5 Ways Real Estate Syndications Beat Rental Property Investments Every Time
I am sure you have heard that real estate is the key to building wealth – it’s passive income diversified from the stock market, and it’s how the ultra-wealthy build and preserve their legacy. But maybe you’re stuck trying to figure out how you could possibly make the time to own, manage and/or scale residential rentals, on top of your already maxed-out work and family life schedule.
Small rental properties are good investments, but they require nearly constant hands-on attention, have ongoing repair and remodel issues, and don’t forget about landlord struggles with tenants, especially in a pandemic. You have your own busy family life, whether it be a demanding medical practice, or corporate career to worry about, so there’s got to be a trick to building wealth AND enjoying life, right?
That’s how we started out too – first with multiple single-family properties, then multifamily, and now we’re all-in on real estate syndications because of the freedom found in earning passive income without the time-commitment required by residential real estate.
Why Single-Family Rentals Aren’t As Fun As You Think
Investing in residential real estate can be challenging because, typically, you as the investor wear many hats throughout the seemingly never-ending process. Your responsibilities will likely include finding the property, funding the deal, renovating the property, interviewing tenants, and even performing maintenance.
The trouble is, it doesn’t stop there. You have to repeat most of the process over again when your tenant’s lease is up. The alternative is you come out of pocket to train and hire someone who can, which will nearly break you even.
Why Investing in Multifamily Rentals Can Be a Lot of Work
Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each.
But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still in your court. You’re essentially running a small business, which can be challenging if your practice or career already demands 40-60 hours (or more) of your time each week.
The Case for Passive Real Estate Investments
On the flip side, there are fully passive investments in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any of the three scary T’s – Tenants, Toilets, and Termites. Oh my!
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:
- 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 exit of the property.
You won’t be fixing toilets, screening tenants, or handling maintenance. That’s where we come in. As the sponsor team and alongside a chosen prestigious property management team, we expertly attend to those things so you can sit back, enjoy the returns, and focus on enjoying life.
- Opportunity for Diversification
It would be quite difficult, time consuming, and unreasonable for any one person 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, award-winning deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business and on your behalf. This allows you to quickly and easily scale your portfolio while also mitigating risk.
- Did You Say 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. Did someone say Win-Win?!
In addition, each spring when you get the Schedule K-1 for your taxes, it will include accelerated depreciation and cost segregation, further maximizing your tax benefits.
Note that you will, however, 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.)
- Limited Liability
When you invest passively through real estate syndications, you’re what we call an LP (limited partner). This means your liability is limited to the amount of your investment. For example, if you were to invest $50,000, your biggest risk would be losing that $50,000. You wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk.
- Positive Impact
With personal investments, you make a difference in two to four families’ lives, which is wonderful. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal. Impactful, right?
Each syndication we are a part of creates a cleaner, safer, and nicer abode for people to live, influence the community and the environment positively. Our properties’ renovations often include a solar, technology, and/or energy-savings value-add component which will positively impact not only the families who will come to live there but the planet for years into the future. Now, that’s something you just can’t gain from stocks and mutual funds alone!
If you’re on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. However, personally owning rental properties is not a prerequisite to commercial real estate syndications, and we’d like to help you skip over the stressors, time-sucking tasks, and additional responsibilities that come with single-family and small multifamily properties.
Investing in real estate syndication is one of the best ways to diversify your portfolio,mitigate risk, and get your time back. It gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.
We invite you to try multifamily the Viking way, have fun with it, and enjoy the time-freedom coupled with passive income that can allow you to live life on your terms.
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