In recent years, passive real estate syndication has piqued the interest of many looking for true passive income, especially in the realm of real estate investing.

But is passive income a myth?

Many use the term “passive income” when they’re actually referring to residual income, which comes after significant work. Truly passive income, however, often involves passive real estate syndication. This requires giving money you’ve already earned to an expert management team in the form of stock in a company or a sponsor in a real estate syndication. In this blog post, we’ll delve into the world of passive real estate investing, spotlighting the benefits of passive real estate syndication and discussing strategies to help those with capital but no time or expertise build wealth and achieve financial freedom without being a landlord.

Understanding Passive Income

To begin, it’s essential to differentiate between active and passive income. Active income is what you earn through work or business activities, while passive income is money you make without actively working for it. Many people mistakenly think of real estate investing as passive income. In reality, traditional real estate investing often involves significant work, such as managing properties, dealing with tenants, maintaining buildings, and even managing a property manager.

In contrast, truly passive income “requires giving money you have already earned to an expert management team in the form of stock in a company or a sponsor in a real estate syndication. That team then generates a return on your money for you, completely passive.” This approach allows investors to leverage the expertise of professionals who handle the day-to-day operations of the investment, leaving them free to focus on other aspects of their lives.

The Journey from Wholesaling to Passive Real Estate Investing

Many real estate investors begin their careers with active strategies like wholesaling, where they find undervalued properties, get them under contract, and then assign the contract to a buyer for a profit. As one of the podcast hosts explains, “He’s trading hustle for money. What happens is that guy typically, as they have more and more success and start doing better and better, they start realizing that they’re passing on a lot of good deals.”

This realization often leads investors to explore other strategies, such as flipping houses or becoming a real estate agent. However, these approaches still require significant time and effort. Eventually, investors realize that “the day you stop working is the day you stop getting paid.” This epiphany leads many to seek truly passive income sources like real estate syndications.

Introducing Real Estate Syndications

Real estate syndications are group investments in which multiple investors pool their money to buy a larger asset, like an apartment building, self-storage facility, or mobile home park. A “sponsor” or “syndicator” with experience and expertise in the particular type of asset manages these investments after that.

As Clint Harris describes it, “A real estate syndication is a group investment when a group of investors joins together to invest in a larger asset that they could not ordinarily invest in on their own, like a large apartment building, like a self-storage facility, or a mobile home park, and it’s usually with the efforts of what is called a sponsor.”

Why Real Estate Syndications Are Considered Truly Passive

One of the main reasons why real estate syndications are considered truly passive investments is that the sponsor takes care of everything, from buying and managing the property to selling it when the time comes. This lets the passive investors, who are limited partners, enjoy the benefits of the investment without having to take on the responsibilities and spend the time that comes with traditional real estate investing.

“It’s a truly passive income strategy for people that go in as limited partners, which means they just put capital in and then, vet the deal and watch it come to fruition.” This approach enables investors to build wealth and achieve financial freedom without having to become landlords or actively manage properties themselves.

The Benefits of Diversification in Passive Real Estate Investing

In addition to the fact that real estate syndications are truly passive, they also give investors the chance to spread their investments across different asset classes and locations. By putting money into more than one syndicate, investors can spread their risk and possibly make more money overall.

By spreading out their investments, passive real estate investors can protect themselves from changes in the market and reduce the risk that comes with having all their money in one place or asset.

Choosing the Right Sponsor for Your Passive Investment

Choosing the right sponsor to take care of your investment is one of the most important parts of passive real estate investing, its importance often outweighs the importance of the specific deal. For the syndication and your journey to passive income to work, you will need a sponsor with a good reputation and a lot of experience.

When evaluating potential sponsors, consider their track record, expertise in the specific asset class, and ability to communicate effectively with investors. It’s also essential to understand the sponsor’s fee structure and how their interests align with those of the investors.

In the end, many people may say that passive income is a myth, but the world of passive real estate investing is a good way for people with money but little time or experience to become financially free. By investing in real estate syndications and taking advantage of the knowledge of professional sponsors, investors can build wealth without having to be landlords or take care of properties themselves, and they can focus on the important things in life, like family.

If you are interested in learning more about investing passively in real estate syndications, download our FREE passive investor toolkit.

Listen to the full episode of the Truly Passive Income podcast, where experts in the field share their thoughts and experiences, to learn more about passive real estate investing and ways to achieve financial freedom.