You may have considered entering the real estate market for some time. However, a few of its characteristics may have kept you hesitant and unwilling to contribute your funds to it. For a passive investor, one of those factors is likely concern over needing to be more hands-on than you are willing to be. Your time is important to you. Thankfully, though, you do have other investing options available to you. One of those is taking part in a real estate syndication. In doing this, you will be able to experience several benefits, including not being hands-on in the running of them. Here are five.
One piece of advice that you have likely heard on several occasions, including well before you became interested in property ownership, is to not put all of your eggs in one basket. Avoiding that reduces your risk in all aspects of your life. As it relates to this type of passive investing, you will essentially be crowdfunding for properties. Instead of owning 100% of a property, you will, for example, own 10% of 10 different properties. As a result, if one of those 10 is losing money due to it not being occupied or for other reasons, you will have nine others ready to push your overall earnings well into the black.
Another thing to consider is the type of properties that you will be devoting your wealth towards. An additional way to diversify your passive investing efforts is to purchase fractions of different types of properties. You could get involved with apartment buildings, shopping malls, self-storage facilities, mobile home parks and office buildings. By doing so, you are protecting yourself against any economic downturns that may occur with one or a few of those types of structures and increase the odds that you will still turn an overall profit.
Also take into account that you may want to engage in geographic diversification as well. Sometimes, a geographic area will go through a downturn, which could affect various types of properties located there. To hedge your bets as far as this goes, take advantage of investing opportunities in several areas. Also note that investing elsewhere, particularly if it is out of state or in a different country, could be difficult to do on your own if you have no connections with that area but be much simpler of a process if you are part of a syndicate.
One of the most significant benefits of taking advantage of syndicates for many is the ability to be a passive investor for these types of properties. If you were to purchase one of these by yourself, you would then be responsible for all aspects of it. This includes ensuring that those who are renting it from you continue to pay their rents, that you make sure to keep it as full of those rent payers as possible, that you take care of otherwise managing the property or paying someone else to and that any public relations or related needs for it are handled.
Instead, you can simply engage in wealth building from the sidelines while you focus your time on other areas as you see fit. Instead of scurrying around finding renters to fill empty spots in your facility, you can improve your public speaking skills. Instead of making sure that the leak through the roof that has created a hazardous area is handled, you are able to spend more time with your family.
Another benefit to consider is that the syndicator or sponsor who is the person handling all of these aspects for the property has also done the due diligence necessary to decide on one or more properties for those such as yourself to invest in, time that you can instead spend elsewhere. You simply devote your passive income to the efforts and allow that money and the syndicator to take care of everything else.
The sponsor, who typically receives around 30% of the cash flow and appreciation, will also handle all investor relations, including sending out quarterly reports on how the properties are doing. So, in exchange for your payment of the sponsor’s fee, you get to experience the increasingly significant benefit of time.
Those who get involved with real estate syndications tend to fall on one of two sides of those organizations. On the one hand are those who handle all of the day-to-day aspects of the property, including the minute specifications of what happens with the group’s funds. On the other side of the table are those who are simply providing some of their wealth to the equation. They do not play any role whatsoever in those decisions that are being made about the money.
The passive investor will experience numerous benefits from being in the second group. One is not being involved in any lawsuits that could be sent towards those in that first group as no judge would find individuals such as yourself liable for fund-related decisions that were made as they did not make any.
Other benefits are related to credit. These are experienced before the property is purchased and after. Prior to its ownership changing hands, the syndicator will be the one making the actual purchase. They may need to ask a bank for a loan. As a result, their credit will be on the line, and it will be their credit that will be assessed. So, whether you would be approved for that loan or not is irrelevant. Then, after the purchase has been made, if something happens to cause the purchaser’s credit rating to decrease significantly, that also will not result in anything negative happening to your credit.
For those looking to solely engage in wealth building – i.e. without a syndicate – by taking advantage of investment opportunities related to large commercial properties such as shopping malls, that may simply not be possible. We all have dollar amounts that are out of reach for us. However, syndicates allow us to have a piece of that pie. For example, if you would like to be involved with the owning of a commercial property that costs millions or even hundreds of millions of dollars, a syndicate allows you to do so with fewer zeros in your investment figure than would have otherwise been the case.
Of course, the exact figure necessary will depend on a number of factors, but, in many cases, this type of investment opportunity can be had for as low as around $10,000. As a result, you will now be able to take advantage of the generally steady income of entities such as shopping centers and related properties. However, do note that most investment figures in these types of situations are closer to $100,000.
Regardless, do also take into account that most commercial properties have been purchased by a syndicate, so this setup is the norm, not the exception.
One benefit of taking advantage of property investments that is enhanced when acting as part of a syndicate is experiencing consistent returns and less volatility as compared to other types of investment opportunities, most notably the stock market. Although the latter option is a better one in many ways, its major con is significant for passive investors: dramatic ups and downs. Property investments provide a steadier rate of increase and income that can be counted on with greater assurity than is the case for stock market investments.
You should also take into account that the stock market as a whole experiences a down year for every two up years. Conversely, property investments as a whole have resulted in around three to four times fewer down years than the stock market has endured.
Another thing to consider is how property investment opportunities provide a nice hedge against inflation. While other types of investment opportunities can result in losses as inflation increases, properties tend to not follow along with that. That is because, in general, the rents that are charged those staying in those places naturally increases with the inflation rate, resulting in a steadier rate of income.
Plus, in some areas, properties are expected to continue to increase in value as the local population grows and demand for them increases.
You have numerous options available to you as you decide how to use your wealth to experience passive income. Fortunately, some of these can be turned into passive opportunities when they would not normally be ones, and property investments that are done by syndicates is one example.
Consider taking advantage of this generally steady rate of income while allowing somebody else to handle all of the heavy lifting of finding properties that are worthy of investments by you and others and ensuring that they are being managed once they are purchased so that you can enjoy more of the benefit of free time.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.