Have you thought about owning rental property?
Like maybe a few cute little homes in that neighborhood to the East of your own.
It seems magical, right? Reliable tenants pay rent that easily covers the mortgage payment and expenses, and there happens to be a little extra to pad your pocket – That’s the expectation anyway.
But if you have owned single-family or multifamily rental homes, you know that these investments require much more time and energy than most people think!
It’s challenging to be a multi-property investor in residential real estate because, even if you get a property management company to help, you’re still stuck with the heavy lifting. Your responsibilities as the owner still include finding the property, funding the deal, renovating the property, interviewing tenants, and even performing maintenance.
Maybe you’re excellent at wearing many hats, and if so, maybe owning and managing a handful of properties is your cup of tea. The trouble is, no property and tenant combination is said and done. You have to repeat most of the process over again when your tenant’s lease is up. With multiple small rental properties under ownership, you’re constantly juggling tenant and property needs.
And then what? How do you scale?
What It Takes To Be A Successful Residential Rental Landlord
Small multifamily rentals boast some advantages over single-family homes. For example, when you own a triplex, if one tenant moves out, the tenants in the other two units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each.
Maintenance can be easier on multifamily rentals as well. If you own three different single-family homes, it’s likely each one has various quirks and unique hardware. On the other hand, if you own a triplex, you can outfit the whole place with similar hardware and have an opportunity to perform all the maintenance on the property in one trip instead of bouncing from house to house.
Even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still in your court. Owning rental properties can quickly turn into an unintended, additional full-time job. In fact, this is where many new real estate investors get stuck – because they don’t realize that by owning multiple small properties, they’re basically signing up to run a small business.
Investors typically dive into real estate in search of additional income coupled with tax benefits and property appreciation. There is a better way to achieve all of the above though, without becoming a landlord, dealing with tenants, or performing maintenance on rental properties!
Introducing Passive Commercial Real Estate Investments
I might blow your mind with this concept, so take a deep breath here.
There is such a thing as fully passive investments in commercial real estate. Most people have never heard of these, and many real estate investors don’t even know they exist.
I’m talking about strategically managed and operated investments so you don’t have to deal with any of the three scary T’s – Tenants, Toilets, and Termites! Real estate syndications are where a group of people contribute capital and collectively invest in a large piece of commercial real estate (think apartment complex) according to a professionally structured business plan.
With passive real estate syndications you:
- Don’t need to have enough capital to purchase the entire property yourself,
- Won’t have to take time away from work or family to make more money,
- Don’t have to worry about your capital vanishing in the stock market,
- Avoid having maintenance or tenant woes fall on your shoulders,
- Will be part of a group effort to purchase, improve, and sell within a business plan, and
- Will get to sit back and relax while truly passive income distributions roll in.
This Forbes article does a great job of highlighting investors’ learning curve. Once they begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s 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.
Fixing toilets, screening tenants, and handling maintenance will never enter your radar. The sponsor team and the property management team expertly attend to those things (and more!) so you can sit back, enjoy the returns, and focus on living life.
We know you have career goals, family matters, and a yearning for more freedom. Passively investing in real estate syndications allows your daily life to carry on as usual while your money works hard for you.
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 across the country while resting assured that the investment asset and your capital are being handled by tried-and-true experts.
Now, with commercial real estate syndications, you’re no longer limited to the real estate in your own city or state. You don’t have to know the nitty-gritty details about apartment complex management, the differences between self-storage and parking garage assets, or whether Atlanta or DFW markets produce better cash flow or appreciation.
With an expert team in place, you suddenly have access to all of the above while also mitigating risk.
3. Did You Say Tax Benefits?
Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period. Score!
If you’re already in a high-income bracket, you can’t resist the accelerated depreciation benefits that can become available through value-add renovations, offsetting a portion of your income and effectively reducing the amount you owe to Uncle Sam each year.
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 wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk.
Most commercial syndication opportunities are for accredited investors only and require a capital investment between $25,000 and $100,000, with most falling at the $50,000 minimum investment mark.
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.
So, if you’ve struggled with the idea that you could be doing “more” with your money – real estate syndications just might be your answer to making a bigger, more positive impact on the world, hundreds of families at a time!
Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively – That’s something you just can’t gain from stocks and mutual funds.
Are You Cut Out For Commercial Real Estate Investing?
If you’re 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. They’re two totally different investment styles and strategies, and knowledge from one doesn’t necessarily transfer into the other.
With active investments, you “get your hands dirty” and can enjoy selecting fixtures, meeting tenants, trying out your handyman skills, and forming relationships with bankers and contractors. But if you don’t have time for that or aren’t interested in making day-to-day decisions about a property you don’t live in, then syndications will be an excellent choice.
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.
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