Passive or Active Investing, Which Approach is Right for You? – Steven Pesavento Transcription:
Steven Pesavento 00:05
This is the Investor Mindset Podcasts and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
Steven Pesavento 00:31
Welcome back to the investor mindset podcast. I'm your host, Steven Pesavento And I'm excited today to talk a little bit about the importance of working with expert operators with working with true experts who buy, operate and manage your passive investment portfolio and why it may make sense for you to invest with them, or even doing it yourself. So let's get into it. So this is a conversation that comes up all the time I meet a lot of people who love real estate, who love investing in real estate, and people who maybe would love to get the benefits of real estate but aren't really sure where to start. They aren't sure. Do they want to do it themselves? Or are they looking to invest with true experts like VonFinch capital, like myself and the team that we've developed here, VonFinch, so I want to share a little bit about who investing passively is right for and who, actively investing building your own real estate investment business, buying your own projects and portfolios, and who that's the right fit for? Because at the end of the day, it's important for you to, first off, understand who you are and what you're really looking for. Because you got to start with that strategy in mind, what's, what's that end goal? And what does that lifestyle look like, as a result of doing that work? Because for some folks, what you're gonna find is that as you listen to this, you're going to say out loud, Steven, I need to be operating these deals on my own, I want to be a real estate entrepreneur, I want to focus on managing the managers and I want to focus on understanding the markets and learning all the details and dealing with tenant conversations and finding projects and underwriting and understanding what's happening in the economy and building relationships with mortgage brokers and, and with real estate brokers, and really building my community as a passion to go out and find these properties and be able to execute and operate them effectively. And for many of you, what you're going to find is that what you truly want is the end goal. The end reason that so many people love real estate is that it gives you an opportunity to create income today, cash flow, while growing your wealth through appreciation. And by doing that, in partnership with the government by reducing your taxes, and allowing the money that you invest to compound at a much faster rate through real estate.
Steven Pesavento 03:05
Then today, what I found is that more people are interested in the lifestyle that real estate gives than they are in actually doing real estate. One of the things I love about real estate is that attracts a lot of achievers, a lot of people who are dreamers who believe in living a better life, and are interested in committing to finding a way to get there. That's what we all have in common. Whether you're an active investor, whether you're a passive investor, whether you're someone who runs right down the middle and does both, just like I do, then you're gonna have in common, that we're all looking to just create a better life and we're looking to inspire others to do so we're looking to make an impact, leave a legacy and create that income and wealth generation for us and our families to do whatever we want whenever we want that freedom, flexibility and fun that I always talk about. So what it comes down to, is the benefit of passive investing is that you get an expert who lives and breathes real estate, finance, the economy, and really understands and has the existing network of relationships to go find the best deal possible to understand what's the deal to understand what are those risks, or things that you really must look out for that's different in every single market, and most importantly, is going to be dedicating their time, their team's time. And the team of experts that they've developed to go out and truly manage that investment and drive returns for investors. That's the benefit of passive investing is that you have something that's truly expert manage, and if you're anything like me, then you're probably somebody who loves hiring other people to be able to execute as leverage. You probably have someone who cleans your house you probably have somebody who helps take care of the lawn you probably have somebody who you go to x Burt's for your legal your finance your accounting, you probably have a personal trainer, you're probably the kind of person who doesn't do their own dental work, they're gonna go to a dentist, they're gonna go to someone who's been trained in this and is truly a direct expert. I mean, I'm looking for somebody to execute in every single direction of my life at all times, because I want to be focused on the thing that I am absolutely the best at, and put all of my effort and energy in that direction. And I encourage you to do the same. However, for some of you, you're gonna say to yourself, no, I want to do it myself, I'm the kind of guy who doesn't myself are the kind of gal. And I'm really interested in learning all the details. And I think it'll be fun. And I think real estate as a hobby can be a great hobby can be something fun to do with your family, maybe a spouse, can be something fun to go to these conferences and connect with others and feel like you're part of a community. That is amazing, that's beautiful. I do love that piece of it, I can see the appeal for folks to go out there and learn and, you know, put on the gloves and pull up the boots and go out and do the work themselves. That can make a lot of sense. If you're that kind of person and you like to do it yourself, then passive investing might be something that augments your investment strategy, you might put money into passive investments as a hedge against the investments that you're actively managing.
Steven Pesavento 06:22
Or potentially you're the kind of person who was actively managing real estate, your 10 homes or your 10 property portfolio. And now you're looking to be in a place where you're selling off, you're looking at 1031 Exchange, you're looking to put that money into passively managed real estate investments with a company like VonFinch, the end of the day, wherever you're at is phenomenal. But it's important for you to sit down and get clear on that upfront. That way you don't waste your time you don't waste anyone else's time. And most importantly, so you can learn the right skills if you're gonna go on it on your own. And you're gonna learn the right skills to pick the right sponsors and operators, investment managers like VonFinch, so that you can go out and know that you're investing with people who are true experts. Because what ends up happening as a result is that everything is going well during a growing market. Now, personally, I Steven Pesavento and through me and my experience with VonFinch Capital, I've been through times of economic change. I've been through times where interest rates went up, and houses stopped selling on the market. I've been through periods of time where I believed that what we were experiencing would never stop. Now fortunately, for me, being that my full time investment career started in 2016. My part time investment career started back in 2014. I'm fortunate that in 2018, while we had 10 Plus houses that we were renovating and paying debt on and paying our investors on, and while also running a highly scaled business sending 100,000 mailers a month with a 15 person team. I'm fortunate that in November of 2018, interest rates went up for the first time and gosh knows how long, probably six, eight years. Why I'm fortunate to experience that is that I had a great advisor, a great mentor and a great local business partner, who was helping operate some of those, those assets for us and had been through 2008. Because going through past recessions leads people to understanding and learning some of these lessons. And one of those lessons that I learned from him and I learned it well before we dealt with this 2018 change in in interest is that when the market changes, you can chase it down, or you can cut your price, and you can get out underneath it. And this mentor had taught me that if he would have cut his price, when prices first started going down, he would have came out with 10s of millions of dollars of profit. And he would have prevented himself from losing all of those hundreds of homes that he had built, and all of the apartment buildings that he had to sell off in order to pay for that. So he was fortunate he was able to, you know, escape with some money with a little bit of something to continue to work off of but a lot of scars that came with that. So I sat down with him and I Firewalker his experience I felt from the depths of his emotions, what it felt like to lose that to go through that time to really experience so when in 2018. When that happened, what I experienced what I noticed was I said to myself, as Ray Dalio says, Oh, this feels like another one of those. It feels like that 2008 thing you described, where you were telling me that XYZ happened. And so I went to him and I said, Hey, we're in this position. We've got X number of dollars in debt service. As 10s of 1000s of dollars a month, we've got hundreds of 1000s of dollars a month in total, including that debt service in in expenses. And we're not in a position where we want to wait it out and see what happens. So we made the hard choice, we cut our prices, we sold for 10%, below what we had originally projected, but we sold. Now the market came back three or four months later. But as a result, we were able to sleep well at night, our investors were fully paid off, we might have taken a little haircut on profit. But we did the conservative thing in order to protect that investment. Same thing happened to me in during the middle of the pandemic had to make a hard choice, where's the market going to go conservative choice is going to end up leading us towards making sure we can continue to cycle in this fun environment called Real Estate. And because of that experience, I feel 100% comfortable making those decisions to focus on preservation and conservation of capital, having the right types of reserves and making those hard decisions during times of economic change and high emotion that some people haven't had that experience.
Steven Pesavento 11:11
Now, I'm fortunate that I experienced that on my own dime, risking a little bit of my investors capital. But mostly, these were a debt notes that I had signed on and taken all the risk on, versus some of you will be having to make those own lessons on your own. When you're out in the market. If you're actively investing. The point that I'm making here is that at the end of the day, the benefit of working with an expert operator is that they've been through it before, I've been through it multiple times. And I'm sure in my career, I'm gonna be through it multiple times in the future. And so the question is, if you want to be an active operator, an active investor, you want to make this your hobby, you want to go and do it yourself, then you need to go find other people been through it. And you start firewalking their experience, you just try to get in their head and understand what's going on. But most importantly, you probably want them to be financially incentivized to be able to call out when those times are happening, because we have plenty of advisors at VonFinch that we're reaching out to who've been through recessions and, and rises and falls in the economy. And therefore, when things change, we know about it before most people do. And so where I'm really driving to with all of this is you got to know yourself, you got to understand, what are you really looking for at the end of the day? Are you looking to create a hobby to create a business to create a pastime to go out and start managing and operating these yourselves. If you are great. We'd love to connect with you at one of our events, and have an opportunity to cheer you on from the sidelines on the journey that you're living. But if you're like most of our clients, if you're like most of those high income earners who own businesses or working careers, and you're great at what you do, and you want to focus on continuing to make money at doing the thing that you're the best at and you want to know that your money is growing with experienced investment managers like VonFinch capital, then I highly encourage you to seek out expert investment managers that can really be a shepherd of your capital, they're going to put your capital right alongside theirs. And we're going to go out and make investments that are focused on preservation of capital first, while growing and making a great return both income and appreciation in the long run.
Steven Pesavento 13:32
So with that said, if you're new to the investor mindset, I encourage you to hit that subscribe button. Join us on future episodes, we talk a lot about getting involved in investment, real estate. And if you haven't yet, head over to VonFinch.com/invest to register to join the VonFinch capital investor network. There's a lot of benefits that's inside available only to folks who are registered a part of the Investment Network. And then make sure to schedule a call with me or a member of our team so that we can get to know you we can understand if you're the right fit to be a part of our investment community. And if we're the right fit to help you achieve your investment goals, if we're not will point you in the right direction and we look for an opportunity to serve you long into the future. So thank you so much for joining us for another episode. I hope you have a beautiful day. And here's to your investment future.
Steven Pesavento 14:31
Thank you for listening to the investor mindset podcast. If you like what you heard, make sure to rate review, subscribe and share with a friend. Head over to the InvestorMindset.com to join the insider club where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.