Growth Appreciation, your money will be invested accordingly. But you can also sign up for Fundrise Pro and choose your own funds and asset allocate based on your desires.

  11. Sam, I know one of your paid sponsors is Fundrise and you are very positive on their offerings and plan. How would you rank other crowd funded platforms such as RealtyMogul, YieldStreet, DiversyFund and even the Jeff Bezos Arrived Homes platforms. Always enjoy your input and reviews

    1. Hi Jeff, I chose to work with what I believe is the best private real estate platform, so I chose Fundrise. I’ve spoken to the co-founder and CEO, Ben Miller for hours and like his experience and outlook. He is very cautious as an investor and CEO, which is what I want, not a hyper bullish person.

      I’m also a fan of investing in a fund versus investing in individual deals now. The reason is because I don’t have the time or desire to build my own select real estate portfolio. I want simplicity, diversification, and exposure.

      I’ve spoken to RealtyMogul, YieldStreet, CrowdStreet, and DiversyFund before. They are all in the top decile of all the platforms. The main thing is understanding the sponsor and understanding the risks in each deal. Check out my real estate crowdfunding learning page.

      For most people, investing in a diversified fund is the way to go.

  12. Sam, I was surprised to see Edge 1120 in this post as a wipeout. I was also an investor in this via RealtyShares and my dashboard still shows it active as of today. It paid out a distribution last month (February 2023) and I’ve been expecting they may still sell it and return some/all of our capital. Do you have new info? Thanks, by the way, for the referral to RS a few years back. Overall I am up; even if this particular project returns zero, my RS investment yield works out to about 7% annual, compounded.

    1. Hi Chris, thanks for your comment. I now see I got a distribution on January 9, 2023 for $3,490 from my RS fund, but I can’t tell from the dashboard and notifications from which project it’s from. I’ll have to ask. Funny how I totally missed it.

      A 7% annual compounded return is nice. Congrats!

      1. These types of things typically happen to ‘wealthy’ people :) j/k…at least it isnt a total loss like you had thought.

  13. Nia Bernardo

    I am in escrow closing in Dec 6. I wanted to ask you some idea where to possible put my sale proceed I am planning to buy a single family house maybe in 6 to 9 months from now. Thank you in advence.

  14. One more question, as this is my first go-round thinking about investment real estate… how much do you look at things like whether the property backs a busy street? Does that make a big difference to you as an investor? This article is very helpful. Thank you!

  15. You mentioned wanting to live in Hawaii but invest elsewhere. With declining prices, why not get the income-producing property in Hawaii instead, whether it’s a long-term or short-term rental? Is that not a compelling spot for investment right now if you know it’s ultimately where you want to be?

  16. Any particular reasons why 3700 is your trigger point for allocating to the S&P?

    Let’s play tennis if you’re ever in DC.

    1. We bottomed at 3,660 when the Fed Funds expectations was lower. Now it’s higher after today, so getting below 3,600 is more likely now.

      Best to wait. 1-year t-bills yielding 4% is attractive IMO.

  17. Sam,

    I must be doing something wrong: You performed ~5% better than if you just plopped everything in VOO — is that right?

    The way I figure: Between state and federal you’re paying ~32% tax on the $62k gain, leaving you with $42k in net cash profits. Compare this to a $39k gain over a comparable period for VOO (when including dividends taxed at the same rate). That’s an 5% net cash gain over and above VOO (principal + gains).

    Am I following that correctly? It’s this type of calculation that’s led me toward investments that reinvest rather than redistribute capital — the taxes really chip away at the differential gains. This, of course, assumes you have other means of producing meaningful cash flow — eg a small business. Or maybe that’s the purpose of these investments is to produce a relatively similar absolute return but in a manner that disperses more cash?

    1. For this particular investment in the fun, yes, and absolutely outperformed VOO.

      But if you want to compare more to apples-to-apples, you have to compare my overall performance of this fund compared to VOO or whatever real estate ETF you want. And I won’t know the final IRR until all 20+ properties exit. But so far, so good with bumps as I mentioned in the post.

  18. Hi Sam – long time reader, but first time commenter and honestly I have a question, not a comment. I have 2 properties, 1 I manage myself and the other I use a property manager. If I were to sell either property or both can I transfer the proceeds/gains from those sales and invest them in Fundrise/any other private real estate platform and avoid the recapture taxes in a similar manner that a 1031 exchange accomplishes? Let me know if this question makes sense.

    Thanks again! Really enjoying your book as well :)

    1. Hi Phil,

      Thanks for picking up a hard copy of my book. Please don’t forget to leave a nice review when you’re done. It’s the best gift an author could receive. It made the WSJ bestseller list! Whoo hoo.

      Unfortunately, Fundrise investments cannot be used for a 1031 exchange.
      Under Section 1031 an individual must exchange real property for “like-kind” property. Stocks or shares (such as shares of our eREITs or eFund) are expressly excluded from Section 1031 treatment.

      But that said, you can always invest new cash flow into Fundrise. I’m a strong believer in investing in the Sun Belt. The demographic trends and the price direction should be solid over the next 10 to 20+ years.

      1. Hi Sam,

        I’d be really interested in you doing a post exploring any risks associated with your Sunbelt thesis. Water and resource scarcity come to mind. As do extreme heat and fire. Thanks!

  19. Will you receive any recovery from the student housing project? One of the projects I invested in went bust as well. It was a fast food restaurant. Fortunately, I only had $5,000 invested. I got about 40% back so it wasn’t a total loss. I think I’ll only invest in value-added apartments in the future. They just need to renovate and raise the rent. That’s the safer path, IMO. If it doesn’t work out, investors should be able to recover a good amount of their money. Ground-up projects are riskier. There are too many variables.

    1. Uncertain, but doubtful. Getting 40% on a project that went bust is good!

      I have to look forward to the remaining investments in the fund that mostly pay out over the next three years. I’ve received 78% of my principal back after four exits and one failure. So I’m very confident the overall IRR since end of 2016 is going to be very strong with over a dozen projects left to exit.

  20. Great read, I recently sold a rental which goes against my better judgement. However, we decided to let it go because prices had gotten so ridiculous and I knew interest rates were going to increase. Glad you were able to get out with a very nice profit! Thanks for sharing

  21. Your point about getting such a huge 122k windfall “out of the blue” only adds to the mystery for me of investing in these crowdfunding sites. Are you even able to know how that windfall happened? 122k in one pop just seems strange off an 800k port when your yearly take was more like 2k. Is there really no way to track when some of your properties may result in a distribution, so you can see what are doing well? Seems like you should be able to check in periodically and be like “holy mackerel, that one is doing great – when they sell I will get a great distribution.” You seemed to be able to get alot of details about the 50k one that went into the pooper, is there the visibility to track the winners? Let’s say they just gave you 2k instead of 122k, would you even been able to know you were hoodwinked?

    I would also think that it would be nice to know a windfall is coming for tax purposes. Are they taxed as ordinary income? Do they provide tax docs at year end that have your gains and losses?

    1. Limited partners find out in the next quarterly report that highlights the transaction and goes through detail. I got the windfall in July 2022, so I should get the next quarterly report at the end of 3Q.

      But I did ask the client relations person and he said it was the Rand Center Flex that sold. And based on the originals sales page with the details, it seemed like it was a great exit.

      I did get over $80,000 in distributions in 2021 btw, not $2K. I just got $2K up until July 2022. But now I’m in the window for distributions over the next three years. So I expect six-figure distributions going forward.

      K-1s.

  22. We have been investing in real estate since 1987. We started small (we had 36k to invest in ‘87) and slowly grew. We currently own exactly 100 doors. The total rent roll is about 146k per month. We personally manage 4 single family properties to allow my spouse to be considered a real estate professional (for the tax benefits of that designation). The rest, mostly multi family, have professional management. We like the control and the tax advantages that the government has established to support the provision of rental properties for direct owners. We currently have about 12M in equity and about 9M in debt on the 21M portfolio of properties. We spend about 10 hours per month on managing what is clearly considered a business. It is not passive, but the time commitment is limited and we have a well established network of people to call when things need attention.

    I was always intrigued by syndications and REITS, but the loss of control of entry and exit takes away much of the tax advantages, and roughly 50% or more of the return goes to the syndicators. With direct ownership, we can provide high quality housing to our mostly wonderful clients at an affordable price. The community benefits and we make a nice profit and have built wealth slowly over time.

    1. Money Ronin

      I’m in a similar situation and mostly avoid real estate funds as well. Just to build on what you’ve written:
      1. I can’t control when they sell which results in unexpected capital gains. I like to avoid capital gains by not selling or doing 1031 exchanges.
      2. I can’t take fully benefit from the tax advantages as a real estate professional since this is a passive investment.
      3. Depending on the fund, they may lack transparency. Most of these funds have very minimal oversight by regulatory bodies.

      Glad to hear you are only working 10 hrs/month on this. I started in 2013, and I’m working 20 to 30 hours per week on my portfolio which includes new acquisitions as well as operations. I’m a value add investor and it takes effort to stabilize. I hope to get to a point where I’m just collecting rent checks.

      1. What is it you do for 20-30 hours a week on your portfolio? That is almost like a full-time job!

        The older and wealthier I get, the less I wanna spend time on my investments. Which is part of the reason why private real estate investing is so attractive to me.

        How large is your portfolio and how old are you? Helps to get a sense of reference

        1. Money Ronin

          I didn’t get an alert so I just saw this. I started investing in RE and reading your site 9 years ago as I slid into semi-retirement. However, the RE has indeed become a second career mostly because it has done phenomenally well.

          I now own just over 50 doors (matches my age). Although I use a managment company I’m hands on reviewing tenant applications, new leases, collections, expenses, etc. There are always vacancies, non-payers, rehabs, rent increases, inspections, contractors, refis, to deal with. I don’t visit the properties much or deal directly with tenants, but I set strategy and keep things moving or they don’t get done. If you’ve done a rehab during the pandemic then you understand.

          My properties are class C value plus opportunities so require more work by definition. Even after 9 years, they are still value plus because the rents continue to increase so I need to continuously upgrade units and tenants. Average two bedrooms have gone from $1200 to $2000 but that means investing in quartz counters, new cabinets, laminate flooring, high end fixtures. Even class C renters want some bling. Other landlords stick with quick turns and no upgrades (Formica counters, linoleum, carpet) and even they are getting $1600. They want to keep that cash flowing. I have high vacancy rates for rehab time then holding out for high rent because I’m focused on valuations for the refi. My realized cash flow is quite poor.

    2. Elia Mazzawi

      For sure doing it yourself pays better that investing in REITs. But I invest in and out of REITs between projects and in retirement funds.

      The good thing about REITs is the higher volatility that offers good entry and exit points. I follow about 10 REITs and get the value from research analysts.

      When the reit stock is trading significantly below the assets it is a no brainer to invest. Also don’t forget REITs have cheaper access to capital than an individual investor would.

  23. If you look at the average home price to median household income ratio since 1940s we are currently at a 80 year high. The average ratio during this 80 year period was roughly ~4.3 and spiked to ~7 during the housing bubble in 2008. Currently in 2022, the ratio now sits at over 8 thus it now costs the majority of Americans 8X their annual income to purchase a home. Hard to imagine how housing prices continue to increase from here considering we’ve hit the bottom with regards to low interest rates and pro-accommodative policys that support the housing market. I suspect you don’t see housing currently in a bubble? Also, wondering how you see housing prices increasing if median household income doesn’t significantly increase in the intermediate term?

    1. Based on what I’m seeing, prices have corrected by 5%-10% and could stay depressed for 1-2 years. Which is why I’m looking for deals now.

      The question is whether one is buying for income or capital appreciation most. I’m focused more on income since I don’t want to work too much. Hence my focus on the Sunbelt and simplicity.

    2. If housing becomes/stays unaffordable for many, doesn’t that make rental properties more valuable as more people rent rather than buy?

      1. That’s what is happening in the Sunbelt. Less people can afford homes so more people are renting, pushing up rent prices by double digits. I had this exact same conversation with Ben Miller, CEO at Fundrise recently.

        With real estate, everything ebbs and flows. But the long-term direction is up and to the right.

        1. What was the name of the Single Family home fund with Fundrise? I couldn’t find one described as such on their website. Thanks!

            1. I went on Fundrise and tried to just invest in the Heartland REIT. But there seems to be no way to do so. It only allows for Flagship Real Estate Fund and the Development one…

              Any idea how to direct my cash to specific funds?

    3. Median household income is about $80k today in the US and median housing price is about $415k, so not sure where the 8x comes from. Especially since the typical homebuyer is well above average income. That’s about a 5.2x ratio, which is higher than the long term average of about 4, but no where near 8x you quoted.

  24. Lawyer On A Mission

    Thank you so much for this post!

    I’ve just discovered your blog and I really like how much detail you go into in your posts, particularly the figures that you provide. It’s super helpful to see how the numbers all stack up.

    Thanks!

  25. Keith Wilson

    Hello Sam. I have jumped into the Fundrise platform based on reading your newsletters and listening to the podcast. Thank you.
    Speaking to my financial advisor he also suggested BREIT (Blackstone). In the short amount of research I have done it seems the fees and commissions are higher with BREIT than Fundrise. If so, why would I jump platforms. Have you compared these in the past? Thoughts?

    Thanks for all the great advice
    KW

    1. What are the Blackstone fees? Blackstone is the gorilla in the space and might be able to get better deals with more cash to buy. The problem with having a huge fund is that it may be harder to generate returns for investors.

      Send me some info on BREIT and I might do a comparison. thx

      1. I have had 400K in BRIET since 2019. Very happy with both Low tax distribution and NAV increases.

        Last year was crazy 25%+, but on average between 12-15.

        breit.com is an overview with some performance measures.

  26. Hi Sam, thanks again for turning me onto private REIT investing via Fundrise. I am happy with what I have seen so far. In 2021, its the only investment I have that hasn’t lost any money. Right now I am piling money into the Heartland REIT. I am bullish on every property in the portfolio.

    This is where I am building my RE allocation in accordance with the FS model outlined in your book. Thanks again.

      1. Awesome, indeed. I meant 2022 above but point made.

        Yes, we left a great review on Amazon this week. It might show up under my wife’s name.

      2. I love the idea of the Fundrise Heartland REIT. The properties it is invested in are in Las Vegas, Denver, Raleigh and Texas. None of those cities are what I think of when I think of the midwest. And if I’m reading the information on the website correctly, the bulk of the fund is invested in the Las Vegas apartments.

  27. Hi Sam,

    Have you been on 506investorgroup.com ? They do due diligence on all these crowdfunded deals, non-traded REITs and syndications. It was very eye-opening for me. One member showed a spreadsheet of all his returns going back to 2014. He invested in multiple deals, and so far between the successful ones and wipeouts, it doesn’t look much better than index funds.

    I was going to go hard into some Crowdstreet stuff or even some non-traded REITs but after seeing those results I decided to just go with some total stock market funds plus a small cap value tilt.

    As for those private REITs, the 506 forum seem pretty biased against them in general. Apparently the sponsors and broker dealers take a huge chunk up front for a lot of those things. Probably not as bad as equity indexed life insurance products, but I figure I’ll just buy VNQ if I want real estate sector exposure. And note funds.

    I also checked out Peak Housing REIT. Looked interesting but I’ll pass for now.

    1. Not aware of 506. I own VNQ too. VNQ and other real estate funds and REITs were just MORE volatile during the March 2020 sell-off. And that’s not what I want with my real estate holdings.

  28. “As a result, my $50,000 position went to zero.
    The failed investment was called Student Housing at College Town”

    How exactly does a a 50k investment go to zero? Wouldn’t you own a percentage of the equity and wait for its recovery.

  29. If I understand correctly – in 1 investment you put in $60k and got $122k and the other you put in $50k and got $0 – is that correct – so if we consider these 2 combined investments of $110k they resulted in a return of $122k over 5 yrs ? I get that there were other investments as well in the fund and these 2 were a fraction of the $810k original investment

    College towns are actually really good investments but yes CoVID was a whammy no one really saw coming

    1. Correct. Just squeaked out a $12K gain after five years if we exclude the other $502K in distributions.

      Lots of ups and downs. I almost considered getting my old job back at McDonald’s at one point! Hence the importance of diversification. I’m hopeful my remaining 14 investments will pay out though.

      How about you? Any examples of two investments that almost cancel each other out? It’s good to cancel investments out and pretend others investments don’t exist to stay hungry and motivated.

  30. Hi Sam – I started to invest in both Realty Mogul and Fundrise because of you. You should actually do a review or deeper dive into Fundrise innovation fund. Sounds like they want to start their own Tech VC/PE fund for regular investors. Would be curious to get your thoughts since it’s hybrid of private equity and public stocks (your world).

  31. I looked into some of these real estate funds and I actually invested a bit but pulled out during the initial grace period. I probably would have made money, so was a good recommendation from a pure investment standpoint. However, I have read a lot about large investment banks like Goldman Sachs bankrolling these funds or using their own funds to buy up single family homes, which is not a good thing at all. Rental units are fine I guess, but large firms and corporations should not be buying single family homes and turning them into rentals. So much of the American dream and wealth building is tied to owning a home. Let them control the stock market, but we don’t need large corporate landlords and firms playing with people lives and trading single family homes as commodities…

    1. I would be a little bit salty and blame institutional buyers as well if I missed out on some real estate investments.

      But according to a survey of Realtors by the NAR, institutional buyers accounted for 15% of single-family home purchases in 2021.

      And the major reason that homeowners sold to institutional buyers was that they offered cash.

      So another words, institutional buyers is still a small minority of buyers. And those homeowners were able to sell to institutional buyers for profit. Nobody is forcing anybody to sell anything.

    2. You are blaming the wrong folks for housing issues. The main issue with SFM is inflation and regulations, combined with millennials and gen Z less interested in ownership. The first two are government issues and the last you can’t fix. Besides, those large banks buying them are just doing so for their clients like you and I – even renters can invest in them!

  32. CaptnCashFlow

    Hi Sam – zooming out a bit regarding “How I’ll Reinvest The Real Estate Proceeds”

    Do you ever get cash deployment paralysis? I seem to nearly always have a cash “problem” with 20-25% or so of my net worth (im at a NW of about ~$7MM) sitting in cash because I cannot seem to pull the trigger on anything because I always think things are too expensive or the investment situation/type are not “obvious” enough a good value or I tell myself “well, at the next [election, fed meeting, etc], X will happen and likely things will Y change and then I will buy this or that then…” but then really just keep delaying. This cash position is after having adequate cash allocation for emergencies, 401k contribution, conservative LTV on real estate, etc. And mind you after I buy, I dont tend to sell either (basic stock indices, etc). I also think some “fat pitch” will come along but in reality, especially related to the market, i tend to buy in chunks on the way down and not all at once….

    I think in times like these I would want to be closer to 15% and then down to 5% in bigger draw down scenarios, but easier said then done especially if I am too chicken to part with my cash in times like the present!

    1. Sure, I have decision paralysis sometimes. But I follow my net worth asset allocation framework like I discuss in my book, which I hope you get. It helps overcome the fear of investing by focusing on percentages, not absolute dollars. It is a tricky situation as we get wealthier but don’t spend as much as our wealth grows.

      Focus on the percentages, not the absolute dollar amounts as much. That will help you make more optimal decisions.

  33. How did much distribution did you receive over the years before the big pay out?

    I’m super interested in this. We own 9 detached single family homes and would like to expand but the landlord-work is getting too much for us working stiffs, and this seems to be the solution. A

    1. Before July 2022’s distribution, I received about $501,000 in distributions. The distributions have been sporadic for the past several years, but are now steady and increasing since I’m in the distribution window.

      I invested in a couple funds and multiple individual deals. Now I’m trending mainly towards funds because it’s easier.

      My maximum land lording of properties is three. Anymore and it’s too much of a PITA. Hence why I sold one property in 2017 and reinvested the proceeds in 100% passive investments.

        1. I’ve invested $810,000 total with $624K in distributions so far. It’ll be interesting to see how much more I will receive over the next several years.

          How much have you invested in your 9 rentals and how have they done in terms of value and rental income?

          1. Hmm, by heart: one property was bought in 1999 with 50K down; is now close to 1 mil. Primary residence: 350 down in 2005 and is now 1.5. Invested probably 1 mil after the real estate crash starting in 2011. It was pure luck we happened to get going during the dip. These 7 other homes are now worth about 5 mil. About 1.7 mil mortgage left total. Everything cashflows superbly, but of course current CAP rate is pretty poor after so much appreciation. Hate to sell them though; all are gorgeous prime real estate, we’ll-maintained in a very desirable part of the country and within a 10 minute drive in our own neighborhood. Also not looking forward to IRA bill if we sell.
            We have work retirement accounts and regular investment accounts with regular stocks. Stocks:real estate = 3:7. Still can’t cash flow enough to retire though (kids still in expensive out of state colleges). I look at our numbers and feel am doing something wrong with our ROI.

              1. Yes, but not within easy driving distance. We really know our area and market, but I realize we’re leaving a lot of money on the table by choosing comfort and high-end properties over cash flow.

                1. You should be able to 1031 into apartment buildings with a management company and massively increase your yield, especially in higher cap rate areas.

      1. $501K is return “on capital” or “of capital”. I think it’s a mix of both. I invested in 9 deals total of $940K, only 4 of them distributed the cashflow of $49K for last 12 months which is pretty good so far. Most of them projected 2x multiple for 5 years, will see.

  34. I noticed that Fundrise, along with other large investment firms, are trending toward single-family home rental communities. I’m worried about this for several reasons, not the least of which is that it’s pushing the purchase price for single family homes higher in what could be a pump-and-dump scheme. I’m also worried about this trend of the middle class being a class of renters, unable to build equity through their residence and eliminating a neighborhood pride of ownership. From the investment side, an economic disruption is more able to work against this investment, as higher cost rents will be the first to downsize and the vacancies will be plainly obvious (unlike say, an apartment community).

    I wondered if you had any of the same concerns.

    1. Hi Kevin,

      So far, Fundrise has been focused on acquiring rental properties to keep for long-term appreciate and rental income.

      I also touched upon institutional investors, which still account for a minority of purchases in this post. In the post, Fundrise purchased an existing rental property community D.R. Horton. None of the properties were for sale.

      Higher rents are unsustainable without a commensurate rise in incomes. Hence, it is good to be worried if rents rise too far out of line. Rents should start to fade along with inflation and the cooling housing market. I’m looking for opportunities over the next 6-12 months as I was looking for stock opportunities 2-3 months ago.

      How about you?

      Sam

      1. I always hold some cash to jump on a value opportunity. But in my opinion, apartments/condos have such an advantage over single family homes as a rental investment. Apartment/condo values rise with the rental tide, and they hold well during recessions.

        1. Sounds good. In my experience, I’ve found condos have gone down the most during a downturn and gone up the least during an upturn.

          The good thing about an institutional investor buying up a community is economies of scale. They’ve got the plumbers, Electrician, and handypeople more readily available and can negotiate lower maintenance costs.

          See: https://www.financialsamurai.com/what-type-of-investment-property-should-i-buy-a-single-family-home-condo-or-multi-unit-property/

  35. Thanks for the consistently insightful and thoughtful posts! I, too, hope you’re still writing in 5 years!

    Since you mentioned Fundrise, have you heard about their new Innovation Fund? Would love to hear your thoughts on their democratizing venture investing in a future post!

    1. I have! I just spoke to them last week and I will do a review of the phone with my thoughts on the whole idea. It was a surprise I am very interesting! The timing is actually really good after big declines in stock values.

      1. Almond Butter

        Cool, I mentioned this a few weeks ago. Thanks for writing a future post about it; I’m looking forward to reading your post. I also decided to put some money in their iPO. It felt a little gimmicky, but I really like their management and decision-making process after listening to a few podcasts with Ben Miller and his staff. It beats public REITS, and I live abroad and don’t have to deal with directly managing properties. I have friends that have purchased properties in the US while living abroad, and they all have sold or lost money. This really works for me at this stage in my life/career.

  36. Hi Sam – how does one go about getting access to a venture fund (the Kleiner Perkins venture fund you mentioned, or anything else?)

    Also, Fundrise (one of the companies you’ve written about frequently) has a new “innovation” fund coming up fundrise.com/offerings/26/view), which seems to be directed at late-stage companies [so maybe not directly comparable to a typical venture fund]. Any thoughts about that?

    1. You can contact their IR department and ask. However, the easiest way is to know someone who works there and join their friends and family around. The best and most well-known private funds have the most demand. So getting allocation can be quite difficult sometimes.

      I will be doing a review of the Fundrise innovation fund soon. It does sidestep difficulty of getting into some of these private funds.

    2. Anyone can invest in newer less conventional funds via the AngelList platform. Some are good. I am investing there and with Aura Funds (a relatively new firm) in Australia. The older more established firms will likely have very high minimum investments unless you have connections.

  37. I also look at my investments as expenses that I bake into my monthly cash flow each month. It’s really helped me stay disciplined about regularly contributing over the years. I’ve dabbled a bit in REC here and there but not for nearly as long as you have. I’ve had a couple deals close but most of mine are still at least another 3-5 years out. I really do like the idea of having real estate exposure in various parts of the country that are totally hands-off for me. Property maintenance is no joke and I’m glad not to have that stress while being able to benefit from the returns. True on the importance of diversifying and expecting some flops. But that’s just the way it goes with all investing. I’d rather swing and have some misses than never get up to bat at all.

  38. Hi,
    You mentioned two Kleiner Perkins venture funds above. Which funds are they? What does each fund focus on? Are they open to new funds/investors, provided the investor is qualified? Where are you finding venture debt opportunities? Time to finally get in to Fundrise…been procrastinating.

    1. KP20 and KP Select Friends II fund.

      I was one of the early limited partners in my business school friends new venture debt fund In 2017. So I have just been investing in every one of his fund since then. Helping him grow and supporting his endeavors.

      You can click the link to learn more about venture debt. It is a more conservative way to invest in promising new companies with a higher yield.

  39. My hope is that you’ll also be writing posts 5 years from now!

    Your articles help me to think more strategically about my own investments. It’s easy to get caught up in inaction, especially at times of change (which tend to be most of the time!).

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