How to invest Passively in Real Estate
Passive real estate investing is a wonderful option for anyone who wants to get into real estate investing but doesn’t have the time, skillset or interest needed to rehab a property before selling it. Passive real estate investing also gives you the ability to invest in rental properties without handling the hassle of finding tenants, screening them and performing maintenance on the property. Instead, you can simply put your money to work for you before you start sitting back and collecting your dividends. If that sounds like an interesting proposition to you, educate yourself on all of your options for passive real estate investing.
Real Estate Syndication
Before real estate crowdfunding was an option, real estate syndicates were operating under the same general principle of allowing a group of investors to pool their money together in order to purchase an investment property. Real estate syndicates are a bit more exclusive than crowdfunding platforms. Instead of working with other investors to choose a subject property, real estate syndicates are led by a syndicator who studies potential investment properties and chooses them based on their own real estate expertise. The syndicator, also referred to as a sponsor finds investors to fund the purchase and then oversees the daily operations or sell of the property. As an investor, your dividends are based on the percentage of funds that you put up for the purchase of the property.
Benefits of Real Estate Syndication
Real estate syndicates can be a wonderful tool for real estate investors who want to take a passive approach to their investments. First of all, they offer the ability to truly diversify your portfolio since you’re investing more in the syndicator than you are a particular property. While the syndicator, or sponsor, may approach the syndicate with a particular property in mind, investing more money will give you access to multiple properties. As any investor knows, having different types of investments in place protects you in the event that one of the investment properties falls flat.
Syndicates are also a great option for passive real estate investors because they are widely considered low-risk, high-reward investors. In most cases, real estate syndicates list their investors as limited partners. While that doesn’t diminish your access to the profits generated by any given property, it does mean that you are not liable for any lawsuits that are filed that relate to the investment property. Instead of being responsible for any liens, lawsuits or mortgages that pertain to an investment property, you are simply there to provide funding and recoup a profit.
Finally, syndicates are the perfect opportunity for a new real estate investor to establish himself or herself in the world of real estate investing. Some investment firms prefer to work with experienced real estate investors and syndicates provide the chance to gain that experience.
Downsides of Real Estate Syndication
As is the case with any type of investment, there are some drawbacks that should be considered before you put up your money. If real estate investing was a completely safe proposition, everyone would do it. Instead, there are risks associated with all investments.
The most glaringly obvious downside of real estate syndication is that you have little to no control of where your money goes. Even if you’re looking to become a passive real estate investor, you may want to have some say in which properties are purchased and how they are handled after purchase. Real estate syndication does not offer that opportunity. Instead, your money goes into the syndication in which the sponsor decides which properties will be purchased, how they will be updated and how they will be marketed.
It’s also important to note that real estate syndicates generally do not provide a fast turnaround on your money. Instead, real estate syndicates are almost always considered long-term investments. If you’re looking for a passive real estate investment that allows you to quickly get access to your money, syndication may not be the best option for you.
Overall, real estate syndicates are a wonderful tool for investors who are looking for a more passive approach to their investing. If you aren’t concerned about quickly getting access to your profits and don’t plan on withdrawing any of your initial investments, they allow you to work with established real estate professionals to select a number of properties, diversify your portfolio and wait for your dividend checks to start coming in.