If you’ve ever owned single-family or multifamily homes, or even looked into the process, you know that these investments require time and energy.
Investing in residential real estate can be challenging because, typically, you wear many hats throughout the seemingly never-ending list of responsibilities including: finding the property, negotiating and funding the deal, renovating the property, interviewing tenants, performing maintenance or fielding calls from tenants about problems like why they will be late on rent again.
This can be an ongoing cycle depending on how many “doors” you own and how frequently you have a vacancy or eviction. When a tenant vacates the property, you have to repeat most of the process over again and it can be exhausting.
Why Investing in Multifamily Rentals Can Be a Lot of Work
Small multifamily rentals do 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 and other expenses.It’s also easier to manage one property with multiple tenants rather than manage multiple properties geographically spread out with one tenant in each property.
Even with a property manager on board to help with your rentals, you are still responsible for the bookkeeping, strategic decisions, and maintenance/repair costs. You’re basically running a small business, which can be challenging if you’re working a full-time job or, like me, don’t love managing tenants and toilets.
The Case for Passive Real Estate Investments
On the flip side, there are fully passive investments available to you, as an investor, in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any tenants, toilets or termites!
Once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s why:
- Minimal Time Required
Have you heard the phrase “set it and forget it”? That is how it works in a syndication. You put money in, collect cash flow during the hold period, and receive profits upon the sale of the property. Then you (happily) do it again.
You won’t 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 your best life.
- 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 investing in 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 the asset by executing the business plan. This allows you to quickly and easily scale your portfolio while also mitigating risk.
- Did You Say Tax Benefits?
Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You may be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period.
You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property.
We are not tax advisors so we recommend you always check with your CPA on your personal situation to see what benefits you can take advantage of.
- 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 are not on the hook for the entire value of the property, or the loan that was used to buy the property, and none of your other assets are at risk.
- Positive Impact
With personal investments, you can make a difference in two to four families’ lives, or however many doors you own. 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 apartment syndication typically creates a cleaner, safer, and nicer place for people to live and often impacts the community and the environment positively. And that’s something you won’t get from stocks and mutual funds.
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 entering commercial real estate syndications. You CAN enjoy all of the benefits and none of the work and own apartments completely PASSIVELY.
Whether you are considering active or passive real estate investing, either 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.
To learn more about passive real estate investing and how to sign up for the Ohana Investor Club, please CLICK HERE.