All this time you’ve heard me say – “Why you should be investing in real estate syndications?”. We even published our eGuide recently titled A Passive Investor’s Guide to Getting Started in Real Estate through Syndications. The ability to invest in real, physical assets without being a landlord, getting a share of the majority returns, and reaping amazing tax benefits is a pretty awesome deal. In addition, the diversification opportunities with minimal work while making an impact on local communities … it doesn’t get any better. Even though these reasons seem impossible to pass up, real estate syndications are NOT for everyone.
Here are 5 reasons you should stay away from investing passively in real estate syndications –
#1 You don’t have more than $50K of “Play” money: While there are some real estate investment platforms that will accept smaller investment amounts, most private real estate syndications begin at a minimum investment of $50,000. Ensure you have the minimum investment of $50,000, plus your standard emergency fund, plus any other savings for your life’s aspirations. There are lots of contingencies in place in syndications, but if you aren’t prepared to lose your investment in its entirety and be okay financially, then syndications may not be for you … yet.
#2 You’re not OK with someone else taking control: If you are someone who likes total control of your investments, real estate syndications are not for you. Passive investing in real estate syndications is much less hands-on than your typical residential real estate rental property, in fact, you’ll probably never see the property in person and won’t be involved in any day-to-day decisions. You don’t have to be in contact with the broker, monitor the property manager, or receive and decipher between contractors’ bids. Instead, you get a few emails, sign a legal doc or two, and carry on with your life while the checks show up. As a passive investor, you’re a passenger and need to leave the driving to professionals.
#3 You are looking for short term “Get-Rich-Quick” scheme: Unlike stocks or something you can flip in the two-year range; real estate syndications typically have a hold period for five or more years. If you’re not a set it and forget it type investor and can’t plan for your investment capital to be unavailable for long periods of time, passively investing in real estate syndications may not be for you.
#4 Sharing profits is not your idea of investing: Fix-and-flips and standard rental property approaches to investing allow 100% of the profits in your pocket. Mostly because they are smaller deals, require plenty of sweat-equity, and often have only one party (you) financing and managing the deal. Usually, the passive investors get the larger portion of a 70/30 or 80/20 split, with the general partners getting the smaller percentage. Group investments like these take a collaboration mentality. The general partners are actively managing the property, making decisions toward renovations, and handling marketing and financial reporting. So, it only makes sense that they too are rewarded for their efforts. If profit sharing does not make sense to you, you’re in the wrong place.
#5 Need liquidity in near term: Real estate syndications lock up your money for 5 years or more. If you think you may need the money before the exit plan for the syndication, then this is not your game.
Let’s recap: Real estate syndications are great way to invest your money in real estate without the hassles of being a landlord all while having the chance to invest with different sponsors in different markets and different asset classes. Plus, the tax benefits (and sometimes even the returns) from passive investing can surpass those from personal rental properties. That said, being a passive investor isn’t for everyone.
So, if you …
- Don’t have more than $50k of “play” money
- Are NOT okay having an active role
- Are looking for a short-term investment
- Don’t find collaboration and sharing returns attractive
- Are not willing to park your cash for 5+ years
… then investing passively in real estate syndications might not be the best fit for you. But if that’s NOT the case with you, then what is holding you back? Join our Smart Passive Investor Club to learn more about investing passively in real estate and start designing your life as you’ve always wanted it to be.
