Half the planet wants to invest in real estate but does not know how. They think that to be a real estate investor you have to go out and get a license, or flip some homes, or come from an established family business with many resources. They approach the idea of wealth creation from real estate with an either-or attitude. They simply do not know that they both can be the professionals in their field and diversify their investments from the traditional 401k.
Pooling of Funds
People have been passive investors since the beginning of time. Syndications have existed for centuries and two parties have very different roles. The general partners are the active investors, lining up financing, managing property managers, executing the business plan; the limited parters – passive investors – know and trust the sponsor, understand the market and deal, supply the capital, monitor the investment performance and collect distributions.
When All Parties Win…
Sounds like a sweet deal right? Well it can be for everyone involved. Active investors like finding and creating investment opportunities, but cannot take down sizable deals without their passive investor network. Passive investors do very little work in the deal and, when the investment is successful, benefit from regular passive distributions and an eventual return of capital plus risk premium on their investment. The greatest benefit to passive investors in apartment syndications is just that: the investment is passive.
The Struggle is Real
Anyone who has actively invested in real estate will tell you, it is much work and attention. And I will tell you from firsthand experience: being an active investor and working a full-time job is hella hard. Of course, we do it because we love it and have a vision. However, this is not for everyone. In fact, it is not for most people.
💡 Think Realistically…
As passive investors, you do not have to think about management of the asset, stay on property management, bookkeeping, managing reserves, etc. These are time and energy drains for those whose focus is on their professional fields. Many people elect to be passive investors in real estate and leave those decisions/efforts to the sponsors the know and trust based on the relationship they have formed with them and the track record.
I leave you with this: Even as a working professional, you can thrive in your field and achieve the same wealth creation benefits from real estate that active investors receive by investing passively.
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Rodney Robinson II