Benefits and Downsides of Being a Passive Investor in a Syndication

A passive investor in a syndication is a person who invests in the syndication. They do not manage the property. They put in their investment and just wait for their money to come back with friends.

Passively investing in a syndication is analogous to investing in stocks. If you invest in some General Electric stock, you own a piece of the company, but you don’t get to manage it or have a say in what happens to the company on a day-to-day basis. In a real estate syndication you own a share of a real estate business (e.g., a multi-unit apartment building).

Example:

A real estate investor Goddess named Sonya had $125,000 in an self-directed IRA (SD-IRA) account and $25,000 in savings. She wanted her money to work better for her and to be a real estate investor, but she didn’t have the time or desire to find and manage a property.

Sonya passively invested in a 314-unit building in Dallas, TX. She passively invested $50,000 from her SD-IRA and is one of 29 investors in the deal. She is earning an average 9.5% cash-on-cash return on her money and when the building is turned-around and sold in 5 years, it's projected that she will have doubled her total investment.

Note: In this example, Sonya invested with her SD-IRA. This is a great vehicle for investing in real estate passively.

Benefits of Being a Passive Investor

• 1. It allows you to leverage other people's money (OPM), other people's time (OPT), and other people's experience (OPE) to invest in a property that is generally much more than what you could afford or manage by yourself.
• 2. It’s a truly passive investment - All you have to do is write your initial check to get into the investment and then cash your checks as your money is returned to you with friends.

Downsides of Being a Passive Investor

• 1. You have no control over the management of the property. A passive investor cannot make decisions about the team, the exit, etc. (For some people, that’s a benefit.)
• 2. You need to have the money to invest - Minimum investments in these types of deals can vary tremendously - from $1,000 on crowdfunding sites to upwards of $100,000. A typical syndication minimum is $50,000.
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Sometimes having the money to invest, means you need to have enough net worth or income to be considered an accredited investor.

An “accredited investor” is defined as a person or couple with $1,000,000+ net worth (not including your personal residence) OR a yearly income of $200,000+ (for an individual) or $300,000+ (for a couple). With the income requirement, you must have had this income for 2 years and have a reasonable expectation of maintaining that level of income in the coming year.

If you are not an accredited investor, don’t despair. There are many opportunities for non-accredited investors to invest in syndications.

In our syndications we usually take accredited and non-accredited investors. If you're interested in finding out more, you can go to www.vip-assets.com and click on Investor Club to fill out a questionnaire and get on the phone with a member of our team.