Real estate investing has changed a lot in the past few decades. When I started over 20 years ago, there wasn’t social media, and learning the ins and outs of investing was a much more isolated experience. But today, new investors have an abundance of resources, from online communities to free guides and courses, that give them a solid understanding of the industry. And one of the biggest changes? The growth of syndications.
If you’re looking for a way to build wealth in real estate without taking on the role of an active landlord, passive real estate syndication might be the right fit. Through syndications, you can become a passive investor while still reaping the benefits of property ownership — including cash flow, tax advantages, and appreciation. Let’s dive into how syndications work and why they might be worth considering.
What Is Real Estate Syndication?
At its core, real estate syndication is a partnership where investors pool their money to buy larger properties than they could on their own. Typically, there’s a “sponsor” or “syndicator” who does all the heavy lifting: finding the property, conducting due diligence, securing financing, and managing the asset. You, as the investor, contribute funds but have no active role in the property’s day-to-day management.
Here’s the beauty of syndications: you get all the benefits of owning real estate — including cash flow and depreciation (which we’ll get into) — without the headaches of being a landlord. You don’t have to find the property, negotiate with tenants, or deal with repairs. If you’re someone who already has a full-time job or other commitments, this approach to real estate allows you to grow your wealth without spending hours managing it.
Why Syndications Weren’t Always an Option
When I got started, syndications were far less common. Back then, if you wanted to invest in real estate, you were mostly on your own unless you went through a real estate investment trust (REIT), which lacks many of the ownership benefits of direct real estate investment. And for the most part, you had to go the active route — buying and managing properties yourself, dealing with contractors, tenants, and all the other details that come with property ownership.
Syndications have opened up a new path for people who want the benefits of real estate without the hassle. So now, if you don’t have the time or interest in active management, you still have options.
The Benefits of Passive Real Estate Investing
One of the biggest reasons investors love syndications is the passive nature of the investment. With syndications, you’re leveraging the expertise of professionals who’ve already cracked the code on their niche. Take me, for instance. My specialty is multifamily properties — that’s my swim lane, and I know it well. But if I wanted to diversify into something like storage units or medical office buildings, I would consider teaming up with a syndicator who’s an expert in those spaces. I’d rather rely on their know-how than start from scratch.
Syndications offer a unique set of benefits that are appealing to many passive investors:
- Tax Advantages: One of the lesser-known benefits of real estate investing is the tax depreciation that comes with it. Syndications often include a cost segregation study, which accelerates depreciation on the property, creating “paper losses” that can offset your investment income. This is particularly helpful if you’re looking to reduce your tax burden.
- Consistent Cash Flow: Syndications often provide regular cash distributions to investors, which is perfect for those looking to supplement their income without active involvement.
- Diverse Asset Opportunities: Maybe you’re interested in diversifying your portfolio with something outside the stock market, like multifamily properties, storage units, or even retail. Through syndications, you can invest in properties you might not have had access to otherwise.
- No Day-to-Day Management: For busy professionals, this is huge. You’re not the one getting the call if a tenant has a problem or a pipe bursts in the middle of the night. The syndicator handles all of that.
Why Active Experience Can Strengthen Passive Investments
Now, if you’re thinking about syndications, you might be wondering if you should dive straight into passive investing or start by owning a property yourself. Personally, I encourage new investors to consider at least one active deal early on. There’s tremendous value in experiencing firsthand what it takes to manage an investment property — you’ll learn everything from tenant issues to contract negotiations to dealing with banks. These skills are valuable if you ever decide to go passive because they help you understand what questions to ask and what to look for in a syndication deal.
When I chat with investors who already own properties, they ask insightful questions about syndications because they’ve experienced real estate themselves. They know what it’s like to manage a property, and that experience translates into better decision-making when evaluating syndications.
How to Decide If Syndications Are Right for You
If you’re considering real estate as a way to build wealth, you need to ask yourself how much time you have to dedicate to it. If you have the time and interest, maybe start with an active investment to get a feel for the industry. But if you’re busy with a full-time career, syndications can be an excellent option.
Here are a few things to look for when choosing a syndication:
- Experience of the Syndicator: You want someone who knows the market inside and out and has a successful track record.
- Transparency and Communication: A good syndicator will communicate regularly and provide clear updates on the project’s progress.
- Market Knowledge: You’ll want to know that the market is solid, with job growth, infrastructure expansion, and other economic factors that support rental demand.
- Investment Strategy: Understand whether they focus on value-add opportunities, long-term holds, or other strategies that align with your goals.
Taking the First Step
Whether you decide to invest actively or passively, the most important thing is to start. Real estate investing is a long game — it’s not about getting rich overnight. But over time, the returns can be significant, especially with the right team and the right investment strategy.
If you’re ready to take that first step, I’m here to help. My mission is to guide professionals like you toward financial independence, and syndications are just one of the tools we can use to get there.
Have questions about getting started with syndications? Reach out! I’m always here to share what I’ve learned over the years and help you find the right path in real estate.
Book a Free Strategy Session Now! Or email me at TonyLopes@dirtybootscapital.com.
