Using Real Estate Syndication to Create an Additional Stream of Income (Passive or Active)

The way U.S. companies provide for retiring workers has been shifting over the past thirty years and the shift is from offering traditional pensions to dropping pension plans and transferring the responsibility to individuals to plan and manage their own retirement savings. The National Public Pension Coalition reports that as late as the early 1990s, about 60 percent of full-time workers at medium and large (U.S.) companies had pension plans. By about 2015 that number has dropped to approximately 24 percent of workers, and the number is expected to continue to fall.

With the responsibility of funding ones retirement shifting to the aging worker, it is becoming more and more critical to look at ways to replace the previously heavily relied upon pension plans.

Most people understand the difference between Active and Passive Income. An example of Active Income is a worker with a 9-5 job, working 40+ hours a week, Monday through Friday, for 20-30-40 years. When the worker stops working, his income stops. With pensions quickly becoming a thing of the past, workers increasingly have to rely on savings to live in retirement.

Passive Income, on the other hand, is income that the Internal Revenue Service defines as coming from only two sources: rental activity or trade or business activities in which you do not materially participate.

Although many investors initially get involved in real estate by physically flipping residential single family houses, we are going to touch on rental activity here, and specifically Syndication. Many investors invest passively in a syndication, meaning they pool capital with others for the purchase of a property. Finding, assessing, negotiating the purchase, raising the capital, managing the day to day and the sale or refinance are done by someone else. The investors generally receive a periodic distribution which is where they get their passive income from.  

If an investor chooses to be the syndicator, he will actively participate in all of the activities previously mentioned but will still have the goal of producing regular periodic distributions. One benefit to learning how to syndicate a deal, is that you may be able to fund the whole purchase without investing your own capital.

Takeaways .. if you have a job that you love, or are ready to retire, have capital to invest, and want to build a passive income to take you through retirement, find a trustworthy syndicator and invest with the goal of building another stream of income.  If you don’t have enough capital to produce a second stream (many opportunities have investment minimums), but want to learn syndication (so you can raise the necessary capital), then find a reputable education program from someone who has successfully syndicated several deals and learn how to build cash flow through actively syndicating.