Like so many others, when I first got into real estate investing, I did not have a clue what I was doing. I truly was out in left field in the more traditional sense, since I have always had a thirst to learn, I jumped in without much thought.
A close friend had the bright idea to spend a Saturday afternoon at an auction that was taking place in our neighborhood. Now I know what your first thought is, but, no, I was not living in a crack house neighborhood. It was quite the opposite. But for reasons I did not understand at the time, the owners were having trouble selling this house so they put it on the auction block. I would be remiss if I did not mention that this was in 2007 – not a great time to enter the world of real estate investing. (See my opening sentence!)
I will skip much of the detail and fast forward to exactly a year later when we found ourselves standing at another auction but this time we were the beaten down, sulking owners who could do nothing more but lick our wounds and think of the tax write-off vs. profit coming our way. Our pride and confidence took a hit, but it was also a great learning experience.
The main thing I learned in that 12 months was that there are a zillion ways to make money in real estate, and I needed to find the way or ways that worked for me. So, after a few years, I bought rentals – First, single family homes, then duplexes. For me, owning was better than flipping and having a property manager was even better. Then, when another close friend and fellow Left Field Investors founder, turned me onto syndications, I quickly became aware that this form of passive investing is even better than owning properties with property management by your side. In fact, for many, this is the best and only way to invest in real estate.
However, this whole time I was (and continue to be) heavily invested in the traditional markets – 401k, individual stock portfolio, mutual funds, precious metals, REIT’s, etc. – you name it and I was all in. Being a finance major and holding a MBA, I’ve always loved the market and thought this was the way to reach financial freedom. Like most people, this is what I was taught to do, and I genuinely like this form of legalized gambling. Yes, I am fully aware of what happens in a bear market, but how does someone who considers himself to be financial savvy keep away from vehicles that are consistently sold and plugged as the way to amass great fortunes?
Many passive investors will tell you to stay away from the market or to at least severely minimize your exposure. Why deal in the unknowns? Why put your money in places that you have no control? Why line the pockets of corporate suits’? These are not incorrect statements, but for me, being in the market works and works to fuel my passive investing, especially when you feel like you are in “Right Field” with eyes wide open.
I still have a strong W2 job that includes a 401k with a healthy company match and pension contribution, company stock options, and additional stock through a deeply discounted purchase plan. These are all things I cannot forgo but do so while understanding the pitfalls of traditional marketplace investing. I also believe my personality, temperament, and long-term goals can absorb the swings in the market.
Being able to weather the stock market storms with some serenity is because I have been collecting real estate rentals and finding quality operators to back into the syndication space. It means being diversified. Today versus 25 years ago, I understand how these vehicles fit into my overall goal as additions to, and not the sole contributors of, accumulating wealth and achieving financial independence. I use stock sales (and rental income) to fund passive investments. The more I like a deal, the more stock I sell. If the market isn’t doing great, I let it recover, and, in the interim, I use other sources to fund the opportunities. My fundamental strategy is to look for ways to offset (or use) capital gains from the “Right Field” and increase my footprint in real estate. There are some very interesting and creative ways you can make the two work together which can result in a home run come April 15th! Just ask your CPA for guidance!
Although we are a group of like-minded passive, cash flow investors, I say you don’t have to poo-poo Wall Street completely. I say the grass can be green on both sides as long as you understand your goals, understand yourself, and understand what’s available to you in the financial markets and in the real estate world.
Sean Donnelly is one of the founders of Left Field Investors. He began investing in real estate in 2007 when he bought a flip at auction with a friend. While the market tanked shortly after, the multifaceted benefits of real estate investing became clear. He currently owns single family and duplex rentals but has shifted to investing primarily in passive commercial real estate syndications.
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