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Discussion Starter #1
There is a strong chance that I will be moving away from the area and will put my home up for rental. We will be generating passive income losses in excess of $20K. It would be great if I could find a way to generate passive income to cover these losses. We most probably will sell within the next three years. The $500K exemption means that the tax losses will not be added to the basis of the home when it comes to tax computations.

One way of generating passive income is to buy real estate with a large cash outlay and then rent it out. I would appreciate any tips on which part of the country I could generate $20K in net passive income. How much would the investment cost? I am thinking that the best way might be to find an apartment complex in a low-cost university town in a major state school. I will use a professional manager.
 

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Don't be a left lane hog
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What kind of return are you looking to get? For a passive investor with low tolerance for risk and management headaches I would suggest looking at NNN properties with a tenant with rated credit. The returns here typically range from low 5% for a high-credit quality tenant like Walgreens to low- to mid- 7% for fast food outlets.

If you have tolerance for higher risk and headaches, then by all means look into residential rentals. They have the potential for appreciation.

Also, what would your investment timeline is should factor into the type of investment.

For a sampling of NNN properties you can seach for Trustreet Properties to give you an idea. They always have a list of 30-40 properties for sale. Most are fast food outlets.
 

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Thanks for the info about the NNN properties. I will need to dig into these. Are their partnerships out their which will help generate passive income? Unfortunately REITs do not qualify....
 

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What kind of return are you looking to get? For a passive investor with low tolerance for risk and management headaches I would suggest looking at NNN properties with a tenant with rated credit. The returns here typically range from low 5% for a high-credit quality tenant like Walgreens to low- to mid- 7% for fast food outlets.

If you have tolerance for higher risk and headaches, then by all means look into residential rentals. They have the potential for appreciation.

Also, what would your investment timeline is should factor into the type of investment.

For a sampling of NNN properties you can seach for Trustreet Properties to give you an idea. They always have a list of 30-40 properties for sale. Most are fast food outlets.
I'd always thought there was a higher return rate in commercial properties vs. residential. Any truth to this, or am I full of it?
 

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Don't be a left lane hog
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If you're asking about real estate partnerships, a friend runs a series of partnerships where they co-invest with institutional money. I think they've placed money in deals with Calpers, and such. I think projected returns are in the teens, but you have to be a qualified investor because they're unregistered securities. I have not seen it, but their investor roster is supposed to be full of Silicon Valley luminaries. He won't let me see it because he's afraid I'll solicit them for money. :) :)

However, if you want a name brand, I get investment circulars from Wien & Malkin. They have the master lease for the Empire State Bldg, among their holdings, and are big in NY. I think their deals are usually something like preferred return of ~5%, and the back end profits are ~51% sponsor ~49% investors.

These are mostly opportunistic funds so you sign a subscription agreement and wait for the cash call.
 

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Don't be a left lane hog
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I'd always thought there was a higher return rate in commercial properties vs. residential. Any truth to this, or am I full of it?
I think it's still true. But you have to look at every market differently. People here (in SF) are paying prices that yield them ~3% return for residential rental properties. My business partner looked at some rentals in Kansas City that yielded (pro-forma) 11+%. The difference is that people think there's still upside in price here.
 

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You may already realize this, but one way to reduce your passive loss, would be to reduce or eliminate the mortgage on the property. One way this can be done (subject to limitations) is by moving the debt over to your primary residence. I guess where I'm confused is why would you want hold a property that may be generating nondeductible losses? Would you be renting it out at FMV? Does it currently qualify as your primary residence for exclusion of gain? Would you have a gain? Are you trying to create a deductible loss?

Erik
 

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Discussion Starter #9
Erik:
I do not want to sell right away since there is no guarantee the move is going to be permanent. The transaction costs of selling are very high. So even if I want to sell it will not be right away. We have lived here for almost three years now so we qualify for the exclusion.

Further, I feel that the heart of the valley real estate is one of the safest bets out there for long term appreciation. I can not pay off the mortgage to the extent needed to reduce the passive losses to zero.

The cash flow is negative but it is less than 1% of the FMV so I can easily wait for a few years.
 

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Asteriod:
The way the investments you are taking about are structured, would the earnings belong to the passive income category?
 

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Don't be a left lane hog
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I re-read your original post and if all you want to do is offset that loss with some passive income, then maybe you're right to ask about investment partnerships. The NNN properties may be overkill (unless you want that kind of investment).
The ones my friend runs generate passive income (the preferred part) and (hopefully) capital gain when the project is sold 3, 5, 7 or whatever yrs down the road. The smallest units are usually 100k. W&M smallest units are 100-150k with partial units of 25k if you need to round to some number.
Some of these partnerships are actually loans secured by real property, then there is no cap gain.
There's also an ad that runs in the Cal Alumni magazine that projects returns 9+%(?) for investor money that get loaned out as real estate loans.
 
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