Your Real Estate Investing Journey
When was the last time you went on a road trip? No doubt, although you may have made the occasional pit stop, detoured to see attractions or friends or relatives, you chose the fastest most convenient way to do this. Why should you be any less intentional about gaining your true passive income? One roadblock people unknowingly encounter is that they don’t know what true passive income is. They have never experienced it and unfortunately for some, they never will.
What Is The True Definition Of Passive Income?
“I own a few rentals and I barely do anything, just collect rent every month”, “Ever since I listed my guest bedroom on Airbnb, I’ve been making buckets of cashflow”, “I just flipped this house for two times what I bought it for and all I did was repaint it!” While all of these seem to be profitable ventures, none of them are producing passive income.
True passive income is income from an investment where your actions are not directly responsible for the success of the investment. This means you can sit back on the beach, soaking up the warm sun, sipping your favorite beverage while your income grows passively. This means you can be watching your kid hit the winning home run in the ninth inning of the championship game while your income grows passively. Why? Because true passive income does not require you to be present in any specific place for any specific amount of time in order to gain this income. You are not trading your time for money. This income is completely passive. However, though it is freeing it is not free. To gain these benefits you must first invest capital in one of the most efficient investment vehicles for passive income – Real Estate Syndication.
What Is a Real Estate Syndication?
Simplified, real estate syndication is the pooling of resources (financial or otherwise) among investors, to acquire an income producing real estate asset where profits are shared between the pool of investors. A group of people come together to make a purchase that one individual working alone would be unable to on his/her own and they all share in the benefits.
Its theoretically so simple that you may wonder why you had not thought of it before. Well previously this form of investment, due to heavy SEC (Securities and Exchange Commission) regulation, was reserved almost exclusively for the rich. Thanks to new legislation passed in the last decade this investment vehicle is no longer just private country club conversation for the rich and wealthy. You too can invest in this way and feel the freedom passive income provides.
Real Estate Syndication Partnership Structure
Syndications are legal partnerships formed between general partners (active investors, GPs) and limited partners (passive investors, LPs). While GPs provide some capital, the majority is sourced from LPs. The general partners (GPs) do the heavy lifting and decision making allowing the limited partners (LPs) to enjoy true passive income. For some investors this arrangement is ideal, for others it may be unappealing as they would rather not share any of their profits even if it means making less, taking on more risk or taking longer. If you’re one of these do-it-yourself lone wolfers, consider the following scenario.
What is the fastest way to get from San Francisco to L.A? You could fly or drive by yourself and it may even be cheaper than flying. San Francisco to NYC? While a bit more daunting you could drive by yourself if you had the time. Having a partner to switch out with when you get tired may shorten the trip however, flying once again would be the fastest. How about San Francisco to London? You could drive then take a sailboat but again flying would be the fastest option. To drive this point home, the farther you want to go, and the faster you want to get there the more likely you will have to fly and get other people involved. It’s the same with investing, the farther you want to go the faster you can get there by working in partnership with others.
Have you ever thought about how many people it takes to make a flight successful? From the airplane mechanics, baggage handlers, air traffic controllers, flight attendants, pilots, down to the passengers sitting right next to you. All these people made this flight not only possible but affordable. Like limited partners, passengers’ actions are not responsible for guiding the airplane to a successful landing. The experience and expertise of the flight crew and pilots keep you comfortable and safe on your way to your destination. They look out for and prepare you for any turbulence that may be up ahead. The general partners are the pilots in a syndication.
The passengers are also important, they each bought a ticket, money from this ticket pays for airplane fuel, maintenance, staffing etc. While airline tickets are quite expensive imagine how expensive they would be if you were the only passenger and your payment alone had to cover all these expenses? The limited partners are the passengers on the flight, their capital contributions help to fund the flight and make it possible and affordable. Because each person is contributing a smaller amount they are also putting less of their own capital at risk, they can also afford to take more flights or make more investments. Sure, you can still drive from San Francisco to NYC and boy would you have a great story to tell but remember there are far more accidents involving automobiles than there are involving airplanes.
This article was originally published on investwithare.com and is being reproduced here for the benefit of our members.