“I don’t want to give up control. I want to learn and do it myself.”
Beyond that, there seems to be this romantic idea floating around that being “in real estate” is kind of sexy. Then eventually the bubble bursts and most folks realize that being in real estate has come to mean, functionally, that they are a full-time landlord.
Bottom line:
If you want to generate passive income and have time-freedom, then you’re going to need to give up most of the control.
Let’s dive a bit deeper into why that must be, and why it’s a good thing.
The Desire To “Save Money” On A Project Actually Costs More Money In The Long Term
We get a bit confused when people mention “saving money”.
Aren’t you looking into passive investment opportunities to make money? The saving already happened. Forget nickel and diming on costs; it’s time to make some serious long-term legacy wealth now.
Legacies aren’t built on changing your own lightbulbs because that saves a couple bucks. They’re built on scale and compounding.
When you give up some control to a serious sponsor, you’re going to benefit from a pro team that — over time — yields a better ROI. You’ll have access to larger, more expensive investments that you could not have otherwise afforded. The scale will allow for value to be added at an exponential rate, and for experienced and existing networks to do work at serious discounts on a wholesale level. THAT is where the savings occur. When you scale up.
Frankly, in a syndication where there is a 70/30 Limited Partner / General Partner split, that 70% will almost always give you a better ROI than 100% of a deal you fully own and control.
But the bottom line is that if you want to take advantage of having an expert team working on your behalf, they need to be properly compensated.
Plus, here is where it gets really great:
As a high net-worth investor, you are likely already making good money in your career or at your business. Your valuable time is much better spent where your expertise lies. You simply do what you do best, bank that cash, and put it to work in a syndication (where the sponsors and Property Managers will do what THEY do best).
Division of labor is a powerful concept that doesn’t get praised enough.
Full Control Also Means Full Risk
Now what are some other implications of keeping full control?
Well, control is just the flip side of responsibility. So full control is a double-edged sword because it also leaves you open to solo, rash decisions.
Nothing introduces risk into an investment like emotions. Doubly so when the news and the market around you are in a panic.
Maybe when the market is down, as the sole decision maker, you will give in to the pressure to sell at a loss.
In this case, having a cool-headed team of experts guiding the decision makes your investment less liquid. But that can be a good thing. A safe thing.
The other negative aspect of full control/responsibility is that you end up becoming the only line of defense for your asset. Inability to manage one troubled tenant, or a health issue, or another pandemic… and you are looking at near total loss of cash flow for the foreseeable future.
But when you spread that risk around on a larger property, with more units, with more tenants, with a larger team, there are all sorts of pressure releases for tough situations.
What Is The Real Reason Why You Don’t Want To Give Up Control?
We often ask people a simple question:
“Why do you really want full control?”
Many times, these investors don’t have an immediate answer.
Flipping houses or running a rental home may just be within their realm of experience… and they haven’t really considered an alternative. Frankly, at that level, giving up control may not even make sense.
But you simply cannot access the Big Leagues of legacy building in commercial real estate without giving up a lot of control.
And the fact is, we know why it’s sometimes hard to give it up.
It boils down to TRUST.
Trusting a sponsor doesn’t mean you think they will always perform perfectly and meet or exceed all expectations. Obviously that’s not realistic.
What it means is that you have a decent relationship with that sponsor, can see their track record, and understand they are constantly working hard — within an intelligent framework — to protect your capital and make it earn while you sleep. Even better, trust is aided when the sponsor has skin in the game and they are also investing in their own deal.
For control to be wisely given up, there needs to be trust that the team has your back and can likely do an even better job than you ever could.
And in that case we wouldn’t even use the words “giving up”. You aren’t giving up anything. You are getting something much better.
You’re trading control for more access, more diversification, more money, and more time.
