What is Passive Investment?
Passive investment refers to the strategy in which investors buy-and-hold investments rather than actively trading them. Passive investing in real estate multifamily properties or construction projects is a simple way to diversify your portfolio along with other investment streams.
What are the benefits of investing with a Real Estate Investment Company?
- Lower Barriers To Entry
Passive investment has substantially lowered entrance barriers more than active investing. You are not required to consult a multifamily specialist and do not need a thorough understanding of the processes used to buy and manage the assets. Instead, passive investors merely need a connection to a syndication/investment sponsor who will provide them with the investment possibilities. They may also need to qualify as a “accredited investor” in some types of transactions, which implies they must fulfill specific income and/or net worth standards.
Multifamily syndication companies are industry professionals with years of experience and background in real estate. Passive investors that partner with them increase in profits, contacts, knowledge and time. These are incredibly significant assets in commercial real estate investments that may boost investment profits and diversifies portfolios.
- Better Properties
One key disadvantage to active investment is the limited number of resources available to one individual. Multifamily investment businesses have the capacity to raise funds from a wide number of real estate investors, meaning a bigger collection of money. This implies they can afford to acquire higher-quality apartment buildings in better locations with more consistent income flow. Individual investors may find it more profitable to acquire a fractional share of a high-quality asset rather than a whole share of a lower-quality asset with more hands-on work.
- Passive Income
A multifamily investment businesses usually partners with a property management company to manage the day-to-day operations of the property. For individual investors, this implies that perhaps manager handles all of the hard work of property management, and they are entitled to a portion of the remaining revenue after all of the property’s running expenditures have been met (including debt service).
In other words, a passive investment offers investors the benefits of multifamily ownership without the headache of property management. This provides them with passive income, allowing them to devote their time to other pursuits.
- Tax Efficiency
Investments with a multifamily transaction sponsor are organized in a tax-efficient manner, providing two significant tax advantages to individual investors.
First, the apartment complex is acquired in the form of a limited liability corporation, which is organized similarly to a corporation but taxed similarly to a partnership. All property revenue and costs are routed via the LLC, with any remaining funds “given” to individual investors. In the individual tax burden is reduced as a result of this structure.
Second, by executing a unique form of transaction known as a 1031 exchange, individual investors can delay capital gains taxes on a lucrative investment. These trades have no time restriction and can be performed forever, allowing for tax-free capital development while postponing taxes eternally.
- Relative Stability
A multifamily real estate investment is frequently contrasted to other viable choices, such as those in the stock or bond markets. Because many passive assets are not publicly traded, they benefit from price stability not observed in publicly traded debt and stock markets. Investing with a multifamily investment company allows passive investors to do so with lower risk than if investing actively.
If you would love to reap the benefits of having a passive income stream by investing with a multifamily investment company, contact us today!