Some people on the planet live and breathe real estate. They love to make contact with buyers and build relationships with sellers. Writing up contracts and legal agreements is their favourite kind of paperwork. They like to get out on the street, peruse potential properties from the ground and scout neighbourhoods for future opportunities. All the best luck to those go-getters, but for most investors exploring the real estate market, passive investments are the most sought-after options.
Table of Contents - Real Estate Syndication: Is This the Best Form of Passive Investing?
What is a passive investment?
For those who might not be aware, passive investments allow an investor to pick an opportunity, pay their money and then wait for the dividends to roll in. It’s the equivalent of putting your money into a mutual fund or some other financial outlet. There is a lot of benefit to passive investment, especially in real estate. When an investor invests passively, they’re not responsible for managing the project’s daily development, nor are they on the hook for finding tenants, handling repair techs and all the other minutiae that go hand-in-hand with running a real estate property.
In the world of real estate, there are a growing number of ways to engage ion passive investment:
- Syndication: A group of like-minded individuals bands together for a single real-estate project.
- Real Estate Investment Trusts: Investors put their money in the hands of a select group of experts who invest the capital and pay dividends on the profit.
- Crowdfunding: Individuals with smaller budgets can apply their funds to real estate projects via online platforms.
There are more ways to invest your money in the real estate industry without having to cover the daily operations, but those are the most popular.
What makes real estate syndication different?
Syndication is a unique beast in the world of real estate. The process begins when a veteran industry professional spots a good deal. They will solicit help from a small group of investors who will agree to fund the project. From this moment forward, the original actor is the syndicator, responsible for moving the deal along and protecting it from harm. Meanwhile, the investors are responsible for putting up the capital the syndicator will need for a down payment, repairs and marketing. At the end of the deal, the syndicator will receive a fee for their work, and the investors will get the lion’s share of the profits.
Real estate syndication falls somewhere on the spectrum between the anonymity of crowdfunding and REIT investment, but it’s so much more than that.
Broaden your horizons
When most people picture real estate investment, they imagine putting a down payment down on a residential property, fixing it up and then moving in a tenant. Perhaps that’s why so many people begin their foray into real estate investment there.
Once you’ve got a property (or two) under your belt, you may discover that hands-on involvement in real estate investment is a whole lot of work. Syndication is a fantastic way for real estate investors to diversify their portfolio and continue to grow their assets without putting in the countless hours of effort required to keep an active investment humming.
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Tap into the industry
When you’re sitting at home scoping out potential crowdfunding opportunities, you’re not networking. When you’re reading up on the trusts who deal with real estate properties, you’re not interacting with professionals. There’s nothing to learn but what’s on the page. You may quickly discover that third-hand experience with the real estate market simply won’t cut it when you’re focusing on real estate investment as a career.
When you engage in syndication, however, each deal depends on close interaction with several professionals. Even as a passive investor, you’ll get first-hand exposure to the individuals who propel the industry. You’ll find out how they work, what they look for and what they do when the unexpected occurs. You might discover that on-the-job education is equally as valuable as the one you built online.
Invest in people, not brands
Here’s a fun fact: most real estate crowdfunding platforms are run by REITs. That means, whether you’re investing deal-by-deal in a crowdfunding platform, or you are pinning your financial hopes on the success of a REIT, you are ultimately counting on brands and companies as a whole.
For investors who prefer to work with individuals with proven track records, not brands who will hopefully get it right, syndication is a much more comfortable way to spend their money.
One of the biggest grievances investors have with REITs and crowdfunding is the lack of control. Sure, passive investors aren’t interested in the day-to-day. That said, there’s a difference between dealing with tenant complaints and exerting influence over the broad strokes of a deal. For investors who aren’t comfortable letting one organization control their money for an extended period, who crave more detailed information about where their money is going and how it’s being spent, syndication is ideal.
Mix it up
Here’s where novice investors can get a lot of value from the syndication process. The first few times they invest in a property, they can do so passively, as the investor in a syndication agreement. As an investor, you’ll be able to learn the ins and outs of the syndication process first-hand. As you gain more knowledge about real estate, you just might discover that you’re able to spot deals on your own and even kick start your own syndication projects.
That’s one of the best parts of syndication: you can make your money through passive or active investment. The choice is up to you.
An active-passive investment
If you’re looking for the kind of investment you have to do virtually nothing to maintain, go with a REIT. If you want to nickel and dime your way to success, crowdfunding is excellent. If, however, you want to play for aggressive growth and you’re willing to do the research and bet on people, syndication is a sweet spot worth investigating.
What is a real estate syndication
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