Updated: Oct 27, 2018
After spending over a decade actively investing and landlording single family home rentals, I learned about passive investing. “Passive” simply means, no work required from the investors. How did I not know about this?
I don’t know about you, but screening tenants, fixing leaks, and especially evicting, is not my favorite weekend past time. BUT, I do love the cash flow, appreciation and generous tax benefits that real estate provides. I love that tenants pay the mortgage and the expenses, and cash in my pocket every month.
What Is Passive Real Estate Syndication?
Earlier this year, I was attending a local real estate meet up, where I was fortunate enough to meet someone who is in “real estate syndication”. After they explained how it worked, I was eager to learn more. After lots of reading and talking to experts in the industry, I figured out that this “passive investment” is what I’d been looking for.
Basically, syndication brings together small investors to pool their money for the down payment and renovations needed for sponsors to purchase large apartments (or other commercial assets). The sponsors do all the legwork to find the deals, the due diligence, financing, property management, and daily operations.
Passive investing means no land lording, no hunting, no financing, no turn overs…. just receive cash
No Land lording – No more spending nights and weekends dealing with issues like busted water tanks, noise complaints, pests, fallen trees, and even worse evictions, etc. With apartment syndication, deal sponsors bring in experienced local property managers who effectively decrease costs and increase value, as well as manage the day to day tenant operations of the property. The passive investor can truly be an investor, not a landlord.
No Hunting - Having a full time job, family and full lives, leaves little time for many folks to jump into real estate. If you seek to jump into buying single family homes, you have to find the deal, find the broker, get a lender, find insurance, screen and secure tenants, collect rents, etc. With an apartment syndication, the sponsors hunts for the best deals (great sponsors even get off market deals brought to them by brokers). They also manage the brokers, lenders, construction/renovation, and property manager.
No Financing Process - We all know that going through the financing aspect of a real estate purchase can be arduous. The financing is based on your personal credit and finances, and requires a lot of time consuming paperwork and processes. With syndication, the sponsors handle all the financing and acquisition work.
No lost Income w/ Turnovers- When a tenant moves out of a single family rental, 100% of the rental income is lost until a new tenant is found. However, with, let’s say a 20-unit apartment, when a tenant moves, the investor is only out a small portion of the total rent as the other, occupied, units cover the expenses.
How about Yes to Receiving Cash - Specific deal structures differ, but investors get distributions monthly/quarterly from the cash flow. The sponsors add value to the properties through renovations and cutting expenses, which increase the value at the time of sale (usually 4-7 years). At the time of the sale, investors get their investment back along with their portion of gains from the sale.
I wish I knew about this 10 years ago… Here’s the deal… and why I never knew about these opportunities. These deals cannot be publicly advertised, so they can be hard to find unless you know about them. The SEC (Securities Exchange Commission) regulates sponsors, therefore opportunities can only be presented to accredited investors.
Yes, You Can Invest Too!
I love this idea so much, that I not only invest passively in apartments and other commercial assets, I also help find deals for others to invest in. I’ve started a business with a team of experienced private equity capital raisers, so that I can help other accredited investors learn about these opportunities as well.
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