Should I Invest Passively in Real Estate Syndications?

[Justin Goodin]

Perhaps you currently work a 9-to-5 job that’s wearing you down, and you’re looking for an escape. Perhaps you’re tired of the long commutes and don’t want to miss any more of your son’s baseball games. Perhaps you’re ready to take control of your life and start making your money work for you, rather than the other way around.

Traditionally, when people think of real estate investing, they think of buying a rental property. This is exactly what I did when want to get into real estate for the first time!

You might have $50,000 to invest, so you use that $50,000 as a down payment on a rental property. You get a loan for $150,000 and buy a $200,000 property. You then find a property manager who helps you to find a good tenant and collect the rent every month.

If the roof leaks, you're responsible for the repairs. If the tenant moves out, you're responsible for finding a new tenant. On the flip side, you get to keep all the profits, and you get to decide how long to hold the asset, when and whether to make improvements, and when to sell. You have all the control.

Fair warning - Managing your own rental portfolio can quickly turn into a part time job. As a working professional, your time is valuable. You most likely have a spouse, kids, and have very limited time in the evenings, if any, to focus on real estate.

On the opposite end of the spectrum are passive real estate investors, those who want to invest in real estate but don’t want to deal with the hassles of being a landlord. In this model, instead of you buying a whole property with your $50,000, you put that $50,000 into a group investment. Someone else has $50,000 to invest too, a third investor puts in $100,000, and so on.

Now, instead of a single-family rental property, you pool your resources together with a group of investors in order to buy an apartment building. As a passive investor, you put in your money, and that’s the end of your active role in the investment. You don't have to do anything else. You can focus on living your life. You will be able to attend your kid’s sporting event on Saturday instead of spending your day off painting your duplex because the tenants just moved out.

[Jim Pfeifer]

@Justin Goodin

I got into passive syndication investing a few years ago - I sold all of my active multifamily and SFH properties because I got tired of managing property managers. I found that even though I was not actively managing, this was nowhere near the passive investing that I wanted.

Syndications has been very different.  It is active in the beginning as you are vetting sponsors and learning the markets, but once you invest you leave it up to the professional manager to handle the asset.  The returns have been similar to my active investments, but the amount of time and effort I need to put into it is considerably lower.

It is intimidating to start as you have to wire $50,000 to someone you may have only talked to on the phone a few times, but once you start developing relationships and a network and once you find a Community, you gain confidence and it becomes much easier.