How Passive Investors Make Money In Apartment Syndication

It’s not really a secret that we invest our money in real estate in hopes of getting great returns back that our normal jobs would not be able to offer. Especially the thought of earning a passive income sounds exciting to everyone – you are covering all your expenses without any actual work done and focusing on your priorities while generating money from real estate.

People who aren’t familiar with its possibilities are truly missing out a lot, but some to this day are confused about how all of it works and how is it possible to generate money from deals while putting no work into it.

How do passive investors make money?

Passive investors, also referred to as limited partners invest their capitals together with other investors into the huge properties that they wouldn’t be able to manage themselves, while general partners of the deal are responsible for collecting them and managing the properties from top to bottom, including all the aspects of it such as selecting the right market, working with clients, managing the property daily, distributing the profit equally to investors, etc.

Clearly, passive investors earn money while having no direct responsibility for managing the properties, but additionally, there are actually two main ways they generate income:

1. Preferred Return.

Getting a preferred return means earning a profit from 8 to 10% before anyone else in the deal - basically you are getting paid even before people who are actually doing the job. The amount of your preferred return depends on how much you are willing to invest in the deal, as it is kind of a way to reward investors for their investments.

For example in the case of a $200k investment, an 8% pref would be $16k, meaning that limited partners will be getting $16k before the general partners get even a single penny. In the case of $100K investment, it would be $8k and etc.

2. Splitting profits.

Profit splitting is the main way passive investors earn money - after earning the preferred return, the remaining profit is split either 50/50 or 70/30, depending on the initial agreement. For instance, if the remaining profit is equal to $100k and there are 5 investors in the deal, with 50/50 splitting, each is getting $20k on top of the preferred returns.

Conclusion:

No matter how you look at it, passive investors are generating great money by doing the bare minimum and that’s exactly why it is so popular today. Consider joining the real estate world to turn your whole life around and finally become financially secure.