Let me begin by stating the obvious: No investment is 100% safe. This is true for real estate, the stock market, angel investing (startups), etc. I find it interesting that many investors make peace with the idea of a fluctuated stock market and accept a scenario where they are likely to lose their investment as a reasonable one, yet they feel very uncomfortable if their real estate investment is not performing as expected – even though both are investments that inherently bear risks. Generally speaking, investing alongside an experienced syndicator can mitigate that risk, and I believe that real estate is a safer investment than the stock market.
If you invested as a passive investor in a real estate deal and it failed for some reason – what do you do next? Here are a few tips to help you deal with that unfortunate situation.
Let Me Start By Saying… Don’t Go All In!
First of all, you should not invest your entire available funds if you are just beginning investing in real estate. My suggestions for passive investors who wish to start investing is to start with a small portion of their funds, gain experience, become more comfortable and knowledgeable with real estate investing and only then invest more over time.
Investigate The Failure
If your investment failed, talk with the syndicator and try to get to the bottom of it – why did it fail?
- Was it a bad call of judgment on the syndicator’s part? If so, do you believe that s/he could have foreseen it? Should you have invested with a more experienced syndicator or was it something that was very hard to predict? On my podcast “That REllie Happened?! Unbelievable Real Estate Stories,” I interviewed Jeremy Roll, a passive investor from LA who lost his investment in a student housing after the city decided to disconnect the bridge that provided access to campus. Almost none of the students renewed their leases because they did not believe the city’s promise to reopen the bridge before the school year. Was that something that was hard to predict? I believe so.
- Was the investment lost due to bad market conditions, such as low demand (higher vacancy or lower rents)? Did the syndicator ignore the signs that the market was going there? Did they have a Plan B or a sensitivity analysis going into the deal?
- Was there a more serious issue such as an embezzlement (from someone on the syndicator’s team)? In that case, you need to contact a lawyer to better understand your rights (according to the law and the agreement you signed with the syndicator). In one of my podcasts, I spoke with Mark Kenney, who shared his amazing story of his (previous) partner who stole money from the partnership and how that affected his health and relationships with his passive investors
Investigating the reason for the failure is not worth your time unless you apply the knowledge you gained from the experience in future investments. If it was the syndicator’s fault, then it’s up to you as a passive investor to decide if you want to give them a second chance. If the failure was due to an unforeseeable event, pay close attention to how the syndicator behaved during the situation and ask if they were prepared for the unlikely scenario.
Try To See The Glass Half Full
Yes, it’s probably not what you wanted to hear, but seeing the glass half full is an approach that will pay off in the future. If you cannot recoup your money, try and establish how you can benefit from the situation. Don’t forget that you can use your losses to offset income/profits from other sources (salary and/or investments).
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About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
