The Wealth Elevator

Navigating the Dark Side of Passive Investing: A Cautionary Tale

Investing passively can be a lucrative venture, but as with any financial endeavor, it carries its own set of risks. In this cautionary tale, we explore a timeline of events in a real estate investment gone awry, shedding light on the dark side of passive investing.

Timeline of Events

A sum of $43,000 in a Self-Directed Roth IRA (SDROTH IRA) prompts the search for investment opportunities. A deal offering a 9% return and a 50/50 profit split is presented through a referral from a Self-Directed IRA company.

2013
2014

Rumors circulate about the investment being orchestrated by a potential scam artist, but by this time, the funds are already committed. The investment involves another market in Mississippi (MS).

News surfaces that the MS portfolio has plunged underwater, with unpaid taxes adding to the financial woes.

2015
Mid-2016

Investors receive a letter indicating the impending collapse of the investment. Options are presented, including a Deed in Lieu, but complications arise due to a lease-purchase agreement.

The property, situated in the SDIRA, faces cosmetic damages and tenant-related issues. External funds cannot be injected to address the problems without jeopardizing the tax-sheltered status.

Early-2017
Summer- 2017

The city registers complaints about the property's neglected appearance. Lost Western Union checks, made out to the investor's personal name, further complicate matters.

The property is listed for $25,000, with a broker fee of $4,000. The average days-on-market for a retail-ready property in the area is 180 days.

August 2017
November 2017

The property eventually sells, yielding a mere $7,000 after sales commissions.

Key Takeaways and Lessons Learned

  1. Due Diligence Matters: The investor trusted a referral without conducting thorough due diligence on the investment opportunity or the individuals involved. Investing with unknown entities carries inherent risks.

  2. Beware of Daisy Chains: Deals passed through multiple layers of intermediaries, where individuals may not know each other well, pose a heightened risk. One should strive to invest with individuals they know, like, trust, or have a connection within one degree of separation.

  3. Caution with SDIRAs: While SDIRAs offer tax benefits, restrictions on injecting external funds limit the ability to address issues promptly. This can result in prolonged challenges in managing the property.

  4. Continuous Monitoring is Essential: Passive investing doesn’t mean a hands-off approach. Regularly monitoring investments, even those deemed passive, is crucial to identify and address issues promptly.

  5. Learning from Mistakes: Failure can be a valuable teacher. Admitting mistakes, learning from them, and applying those lessons to future investments is integral to growth as an investor.

This cautionary tale serves as a reminder that even passive investments require vigilance, research, and a discerning approach. The dark side of passive investing lurks in the shadows of uninformed decisions, emphasizing the importance of due diligence and strategic decision-making in the world of finance.

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My name is Lane Kawaoka, and I hope my blog/podcast will help families realize the powerful wealth-building effects of real estate so they can spend their time on more important, instead of working long hours and worrying about their financial troubles. There are a lot of successful families with good jobs (teachers / engineers / programmers / finance) yet they struggle to make ends meet financially. It is their kiddos who ultimately get the short end of the stick. Being a Latch-Key Child growing up, both my parents had to work and I was left home alone after school to fiddle with my thumbs.

With Real Estate you are able to grow your wealth exponentially faster than the conventional 401K’s and stock investing, therefore you are able to escape the dogma of working 50+ hour weeks at a job that is unfulfilling. And if you are one of the lucky ones who happen to do what you enjoy… well good for you 😛

Money is not everything but it is important because it gives you the freedom to live life on your terms.

Annoyed by the bogus real estate education programs out there (that take money from people who don’t have it in the first place), I set out to make this free website to help other hard-working professionals, the shrinking middle-class. I hope to dispel the Wall-Street dogma of traditional wealth-building, and offer an alternative to “garbage” investments in the 401K/mutual funds that only make the insiders rich. We help the hard-working middle-class build real asset portfolios, by providing free investing educationpodcasts, and networking, plus access to investment opportunities not offered to the general public.

The true meaning of wealth is having the freedom to do what you want, when you want, and with whom you want.
Building cash flow via real estate is the simple part. The difficult part occurs after you are free financially to find your calling and fulfillment.
But that’s a great problem to have ;)”

excerpt from The One Thing That Changed Everything