Why We Absolutely Love Investing Passively In Real Estate Syndications (And Why You Should Too)

by | Investing

Why We Absolutely Love Investing Passively In Real Estate Syndications (And Why You Should Too)

A few months ago, my wife, Linh and I got a call from one of our tenants.

“Hey. We’ve got some bad news. The unit is flooding again. Can you come fix it as soon as possible?” 

We were on our way to an event. I had to cancel, drop what I was doing and help resolve the issue with our tenant. 

The whole situation is not one I am fond of recalling and one which I don’t wish upon anyone else who is a landlord!

How We Got Here

My wife and I started investing in real estate and stocks right out of college. Through our experiences, real estate has been the best vehicle to create wealth over the last decade or so.

But my goodness. It sure has come with its fair share of headaches. Tenant evictions, flooding, broken pipes, you name it, the list goes on…

A few years after the birth of our first child, I experienced a job layoff.  We had a well-stocked savings account at the time. However, we knew it would diminish quickly if I don’t find another job. That’s when we realized we cannot rely on our W2 jobs for financial security. I decided I didnt want to go back to the corporate world. I started trading stocks and decided to start flipping houses and managing our small portfolio of single family rentals. 

The cash flow generated through rentals was great, but being a landlord became a hassle. We were on call and constantly dealing with never-ending tenant issues.

We knew we had to scale for the numbers to have an impact. During this time, while I focused on real estate, Linh was working in her W-2 finance/accounting job where reporting deadlines & requirements were increasing in number and complexity by the day! We were both busy professionals!

Outside of work, our days are centered around birthday parties, and play dates. Sleeping in on the weekends? Ha! Yeah right.  We were also busy parents!

So, after several years of fix &, flips, and managing single family rentals. We came to realize that it was impossible to take on additional projects without putting more effort. We were also busy with our kids and balancing out quality time was a challenge. 

While we love being active real estate investors. We love to contribute to society & provide clean and safe housing for our tenants.

However, we’ve also had a taste of what it’s like to invest passively on the apartment syndication side.

At the end of the day, as busy professionals and parents, what works for us without adding additional stress and work on our plates, is investing passively in real estate syndications. We get to invest in a powerful asset and get great returns, without putting in the additional work.  

What is a Real Estate Syndication?

In simple terms, syndication is a group investment where a group of investors pools their money to invest in something together that they otherwise would not be able to afford on their own. In the case of a real estate syndication, investors come together to invest in multimillion-dollar commercial real estate assets, like apartment complexes, self-storage buildings, and mobile home parks.

The beauty of a real estate syndication is that you can leverage other people’s time, energy, and expertise.

As busy professionals with kids, we can use all the leverage we can get.

In a syndication, the Sponsors or the General Partners are active investors. They are the ones  who know the ins and outs of that particular market, who spend time getting to know the real estate brokers, who visit the properties and walk the units, who pore over the due diligence documents, who work with the property managers day-to-day.

As a passive investor in a real estate syndication, we get the opportunity to partner with a team with a strong track record. The only work involved for us is picking the right investment. Every deal we invest in helps diversify our portfolio. We are investing in different cities and states where the returns are stronger, with different sponsors, and in different asset classes. All the while, we are doing next to no work.

That’s right, you heard it correctly. we get to invest in real estate without having to do any work.

So when the tenant in unit 200 is late in paying her rent? No problem, our bank account is fine.

Does the neighbor have complaints flooding in 180? We don’t have to deal with that either.

Is the toilet not flushing properly? The property maintenance guy will take care of that!

The sponsor takes care of all of that, and we get a neat little monthly report on the progress and updates.

Can you see how as a passive investor, this frees up so much of your time so you can do what you want to do? Like taking your kids to their swimming classes without being interrupted by your tenant telling you to come fix their clogged toilets? 

What’s the Catch?

By now, you must be wondering, what’s the catch? This sounds way too good to be true. I thought the same thing when I first started.

I hate to disappoint you, but there is no catch.

In a real estate syndication, everyone works together, and everyone wins.

Think of a real estate syndication like an airplane ride. The sponsors are the pilots. They do the actual work of flying the plane. If a warning light goes off, the pilots deal with it.

The passive investors, on the other hand, are the passengers. They get to enjoy the ride while reading, watching a movie, or dozing off. They don’t have any responsibilities in making sure the plane gets to the right place safely. They’re just along for the ride.

The Sponsors get a cut of the deal for their work, just as a pilot gets paid for flying the plane. The lion’s share of the returns, though, go to investors, even though they’re doing the mouse’s share of the work.

In a syndication, just as in an airplane ride, everyone works together and is going to the same place.

What do Returns Look Like?

Returns in syndications can vary because every deal is different. The asset itself is unique in every syndication, and so is the business plan. Some properties are stabilized and newer, so, therefore, require fewer renovations. Others maybe a little more distressed and will require more work.

While all deals are different, one consistency is that we have a minimum return requirement for the ones we invest with. We look for opportunities where the cash-on-cash return is between 7 to 10 percent per year, and the business plan is to hold the property for a projected 5-7 years. When factoring in the profits from the asset’s sale at the end of the 5-7 years, the average returns are around 15 percent per year. Not bad, right?

For example, if you were to invest $100,000 in one of these real estate syndications with us and the business plan is for five years, you could expect around $7,000 per year in cash flow distributions. On top of that, when the asset sells in year 5, you could expect another $60,000.

What that means is that in 5 years, you would likely double your initial $100,000 investment all without lifting a finger or fixing a single broken toilet. 

How to Invest in a Real Estate Syndication

The process to invest in a real estate syndication is a bit different than buying a rental property. For one, you can’t just go up to a broker and ask about a syndication. It doesn’t quite work that way.

Instead, to find real estate syndication opportunities, you need to find sponsors who have deals currently under contract. Often, because of SEC regulations, sponsors cannot publicly advertise deals, so they can be hard to find unless you know someone who knows someone.

Luckily, now you know someone who knows someone. (Hint: It’s us.)

At Wealthstream Investments, we specialize in both sourcing investment opportunities and connecting passive investors to other sponsors in growing markets. We do the heavy lifting of finding and vetting sponsors and deals. We cherry-pick the best deals in growing markets, and make them available to our investors.

We got into this business because we’re looking for deals we want to invest in ourselves. When a deal meets our strict criteria, we like to share it with our investors and give them the opportunity to partner with us.

What Do We Get Out of It?

We’re in the business of helping you build wealth through real estate investing in the most passive way possible while making an impact.

We wished someone had shown us the ropes and helped us discover syndications a lot earlier! That’s what sparked our passion for educating others, providing insider knowledge, and sharing the exclusive deals we come across with our investors.  

Through each investment, we have the opportunity to change the lives of hundreds of families and whole communities. Each syndication we invest in creates a cleaner, and nicer place to live and positively impacts the community and the environment.

We understand what it’s like getting into this space and not knowing who to trust, what to look for in a deal, and what all the real estate terminology means. We spend a lot of time and effort vetting sponsors, and finding great deals. When we find them, we partner up with the sponsors and join the general partnership.

As such, we get a cut of the sponsors’ fees and equity in the deal. That means that, as an investor, you invest your money directly into the deal; you don’t pay us any extra fees.

Conclusion

We know real estate is one of the best wealth-building vehicles out there, and our goal is to help you build wealth through passive income, so you can live life by design. We have also been in your shoes once and want to share this formula so you can own real estate without the hassles of being a landlord. 

Want to Learn More?

Ready to learn more about passive investing? Join our community and sign-up here for the Wealthstream Investor Club. Next, please schedule a call on our calendar so we can learn more about you and your investing goals. As a part of our community, we’ll stay in touch with you through newsletters, blogs, and educational content to help you become a well-informed investor. Our members are notified first when a syndication deal passes our stringent vetting process and becomes available.