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  • Writer's pictureBurton Capital Group

What is Passive Investing?

Passive investing in commercial real estate can be an excellent way for a person to protect and grow their money. Professionals in all industries are taking advantage of the benefits of passively investing by pooling their money with other investors to purchase assets that would otherwise be unattainable. This model is referred to as a syndication. Syndication provides benefits including, but not limited to, ease of investment, financial protection, and investment growth.

Passive investing can be broken down as follows: A working professional begins by contributing a financial investment to an expert syndicator of their choosing. These expert syndicators consist of people devoted to finding the most advantageous assets that have the greatest prospects of seeing a propitious return. The money exchange flows from the investor to the group, and finally, to the asset they are trying to acquire, such as a multifamily residential property. In return, the investor becomes a partial owner of the chosen asset, which includes receiving return payouts from the success of the investment.

The syndicator takes care of all of the decisions, maintenance, renovations, upkeep, and any conflicts that may arise. In the meantime, the investor can go about their daily life, and continue to work their job while the investment begins to grow and increase in value affording them financial protection. Passive investing is an ideal way for people to enter the real estate investment space without having to neglect any aspect of their personal or professional lives. Many professionals, such as doctors, lawyers, engineers, accountants, etc., do not have enough time on their hands to do research, acquire assets, and maintain them properly. However, allowing experienced syndicators to conduct business on behalf of the investors ensures that adequate time and attention will be given to the investments.

The money that the investor contributes can be protected by a variety of measures. The first measure of financial protection relies on the importance of choosing the right syndicator. Ample time, research, and resources being deployed are crucial to finding the most advantageous property to purchase. Finding the right syndicator to accomplish this while meeting the investors’ financial goals is of the utmost priority. When the property is purchased through the syndication, financial protection comes through high occupancy rates and is grown through improved property renovations. Demand for multifamily units across generations is high, lending itself to high occupancy rates and, therefore, high monthly rental income. In addition, with a multifamily property, even if a few tenants decide to leave, there is still protection as other tenants continue to stay and pay monthly rent. Investment return can be grown through making renovations to the property by means including installing new appliances, updating the flooring, adding amenities, or structural improvements.

Through renovations such as this, the syndicator focuses on increasing rental revenue from existing tenants while attracting new tenants. Coinciding with this, syndicators seek ways to lower expenses, therefore maximizing proceeds when the time comes to sell. Once a deal is completed with the selling of a property, the investor has more capital to invest in the next deal or in multiple deals. Compared to active investing, passive investors will often incur fewer fees and tax benefits, allowing for more investment growth.

Passive investing affords business professionals across different industries an ideal strategy to protect and grow their money. It is a strategy maintained and carefully watched over by a chosen expert syndicator that seeks to make a gradual return through rental income and renovations. Busy professionals can go about their daily lives knowing that their chosen multifamily syndication is working hard each day to make all who are involved money.

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