by Joe Firmin 3 -Minute Read
If you’ve ever experienced owning single-family or multifamily homes, you know that these investments require lots of headspace, 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, finding the contractor, renovating the property, marketing the property, interviewing potential residents, and even performing maintenance.
The bummer about it… it doesn’t stop there. You have to repeat many of these steps over again when your resident’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. A key one in mitigating risk is that if one resident moves out, the residents in the other units are still there to help cover your mortgage. Plus, it’s much easier to manage one property with multiple residents than to manage multiple properties with one resident each.
But, even with a property manager on board to help with your rentals, you still have bookkeeping, strategic decisions, and maintenance/repair costs that land in your court. You’re basically running a small business, which can be challenging and time-consuming, especially if you’re working a full-time job.
The Case for Real Estate Syndications
On the flip side, there are fully passive investments in commercial real estate via real estate syndications. These are professionally managed and operated investments so you don’t have to deal with any of the three T’s - Tenants, Toilets, and Termites. Yup.
According to Forbes, once investors begin to truly understand real estate investing, they inevitably turn to passive commercial real estate investments; it’s common for them to move toward syndications.
Here’s 5 Reasons why:
Minimal Time Required
You’ve 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. That’s it.
You won’t be fixing toilets, screening residents, or handling maintenance. The sponsor team (aka general partnership) and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living your 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 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 scale your portfolio while also mitigating your risk.
Did You Say Tax Benefits? No? Well I will…
Like 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. Boom! 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.)
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 won’t be on the hook for the entire property, and none of your other assets would be at risk. You are truly a “limited partner” in the investment.
With personal rental property investments, you make a difference in two to four families’ lives, which is wonderful. With real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one investment opportunity.
Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community positively. And that’s something you just can’t gain from stocks and mutual funds. It’s so cool to see residents positively react to having a better place to live in and their quality of life improve.
In the end…
If you’re on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. If you don’t want the experience, but rather just the returns without the work, then turn to real estate syndications. Owning personal rentals is not a prerequisite to participating in a syndication.
Either way you choose to go, 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 homes, as well as a positive impact on the community.
For more information on real estate syndications please read our other blog post as well which describes the structure and more cool stuff.
Remember, you won’t know about the opportunities unless you’re on our investor list, so please sign up. We’ll only have a few a year, so don’t worry, you won’t be inundated.
Let us know if you have any questions or concerns, always happy to engage with you and help you out!