Passive Investing

A real estate fund is like investing in a mutual fund (if you’re familiar with how those work). It’s a collection of capital used to make real estate investments, whether directly or indirectly. These real estate funds may be mutual funds, private equity funds, or exchange-traded funds (ETFs).

You can be hands-off! All you have to do is put your investment in, and then you get to kick back and let other people handle it. Funds also allow for added flexibility and diversification in your portfolio.

No. While they operate similarly in terms of how you invest in them, you are investing in something different. A real estate fund is pooled money from investors, while investing in a REIT is buying stock in a corporation that invests in income-generating real estate. So you’re investing in the corporation rather than the real estate assets directly. Fun fact: a real estate fund can be invested in a REIT!

When you invest in a syndication, you’re pooling your money alongside money from other investors to, jointly, invest in a larger property (one you wouldn’t normally afford on your own). There’s a syndicator—the person who finds the deals and handles everything involved with the transactions—and there’s the investors. Oftentimes investing in syndications is referred to as “crowdfunding”.

Syndications allow an investor access to larger-scale properties that they may not otherwise have been able to invest in on their own (hotels, large apartment buildings, etc.) Another related advantage is not needing to have the specific skillset to handle that level of property—you’re just a passive investor while someone more experienced manages the entire transaction. Investing in syndications is about as hands-off as it can get.

Yes. Similar to investing in real estate properties directly, you can get pass-through tax benefits when investing in syndications. Some of the specific tax benefits you can experience are: depreciation, lower capital gains tax rates, mortgage interest deductions, 1031 exchanges, and carryover losses.

Per the SEC, an Accredited Investor has to meet one or more of the following criteria year over year:

• Income. Has an annual income of at least $200,000, or $300,000 if combined with a spouse’s income. This level of income should be sustained from year to year.
• Skills. Is a “knowledgeable employee” of certain investment funds or holds a valid Series 7, 65 or 82 license.
• Net Worth. Has a net worth of $1 million or more—either individually or together with a spouse, but excluding the value of a primary residence.

In many cases, yes, you have to be an Accredited Investor to invest passively. Some exceptions to this are if you’re investing in privately-held syndications, REITs, or are an international (from outside the U.S.) investor.

It’s completely up to you, your comfort levels, and your preferences. For example, some people are just too nervous to own real estate directly and prefer passive options where someone else manages the investment, whereas other people are uncomfortable when someone else is in charge and prefer to own properties directly so they can be in control of everything that happens. If you aren’t sure what option is best for you, let Ali help! Check out our Coaching page and get scheduled for a session!