The umbrella term “passive real estate investments” includes just about anything that isn’t a directly owned property. Common examples include real estate syndications (group investments in a large property), private equity real estate funds, debt funds secured by real property, private notes, real estate crowdfunding investments, and private partnerships where you invest financially as a silent partner.
As a “recovering landlord” who sold off his last rental property and an expat digital nomad, I love passive real estate investments. I can invest hands-free from anywhere in the world.
When most people talk about building generational wealth with real estate, they mean passing on a portfolio of properties to their children or grandchildren. Most ignore passive real estate investments in that conversation.
Here’s why many investors eschew passive real estate for generational wealth—and why I love it.
The Case Against Passive Investments for Generational Wealth
Active real estate investors love the idea of letting their tenants gradually pay off their mortgage loans against rental properties over several decades. By the time the investor shuffles off this mortal coil, their children inherit a free-and-clear property—one that’s appreciated handsomely over decades.
It makes for a compelling vision, right? Proudly passing the reins of a cash-flowing portfolio to your children. Your kids may even be able to live off that cash flow for life.
Active investors dislike the lack of control they have over passive investments, particularly syndications. The average real estate syndication targets a five-year hold, give or take a few years. As limited partners (passive investors), we don’t control when or even if the sponsor sells the property.
When the syndication property sells, passive investors get paid out, which ends that story. You get a share of the profits, which you must then reinvest (or leave as cash)….