Balancing Active & Passive Real Estate Investments

Roughly half of our investors have never owned real estate as an investment on their own, they knew right from the start they wanted to be passive and saw better opportunities for their situation with passive syndications.

For the other half, I’m regularly asked my opinion on balancing passive investments with their active portfolio of single family or 2-4 unit properties they’re purchasing on their own.

Here are the top 5 ways that I see passive syndications fitting into an active portfolio.

1 - Diversification of location

It gets tougher to buy and manage properties the further away from your backyard you get. But the numbers show us that most people live in places where they may not want to invest in (think NY or LA).

Syndications can expand your reach into new markets without you being physically present, needing to know the market intimately, or being on site or establishing a local team.

A great sponsor team will handle all of this for you and essentially open up your portfolio to every market in the country, even growth markets before they’re in the headlines.

2 - Diversification of asset class

It’s much more common for a single investor to purchase 1 - 4 unit properties on their own, but much less common to expand to larger apartment buildings (think 100+ units), self storage facilities, RV parks, mobile home parks, short term rental portfolios, and many other asset classes that could complement your active portfolio.

With every new asset class comes a learning curve that can cost lots of time and money, a great syndication team will have already gone through that learning curve and should be able to curate great properties in other asset classes, and even specialize in that specific asset class.

This allows you to have diversification into other assets in the same markets or further markets.

3 - Depreciation (Please consult your CPA, NOT tax advice)

Depreciation is a major key to real estate investments. By leveraging depreciation you can continue to defer taxes on other sources of passive income, including your current rentals (make sure you consult your CPA first).

Depreciation does run out, so it takes new deals to continue kicking the tax can down the road, and sometimes syndications can be the best avenue for capturing depreciation to offset your gains for upcoming years.

There are even asset classes that would likely be impossible for you to invest in as a solo investor that have even more depreciation benefits, like oil & gas currently.

Some of these assets could offer larger depreciation percentages and more favorable depreciation timelines.

4 - Reduce mental capacity

With every new investment comes a price on your mental capacity. As you grow your portfolio, you’ll undoubtedly need to make space on your calendar and in your mind to account for more assets under management.

Even with effective property management, as you grow your portfolio you could find yourself buying another job with each investment.

Passive syndications help you free your time and mental energy for other projects or personal benefit.

5 - Dealflow

There’s a very popular saying in real estate investing: “You make your money when you buy”, meaning the purchase is one of the most important aspects of the deal. Great purchases take lots of time and underwriting.

Most passive investors don’t want to dedicate the time to underwriting the amount of deals needed to find the great ones. By turning to syndications, you can have dealflow delivered to you from institutional sized teams with full time underwriting staff who sifts through the hundreds of unqualified deals before delivering the best of the best straight to you.

Chances are, if you want to replace your income with passive income, you’ll need a fairly large portfolio, so adding syndications to the mix can help expedite the time you can have the amount of deals you need to have a big impact on your life.

Conclusion

Half of our investors have never bought a deal on their own, and they’re extremely happy with that decision.

The other half plan on having their hands in both active and passive investments. If that’s you, I hope this article helped give you some insight on fitting passive deals into your active deals and how they can work together to create the future you want.

If we’re not connected on LinkedIn yet, connect with me here:

https://www.linkedin.com/in/the-presidents-club-investor/