5 Reasons You'll Love Investing Passively in Real Estate Syndications

If you have ever experienced owning single-family or multifamily homes, you know that these

investments require time and energy.

Investing in residential real estate can be challenging because, typically, you as the investor

wear many hats throughout the seemingly never-ending process. Responsibilities include

finding the property, funding the deal, renovating the property, interviewing tenants, and even performing maintenance.

The trouble is it does not stop there. You must repeat most of the process over again when

your tenant’s lease is up.

Why Investing in Multifamily Rentals Can Be a Lot of Work

Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it is much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each.

But, even with a property manager on board to help with your rentals, bookkeeping, strategic

decisions, and maintenance/repair costs are still in your court. You are basically running a small business, which can be challenging if you are working a full-time job.

The Case for Passive Real Estate Investments

On the flip side, there are fully passive investments in commercial real estate. These are

professionally managed and operated investments so you do not have to deal with any of the

three scary T’s - Tenants, Toilets, and Termites. Oh my!

According to Forbes, once investors begin to understand passive commercial real estate

investments, it is common for them to move toward syndications. Here is why:

1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period and receive profits upon the sale of the property.

You will not be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.

2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the

property investment process, and even more so when it comes to different markets.

By investing with experienced deal sponsors, you can easily diversify into various markets and

asset classes while resting assured that the professionals are taking care of business. This

allows you to quickly and easily scale your portfolio while also mitigating risk.

3. Did You Say Tax Benefits?

Like personally owned rentals, you get pass-through tax benefits when investing in real

estate syndications. You will be able to write off most of the quarterly payouts, which means you basically, get tax-free passive income throughout the holding period. Score!

You will, however, likely owe taxes on the appreciation income you earn upon the sale of the

property. (Always check with your own CPA on your personal situation.)

4. Limited Liability

When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $50,000, your biggest risk would be losing that $50,000. You would not be on the hook for the entire value of the property, and none of your other assets would be at risk.

5. Positive Impact

With personal investments, you make a difference in two to four families’ lives, which is

wonderful. But with real estate syndications, you have the chance to change the lives of

hundreds of families and whole communities with just one deal.

Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the

community and the environment positively. And that’s something you just can’t gain from stocks and mutual funds.

Conclusion

If you are on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. However, personally owning rental properties is not a prerequisite to commercial real estate syndications.

Either way, investing in real estate is a great way to diversify your portfolio and mitigate risk. It

gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.