I have had rentals for 2 years now. We recently sold our Fort Collins single family rental and we still have one rental in Pensacola Florida, where my family lives. These two properties have taught me a lot about how to analyze a deal, how depreciation works, how to build passive income streams, and the tax benefits of real estate.There was one conversation that made me consider if single family rentals were long term what was meant for me.
A couple of years ago I was speaking with one of my clients about what their day job was, this gentlemen flew drones for a living and I knew the revenue from this side hustle was not his main income stream, so I had to ask. He told me that he worked for a real estate syndication company. I had never heard this term so I asked him what it means. He broke it down simply and said that, rather than buying 1 apartment for say $100,000 and renting it out, his company would buy 150-200 at a time and get them for $60,000 a piece and rent them out. That triggered it for me and I understood at that point the economies of scale that multifamily apartment complexes created for a real estate investor. Once I was aware of this type of asset to invest in, I went down the rabbit hole and quickly learned about the benefits of real estate syndication’s when investing in multifamily, mobile home parks and storage units.
Some of the benefits of syndication’s include:
- Passive Investing – hands off, passive investing unlike my single family homes.
- Diversification – within a fund I can invest in apartments, mobile homes, storage units diversifying my portfolio across multiple asset types. You can also diversify in terms of the geographic region or the sponsor who I invest with
- Forced Appreciation – unlike single family homes that are priced based on comparable homes, commercial real estate us valued based on Net Operating Income (NOI). The teams I invest with purchase properties that have rents under market value, units may need improvements, utilities may not currently be paid by the tenant, or there are exterior improvements that are needed on the complex. All of these leave opportunity to improve the property and increase NOI.
- Cash Flow – who does not love monthly or quarterly cash flow from renters? Monthly cash flow from properties is a great passive income stream.
- Tax Deferred Status – Deferring taxes allows investors to compound your earnings year after year vs. paying taxes the year they are due!
- Less Risk – if someone does not pay my single family rental’s rent, I am 100% out of that income for the month, and I pay the $1200 mortgage. OUCH! With commercial syndication’s if one tenant does not pay rent that is ok because through economies of scale majority of tenants are paying rents therefore reducing my risk exposure.
Millionaires on average have 7 streams of income. Real Estate Syndication’s are one of, if not the best way to earn passive tax free income early in life so that you can be financially free before your retirement years. I hope this helped you learn more about commercial real estate.