One of the many ways to generate passive income is to buy a rental property. However, unlike most other passive income investment options, real estate investments often require that you actively participate in the business to generate income. Unless you hire a property manager, you’d need to find and manage the tenants, take care of any maintenance, and pay all the bills.
There are many other ways to passively invest in real estate without buying a rental property. One that mimics direct ownership without any of the management responsibilities is participating in real estate syndications. They allow you to become a limited partner in a single real estate asset without lifting a finger to collect the passive income.
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What are real estate syndications?
A real estate syndication is when a group of investors pools their money to purchase a property that would be too large for a single investor to buy, like an apartment complex, office building, or warehouse. The sponsor of the deal, known as the general partner (GP), will identify an attractive property they desire to purchase and offer other investors, known as limited partners (LPs), the ability to participate in the deal. The sponsor, usually an established real estate company, will manage the property or hire a property manager on behalf of limited partners. Many sponsors will offer the opportunity to invest in a real estate syndication deal via an online marketplace like CrowdStreet or EquityMultiple or directly through their website.
Why consider a real estate syndication deal?
Real estate syndication deals have several benefits:
Earn passive income: Once an acquired property has stabilized, the GP will start making cash distributions to LPs. It’s truly passive income because you’re an investor in the property, not the landlord.
Participate in the property’s long-term upside potential: LPs own equity in the underlying property. Because of that, they benefit as it appreciates in value, realized through a refinance or the eventual sale of the property.
Invest alongside experienced real estate professionals: GPs tend to have a lot of experience owning and managing real estate throughout the market cycle. Because of that, LP investors can invest alongside experienced real estate professionals with excellent track records.
Diversify your portfolio: The value of private real estate investments doesn’t follow the stock market’s daily gyrations. Because of that, they do a better job than publicly traded REITs at diversifying an investor’s portfolio from the volatility of the stock and bond markets.
Access to properties you can never afford to buy: While real estate investors might be able to afford a duplex or a couple of single-family homes, they likely don’t have the capital to buy an apartment complex or office building. With real estate syndications, you can own a piece of a property you couldn’t otherwise afford to buy.
The cons to real estate syndications
One caveat is that most real estate syndications are only open to accredited investors. To qualify, an investor needs a net worth of over $1 million (excluding the value of their primary home) or an income above $200,000 annually ($300,000 if married). While many investors likely don’t currently meet those qualifications, they could eventually qualify if their net worth grows to exceed $1 million. It’s also possible that the SEC could make changes to the definition. Meanwhile, there are occasionally opportunities open to non-accredited investors.
Another detracting factor is that most real estate syndications have a high minimum investment, usually between $25,000 and $50,000. That’s a much higher minimum than many other real estate investments, such as a real estate investment trust (REIT). However, it’s lower than the typical initial investment required to purchase a rental property.
These are also illiquid investments. Many syndication deals have three- to 10-year holding periods, and you can’t sell your LP investment until the GP decides to sell the property.
A final issue with real estate syndication deals is the fees. Most GPs make money through a promote, a percentage of the returns above a certain threshold. They can be substantial, with profits often split 20% to 30%/80% to 70% between the GP and LPs upon a refinance or sale of the property.
Real estate syndications offer a passive alternative to rental properties
Rental properties often require active management, making them a less passive investment. On the other hand, real estate syndications are passive investments managed by seasoned real estate professionals. Further, they provide access to property types an investor couldn’t afford on their own, enabling them to diversify their real estate portfolio. That makes them worth a closer look for those who qualify as accredited investors and have the capital they want to invest in generating passive income from real estate.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
