Can You Be a Passive Investor in Real Estate?
Table of Contents
1. Understanding Passive Real Estate Investments
2. Real Estate Investment Trusts
3. Real Estate Crowdfunding
4. Private Real Estate Funds
5. Multifamily Real Estate Syndication
6. Benefits of Passive Real Estate Investments
7. Challenges and Considerations
8. Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Is Passive Income A Real Thing In Real Estate Investing?
Although real estate investing has long been regarded as a lucrative avenue for building wealth and generating passive income, it is also generally known as a hands-on investment. From property management to dealing with tenants, real estate investing can take up a lot of your time and energy.
Unlike other investment vehicles such as stocks or bonds, real estate usually requires direct involvement. This leaves many investors wondering if it is possible to be a passive investor in real estate. This is what we will be discussing today.
Normally, property owners have to take on a lot of responsibilities including property maintenance, tenant relations, and compliance with local regulations. If they want their investment property to be profitable, they also need to learn about market trends and take on a more proactive approach.
But with all of that said, it is actually possible to become a passive investor with the right investment strategy. In fact, the concept of passive real estate investing has gained popularity in recent years.
Understanding Passive Real Estate Investments
Passive real estate investing involves putting money into real estate ventures without actively managing the properties or taking part in day-to-day operations. This approach allows investors to avoid the responsibilities of being a landlord while still enjoying all the benefits of real estate. [1]
With a passive real estate investment, investors can generate cash flow without the time-consuming responsibilities typically associated with property ownership.
In contrast to active real estate investing, which often involves hands-on responsibilities such as property management, renovations, or tenant interactions, passive investors typically take a more hands-off approach.
In this setup, another party handles the necessary tasks like tenant screening, property maintenance, repairs, and renovations. As a passive investor, you will be contributing capital but won’t be involved in overseeing the property. [1]
Passive real estate investments offer investors the potential for rental income, capital appreciation, and diversification, all while requiring less direct involvement in the day-to-day activities of the real estate assets.
Real Estate Investment Trusts
A real estate investment trust (REIT) is a financial vehicle that allows individuals to invest in income-generating real estate properties without having to directly own or manage them. REITs are typically companies that own, operate, or finance various income-producing real estate including residential, commercial, and industrial properties. [2]
One notable characteristic of REITs is that they have an obligation to distribute at least 90% of their taxable income to shareholders in the form of dividends. This gives investors a consistent income stream.
Investors can buy shares in publicly traded REITs on major stock exchanges, similar to other stocks. This structure provides a way for investors to gain exposure to the real estate market without the usual challenges that come with direct property ownership.
Do keep in mind that you will not be able to choose which real estate properties to invest in. Since you are investing in the REIT itself, the company will be the one to choose the investment properties.
Real Estate Crowdfunding
Real estate crowdfunding is a modern financing method that leverages the power of the internet and social media. This approach allows multiple investors to pool their funds together in order to invest in real estate projects. [3]
Crowdfunding essentially “democratizes” access to real estate investments by allowing people with varying financial capacities to participate in projects that they normally couldn’t access.
Through online platforms, investors can browse and select specific real estate opportunities and contribute funds to collectively finance the project. Investors can invest in residential or commercial properties. In return, they typically receive a share of the profits or rental income generated by the property.
Private Real Estate Funds
Real estate crowdfunding is a modern financing method that leverages the power of the internet and social media. This approach allows multiple investors to pool their funds together in order to invest in real estate projects. [3]
Crowdfunding essentially “democratizes” access to real estate investments by allowing people with varying financial capacities to participate in projects that they normally couldn’t access.
Through online platforms, investors can browse and select specific real estate opportunities and contribute funds to collectively finance the project. Investors can invest in residential or commercial properties. In return, they typically receive a share of the profits or rental income generated by the property.
Multifamily Real Estate Syndication
REITs, crowdfunding, and private real estate funds are all passive investments in real estate. But if you are an accredited investor, you should also consider multifamily syndication.
Multifamily syndication is a form of real estate syndication, meaning it involves multiple investors pooling their financial resources together to buy a single real estate property. The difference between real estate syndication and REITs is that investors actually own a share of the property. [5]
While a syndication deal can be done with any type of real estate, multifamily syndication is actually the most popular among investors. This is because multifamily properties are associated with strong and consistent cash flow.
Multifamily properties like apartment communities and condominiums have multiple tenants paying rent. This is a good source of passive income—one that is not heavily impacted by vacancies. Even if one or two tenants leave, the cash flow is not significantly affected.
Multifamily real estate properties are also generally more expensive and harder to acquire for lone investors. They are also more difficult to manage because of the number of units available. You may find yourself overwhelmed, especially if you do not know how to be a landlord. All of these problems are solved by multifamily syndication.
Syndication deals are arranged by a syndicator, also known as a sponsor, who puts the deal together, locates the investment property, and looks for investors who will participate in the investment. They are in charge of creating and executing the business plan. As the general partner (GP) in the syndication deal, they will take on most of the responsibilities. [5]
Meanwhile, the investors are only in charge of providing most of the capital needed to purchase the property. They will also pay certain fees to get the investment property running. Other than that, no further input is required from real estate investors.
The syndicator will even handle property management, meaning this is a true passive investment in real estate. Investors can just sit back, relax, and focus on other things that are important to them. You can enjoy the benefits of owning a real estate property without putting in any of the work.
Accredited investors earn a share of the property’s monthly rental income. The syndicator is in charge of distributing profits. This can be done on a monthly or quarterly basis—the profit split will be detailed in the syndication agreement or private placement memorandum (PPM) before syndicators agree to participate. Investors should check these important details before joining.
Depending on the deal structure, investors may also earn a percentage of the equity upon resale. However, every deal is different. [5]
Most syndication deals are exclusive to accredited investors. If you are an accredited investor looking for a passive investment in real estate, multifamily syndication is the way to go.
Benefits of Passive Real Estate Investments
The main reason for wanting a passive real estate investment is to enjoy reduced time commitment while still getting the benefits of owning an investment property. Unlike active real estate investors who are deeply involved in property management, passive investors can focus on other aspects of life that matter to them like spending time with their family.
Through passive investments, investors can experience benefits like real estate appreciation and rental income without the time-consuming responsibilities that landlords have. It is perfect for those who want a more hands-off approach to their wealth accumulation. This also gives you more time to work towards your financial goals. [1]
Passive real estate investing is perfect for investors who simply do not have the time to handle tenant concerns, rent collection, and emergency repairs. Many investors have busy schedules that won’t let them add active property management to their to-do lists. For some, becoming a landlord is just not something they are interested in.
A passive real estate investment also allows investors to diversify their portfolios by gaining exposure to different types of properties. By allocating funds to real estate assets, investors can reduce their overall exposure to the volatility of traditional financial markets like stocks and bonds. [1]
Real estate often exhibits a low correlation with other asset classes. This can provide a buffer during economic downturns, helping to shield the investor’s portfolio from severe losses.
On top of all these benefits, passive real estate investments are also handled by professionals. To those who do not have the expertise to manage properties themselves, this can be particularly advantageous. [1]
Professional management not only ensures the efficient handling of property-related issues but also allows investors to benefit from the expertise of seasoned real estate professionals.
Challenges and Considerations
Remember that no investment is perfect, and even passive investments in real estate come with their own unique challenges. For example, passive investors have limited control over the day-to-day management and decision-making processes in their investment. [1]
Some people may not appreciate this lack of control. All you can do is rely on the expertise of fund managers, REIT executives, and syndicators, so it is important to do your due diligence and work with trustworthy professionals from the get-go
Additionally, passive real estate investments are not immune to economic downturns and market fluctuations. There are plenty of external factors that can impact the performance of real estate investments. [1]
Another thing investors need to keep in mind about passive investments in real estate is that they are generally illiquid, as most real estate investments require a longer holding period to realize optimal returns.
Despite these challenges, many investors find passive real estate investments attractive for their potential long-term returns and the ability to leverage the expertise of seasoned professionals in the field.
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Passive real estate investments attract many investors due to their unique advantages. Whether through REITs, crowdfunding, or private funds, passive investors can diversify their portfolios and generate passive income without the headaches of being a landlord.
At the end of the day, the investment vehicle you choose should align with your financial goals and risk tolerance.
For accredited investors who wish to explore multifamily syndication, it is best to work with a trustworthy syndicator with a track record for excellence: work with BAM Capital. This Indianapolis-based syndicator prioritizes Class A, A-, and B++ multifamily properties with in-place cash flow and proven upside potential. [6]
BAM Capital has established itself as a leader in their industry. This is why accredited investors love working with them. Accredited investors also love BAM Capital’s award-winning investment strategy that mitigates investor risk while creating forced appreciation. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [6]
BAM Capital is also a vertically-integrated company, which means they can handle every step of the syndication process. From acquiring high-quality real estate properties to renovating and managing their daily operations, BAM Capital has it covered.
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
