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Show Summary
In this conversation, Chad Ackerman discusses the nuances of passive income, particularly in the realm of real estate and syndications. He emphasizes the difference between active and passive income, the importance of vetting operators, and the need for diversification in investments. Chad also highlights the growing interest in passive investing and the role of education and community in making informed investment decisions.
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Investor Fuel Show Transcript:
Chad Ackerman (00:00)
Well, again, it gets very literally defined by the IRS of what is passive and it becomes very much a matter of your decision making is eliminated, basically. ⁓ That is what happens when you go into these syndications. I don’t get any say other than whether I write the check to the GP or not. Beyond that, have, if we wanted to push back and…you know, all the limited partners kind of rally against the general partner for some reason, if there was something fraudulent or something that we didn’t agree with that ⁓ went against his, his offering, ⁓ we could get some things done, but it becomes a very hands off. The, the active side of the passive world is that you have to vet the operator vet the deal before you ever decide to write a check. So it’s active up until you write a check and then it gets passive after that.
Dylan Silver (00:34)
Yeah.Hey folks, welcome back to the show. Today’s guest is in the passive income space and helps folks achieve that dream and make it a reality. Please welcome Chad Ackerman. Chad, welcome to the show.
Chad Ackerman (02:39)
Hey Dylan, thank you. Appreciate you having me on. look forward to the conversation.Dylan Silver (02:43)
It’s great to have you on here. When we talk about ⁓ real estate and when we talk about passive income, it’s hand in hand. know, when people have jobs and they’re looking at how do I generate wealth for myself or how do I have a passive income, real estate often comes up. But walk me through, what was your journey into the passive income space and was it through real estate?Chad Ackerman (03:04)
⁓ it was, and I think a lot of people have a misnomer about what passive income really is. I think they first off think of single family flipping and, buying holds rentals and so forth. And they think of that as passive income, but it’s really very active income. The IRS considers it active income as well. So there is a difference to active income versus passive income and the IRS treats them very differently, butI started down with those very, same kind of issues of not understanding it myself. And I studied single family work for a very long time, chased a lot of shiny objects, trying to figure out how to scale, how to get in, how to grow, went on bigger pockets and studied a bunch of, you know, information on it, ⁓ got tied into a local meetup here in Columbus, Ohio, where I’m located. And the speaker at one of the events that I went to locally.
Talked about how he left his W two by passive investing in real estate. And that was kind of the switch that flipped for me of, that’s, that’s the thing I’m looking for. Like I can’t figure out how to scale single families to get to the size that I want. There’s systems, there’s ways, and you hire out a bunch of people and it just seemed just aggressive to me and difficult to get to. And when he talked about passive investing, I met up with him to say,
Teach me more. What is this all about? And so he helped educate me on how to be a passive limited partner in a syndication deal that you let a professional group of general partners and operators manage the property, find the property, manage the property, funded everything. You just come along for the ride and get the benefits of real estate without the headaches that go along with it as a owner and that kind of thing. So it really struck with me. That was the thing I was looking for.
because I liked my W-2 at the time and, you know, didn’t want to spend all my weekends and nights hammering on houses or chasing tenants. This passive process gave me a means to get into real estate that was really lucrative for me. It worked out really well.
Dylan Silver (05:53)
You mentioned how not passive so much of real estate can be. mean, a fix and flip certainly. You take down one wall and you’re looking at a full job that you’ve made for yourself. But even things that people would consider to be maybe more passive income, right? For instance, maybe you have a short-term rental, mid-term, long-term rental, and you’re thinking, well, I can hire a cleaning crew or long-term rental. They’re on a month to a year lease. They pay me once a month.Chad Ackerman (06:02)
Yeah.Dylan Silver (06:22)
How active can it really be? But as soon as maintenance issues come up, now you’re on the hook. If you have a short-term rental, you’re getting maybe some emergency situation that comes up. Well, now you’re one bad review away from being off Airbnb or a related platform. And so it quickly becomes a full-time job. How did you, if you don’t mind giving away some of the gold maybe, how did you identify, well, where are the areas where maybe it truly is more passive?Chad Ackerman (06:38)
Exactly.Well, again, it gets very literally defined by the IRS of what is passive and it becomes very much a matter of your decision making is eliminated, basically. ⁓ That is what happens when you go into these syndications. I don’t get any say other than whether I write the check to the GP or not. Beyond that, have, if we wanted to push back and…
you know, all the limited partners kind of rally against the general partner for some reason, if there was something fraudulent or something that we didn’t agree with that ⁓ went against his, his offering, ⁓ we could get some things done, but it becomes a very hands off. The, the active side of the passive world is that you have to vet the operator vet the deal before you ever decide to write a check. So it’s active up until you write a check and then it gets passive after that.
Dylan Silver (07:22)
Yeah.Chad Ackerman (07:39)
But the income by again, considered from these kinds of deals based on the IRS definitions, it all lumps into passive, which creates very different tax rules, tax benefits that come on the passive side that you don’t see on the active side. So I always encourage people to go research that information because it’s, it’s valuable. It’s a game changer or it was for me anyway.Dylan Silver (08:00)
I want to ask you about which asset classes you’re particularly interested in or is it really about the syndication and the operator involved or are you looking at a flex use commercial small multifamily syndication is there a niche that you find particularly appealing.Chad Ackerman (08:17)
Yeah, so I definitely preach diversity. So we usually say when you’re investing, you only have a certain pool of cash you can invest you want to be wise with it. We usually express to people that they should diversify an asset class in operator and in geography so that you don’t overextend yourself in any one of those areas and end up in some issue. From an asset class standpoint, all of my in deals that I get into are syndications.but I am in some multifamily right now. I’m in some industrial triple net lease. I’m in some commercial triple net lease, ⁓ mobile home park and self storage. Those are the five that I’ve kind of been studying and I try to stick with. There are so many other asset classes in the syndication space that you can get involved in that I’ve tried to maintain just a few that I wanted to study and learn and be good at and be knowledgeable on.
and then play around maybe with some other asset classes as I had money to play with, if you will, that I could take a little more risk because, you you see syndications, you can invest in artwork, you can invest in laundromats, you can invest in coins, you can invest in the stock market via syndication even.
Dylan Silver (09:18)
Yeah.Chad Ackerman (10:05)
So it opens up a huge world of lots of different types of investments that you can get into.you need to, another thing I coach, you need to spend time on your buy box and understand what your goals are before you start jumping into shiny objects that maybe aren’t really aligned with what your goals are. It just looks good. So I always try to pause people and pull them back and say, let’s, let’s talk about your goals for a little while. First, let’s make sure we’re solid on this and it really helped drive your decision-making on what syndications to get into from there.
Dylan Silver (10:36)
When I when I think about this space, I’ve actually been interested in it myself. I spoke with a syndication attorney talking about raising capital. ⁓ There’s a lot of people who are involved in syndication. But then also, and I almost as a cautionary know, you have a lot of people who are raising capital without really being aware of maybe the the depth of what’s going on and the liabilities that they’re exposed to. So without getting super in the weeds here,Chad Ackerman (10:45)
Yeah.Dylan Silver (11:05)
What are some basic steps that you advise folks to take or that you yourself take when you’re looking at, how effective is this operator track record and so many other things?Chad Ackerman (11:15)
most effective thing that I have for vetting an operator is a community that I am a member. We had a company is left field investors left field got bought out by bigger pockets. It’s now called passive pockets. There are hundreds of people in that community that are investing this space as well. I won’t invest with an operator that I can’t go into that community and say, Hey, has anybody ever heard of Chad Ackerman general partner before?and if nobody responds, I’m going to be cautious about it moving forward on that because it’s a no like and trust business. It’s a relationship business, but that we always say you’re really betting on the jockey, not the horse. So the person is the most important thing. The deal is secondary. You’ve got to be comfortable with those people because the one risk that you, the biggest risk you really have is, the operator really trustful? Are they going to do what they say they’re going to do, or they could take your money and run.
Dylan Silver (11:56)
Yeah.Chad Ackerman (12:09)
doesn’t happen often, but it happens. you know, and that’s everybody’s, yeah, it’s everybody’s risk with this space. Like, don’t give them my money to some stranger and they’re going to run off with my money. Well, it happens, but it’s a low percentage of the time and having the community to vet and find out who people are investing with and who they’re having luck with just shrinks that list of operators that you have to look at. So you can find people that have knowledge of track record, not just the GP telling you about it.Dylan Silver (12:11)
It happens.Chad Ackerman (12:36)
but knowledge of it from people that have invested with them formally.Dylan Silver (12:39)
I do want to pivot a bit here and ask you about some of these other niches which which are real estate tangent that are you know very cash flow heavy when people talk about like you know Main Street businesses like laundromats, but you also have trades companies I’ve heard private equity coming in and buying up trades companies It is their interest in syndicationsin hey, let’s take a look at buying up roofing companies or HVAC electrician and then maybe vertically integrate that with our real estate portfolio.
Chad Ackerman (13:11)
I, there’s definitely a pulse out there around that right now. To me, it’s new. And one of my rules that I have for my buy box is not to be somebody’s guinea pig. So I, ⁓ I’m not, my risk isn’t, my risk tolerance isn’t set up to go and try to invest in something like that today, unless I’ve got some mad money that I’d be willing to throw out there to take a flyer on and see if it comes through or not. But to me,that, that asset class has to prove itself. Any new asset classes always are a little bit leery. I want security with what I’m investing in. I want the tried and true real estate investments that have been around for years that people know, like, and trust very well. ⁓ and operators that have been in the business for a long time too. So I love that all these ancillary, these one-offs are, are coming because that’s going to be important. I don’t want to be the first one to invest in them personally.
I’m more conservative than that.
Dylan Silver (14:07)
I want to ask you about your perspective on single family, ⁓ small multifamily ⁓ versus large flex use commercial residential. If someone is starting out, from my thousand foot view having not done it before, it seems easier to maybe underwrite in the single family space than it is underwriting some of these larger projects.But then also too, I think it’s maybe somewhat easier to understand perhaps underwriting even the operator in single family because it’s more maybe relatable. ⁓ Am I off in that or is there some level of scalability with this? Like, hey, maybe easier to start here.
Chad Ackerman (15:32)
There is ⁓ some relation. mean, the underwriting for a multifamily versus single family, at the end of the day, it’s the same metrics going into it. So if you understand the metrics, you’re gonna understand the logic of either side. There’s just a lot bigger numbers in the syndication side. ⁓ The biggest difference that happens between the two, if you think about how you price a ⁓ single family house, you go in, you find comps in the neighborhood, you compare them to whatbenefits one has versus the other and you can come up with a price on any commercial real estate. It’s all based on cap rates that are all driven by the books. So how much revenue are they getting out of it? How much expenses do they have against that revenue? And that’s driving their price. Not that there’s another multifamily unit down the street that just sold and I can compare mine to that. We’ll do market rent comparisons that
relate to that and relate to what you do in single family. But in the multifamily space, it’s a different underwriting process for coming up with a value, because it’s all driven. Now, the good and the bad of that is it can be manipulated, you could you could adjust what your books say. So there there, you’ve got to, again, know, like and trust that operator to trust that what’s in their books makes sense. And their their cap rates are aligned to what the market would think they should be, if you will.
Dylan Silver (16:40)
Yeah.Chad Ackerman (16:55)
So that’s the biggest difference I see between the two.Dylan Silver (16:58)
When I think about this space, I think about, mentioned at the top of the podcast, know, folks who have W-2 jobs and they’re thinking, truly want passive income. Will they end up buying themselves a job with a fix and flip or with a short-term rental, even a long-term rental? ⁓ And this space in a lot of ways is the perfect fit, right? Are you seeing that there’s more and more interest now in syndications? Because I’m seeing it. I’m seeing lots of people on this show.who have syndications, invest in syndications, who are raising capital. I think it’s great. I’m curious to get your perspective.
Chad Ackerman (17:32)
Yeah. Yeah. A hundred percent. I it’s growing. There’s more education getting out there for sure. Prior to COVID and you know, the whole pandemic shut down, it was, it was growing like wildfire and there was a lot of success, but there was a lot of success because it was all market driven. The market was so red hot with interest rates going up and insurance rates going up. That really slowed things down. And I think a lot of new people that came looking at the spacewere a little more leery because they were seeing that there was a lot of capital calls going on and some that were losing money altogether and so forth. But that seems to be bottoming out. We never know where the bottom truly is, but it feels like we’re bottoming out now that it feels like we’re starting to see more growth in this space. Again, a lot of investors are starting to take a peek in this area again and get educated. And to me, the perfect time to get educated is if you’re leery about investing.
So you don’t want to spend the money in an investment yet. That’s fine. Go get educated on it. Then go get trained, get, find a coach, get somebody to talk to you and explain this to you. ⁓ and that way you’ll be ready to deploy your money when you feel like the time is right. You find the right operator, you find the right deal, but you’ll have all that knowledge in place then to be able to take those next steps and take action too many. You probably know this as well. Too many people study it forever and don’t take action on it. Well, yeah.
Dylan Silver (18:52)
forever.Chad Ackerman (18:54)
So that’s part of what I try to do with my coaching is get you educated, but get you to a point where you’ll take action so that you can go try the space out.Dylan Silver (19:02)
Speaking about coaching, we are coming up on time here. I’m curious, is there any one profession or any one area of the country or group of ⁓ people maybe within a certain profession that you find reach out to you in large numbers?Chad Ackerman (19:16)
It’s all over the board. really is. It’s all over the country. It’s all over the board. Honestly, I was studying this with passive pockets in the new membership. We see a lot of people coming out of IT, out of the tech space. There’s a lot of people out in that area that have high paying jobs, high income jobs with low expenses. They got disposable income to invest and they started looking at passive investing in real estate as one of their options. So that’s one area.but it’s all over the board, it really is.
Dylan Silver (19:43)
Check.We are coming up on time here, Chad. Where can folks go if they’re interested in reaching out to you? They may be thinking about passive income for themselves and not sure where to start.
Chad Ackerman (19:55)
Yeah. So you can go to my website at chadackermanrealestate.com or you can find me on LinkedIn. I’m all over the place out there as well. So.Dylan Silver (20:02)
Chad, thank you so much for coming on the show here today.Chad Ackerman (20:05)
You bet Dylan, really enjoyed it. Thank you.
