We can all look back at a lot of things we did in our early careers or relationships and identify events we would rather have not happened.
For me, it would be the 6-months of negative cash flow I experienced on my first rental property.
Yes, negative cash flow. It left a scar.
My tenant decided not to pay for 6 months and due to unfriendly landlord laws, I had to take them to court. While they ended up paying for those missed 6 months of payments, they went on to do it again.
If you’ve ever experienced owning single-family or multifamily homes, you know that these investments require time and energy. But what you may not hear about is the stress and headaches they induce.
Investing in residential real estate can help build your wealth fast, this is true. For example, I was able to sell that first rental and buy a 24-unit apartment building. With over 90% of the world’s millionaires getting there with real estate investments, you’re likely on board with the idea of putting your money here.
But you’ve also heard about the hassles.
In this article we’re going to debunk the myth that all real estate investing takes more of your time and energy. Instead, I’ll compare this traditional form of investing with real estate syndications, or group investments – a little-known secret in the portfolios of millionaires.
How Single Family and Small Multifamily Rental Investments Can Be Much Work
Small multi-family investments do have advantages over single-family properties, although they still aren’t hands-free.
With multiple units in one location, the mortgage is still covered even if one tenant moves out. It’s also easier to take care of a single property with several tenants than to attend to multiple properties with one tenant apiece.
You can hire a property manager to help manage your investment properties, but the bookkeeping, important decision-making, and costs of repairs and maintenance are still on you.
What Makes Passive Real Estate Investments Better?
Fully passive commercial real estate investments are completely different. You don’t have to be hassled with renters, repairs, and rodents because professional management teams are in place to manage and operate these investments.
According to Forbes, once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s why:
1. Minimal Time Required
Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the property.
You won’t be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living your dreams.
2. Opportunity for Diversification
It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets.
By investing with experienced deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.
3. Tax Benefits
Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period.
You will likely owe taxes on the appreciation income you earn upon the sale of the property. (Always check with your own CPA on your personal situation.)
4. Limited Liability
When you invest passively through real estate syndications, your liability is limited to the amount of your investment. You aren’t liable for the entire value of the property, and none of your other personal assets are at risk.
5. Positive Impact
With single family homes and small multifamily properties, you can make a difference in two to four families’ lives, which is gret. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.
Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively.
Ready To Take Action?
There are many things to consider as you decide between rental properties and real estate syndications. The knowledge you gain from having single-family or small multi-family rentals is priceless, but rental property experience isn’t required to invest in commercial real estate syndications.
I’ve found that commercial investments are one of the most stable and effective ways to build cash flow and wealth.
However you decide to invest, real estate investments provide you with a way to decrease risk AND expand your portfolio. You have an opportunity to create a great environment for your tenants and improve the community.
Next Steps
Here at Gen+ Capital, we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits.
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