Would you like to make better investment decisions?

https://www.youtube.com/watch?v=5sML_fmFh2s

Today, we’re talking with Kent Ritter, full-time real estate investor and operator of Hudson Investing about scaling and diversifying your real estate portfolio.

So if you want to expand your investing perspective… tune in now!

Table of contentsHow Kent Ritter Got StartedMoving From Passive to Active InvestingTaxes in Active and Passive InvestmentsThe Pros of Multifamily Real EstateWhy it’s a Good Environment for Multifamily Real EstateHow Long Should You Hold Your Properties?Where to Invest in Multifamily Real EstateConnect with Kent RitterAbout Kent RitterBook A Strategy Call

How Kent Ritter Got Started

In 2010, Kent started as a partner in a boutique management consulting firm, before exiting in 2015. In that timeframe, he helped build the business to over $30 million in annual revenue, with 95 employees. 

After the successful sale of the business, Kent was left with a decision. He had capital, now he had to decide what to do with that capital. He didn’t want to put all his eggs in one basket and certainly didn’t want to ride the stock market roller coaster. In his journey to diversify, he started looking at alternative investments before finally landing on real estate. 

As he developed his real estate knowledge, he quickly gravitated toward multifamily properties. This love of multifamily properties helped him to move from passive investing through syndications to a more active role in his investments, and sponsoring his own syndications. 

Moving From Passive to Active Investing

Passive investing, in this context, is where you’re investing your own dollars into an existing deal—through a deal sponsor or syndicator. This person is finding and putting the deal together, and you’re joining by adding your dollars to the pool. The syndicator is responsible for the active elements, including finding the property, securing the debt, and determining any renovations. 

Even as a passive investor, you’re part owner of that property, so you receive distributions from the profits. You also share in the appreciation at the time of sale. So passive investing in syndications like this really allows you to learn more about the experience, without the responsibility of putting the deal together. 

As Kent built up his own base of knowledge, he was able to move into a more active role. In other words, finding the properties, creating a plan for value-add, and securing investors to help make it happen. 

Taxes in Active and Passive Investments

As someone who has invested passively and actively, Kent touches on the tax implications of multifamily real estate. 

[7:59] “When you think about taxable income, you think about three buckets. There’s your...ordinary income, which is typically your active income, right? Your W-2 job...or from the property standpoint, the profits that the property is throwing off...Then you have your passive bucket, which would be your investments in things like rental properties...Then you have your portfolio income, which is like your stocks and your mutual funds...When you think about it from a tax standpoint, one of the biggest advantages of real estate is the ability to...pass through the depreciation.”

In other words, being able to offset your gains by getting the depreciation helps you save money in taxes. And many times, you have carry-over losses. Those carry-over losses are different depending on whether you’re investing actively or passively. This is based on your investor status. 

The IRS defines Kent as a real estate professional because all of his investments are in real estate, and that’s his income. So all three of those “income buckets” he mentioned can be offset by depreciation. Passive investors will partake in those deductions differently based on how their income is structured and where it comes from. 

The Pros of Multifamily Real Estate