There’s a bit of a journey that leads up to investing in a real estate syndication. The steps include lots of education, finding an operator to invest with, reviewing the investment opportunity, and any due diligence involved before making an investment.
You then move forward with an investment in a syndication, and are officially a passive investor. But what’s next? Here are some of the key things to expect as a passive real estate investor.
This is one of the best parts of investing in real estate syndications; the passive cash flow. The frequency and amount of the distributions will depend on the operator and the specific deal. A very common frequency is for investors to receive distributions monthly, paid from the cash flow of the property. This can vary if this is a stabilized property or a distressed value-add property. It there is large renovation plan on a distressed, distributions may not be paid right away as numerous units are renovated or occupancy is improved. But once the property is stabilized, regular distributions can be expected.
Deal updates can vary widely depending on the deal sponsor and how they handle their investor communications. For example, some sponsors elect to have monthly deal updates, while others might update their investors on a semi-annual basis. A passive investor can typically expect to receive these updates over email. A very common deal update for a property would include details on the occupancy rates, and rent collection rates. A value-add property might have updates about the status of a renovation project, and if rent increase projections are being met.
Passive investors should also expect to receive financial statements on the property, notably the income statement. This will allow investors to assess the profitability of the property by analyzing the property income and expenses. Depending on the sponsor, frequency of financial updates can vary from annually to quarterly.
Since investors are receiving income through distributions from the property, they will need to report the income on their tax return. So on an annual basis, the passive investor will receive their relevant tax slip that can be included on their tax return.
This is just a brief summary of what to expect as a passive investor, but if you want to find out for yourself what it’s like then you need to take the leap into the world of passive investing. If you want to join CPI Capital in an upcoming investment opportunity sign up for our Exclusive Investors Club.
– Ava Benesocky
CEO, Co-Founder Canadian Passive Investing
– August Biniaz
Chief Strategy Officer, Co-Founder Canadian Passive Investing