How to Generate Passive Income through Commercial Real Estate (2024)

How to Generate Passive Income through Commercial Real Estate

Learn more about the one truly passive strategy that allows you to own real estate.

For many investors, owning real estate provides a powerful opportunity to generate consistent cash flow in the form of rental income. But is real estate income actually passive? It depends how you define the term.

In this article, we’ll explain why “passive income” doesn’t always mean what you think it will, and we’ll share one valuable strategy for generating truly passive income through commercial real estate.

The Problem with Most Real Estate Investments

Unless you’re a real estate professional, earnings from rental properties are classified for tax purposes as passive income, which means that income is eligible for certain deductions and depreciation.

However, any rental property owner will tell you that the work of managing a property is far from a passive activity. As the owner, everything from finding a property to purchase to preparing the space to rent to finding tenants to keeping track of finances will fall to you. And even if you choose to hire a property manager or other professionals to support you, their performance will still be your responsibility and will directly impact the amount of revenue you generate.

If this is sounding like far more effort than you’re willing to give, then you may want to consider other investment opportunities. And fortunately, there are other ways to invest in real estate.

In particular, real estate syndication gives accredited investors the opportunity to generate fully passive income while still claiming tax benefits and maintaining equity in a property.

How Real Estate Syndication Works

Real estate syndication starts with a sponsor, who does the work of sourcing real estate deals and conducting due diligence to make sure an investment is worth pursuing. The sponsor then presents the deal they’ve chosen to prospective investors, who can decide if they’re interested and choose what amount they’d like to invest.

Each of those investors will have equity in the property, proportional to the amount they’ve invested. That percentage will also determine the amount of the property’s revenue they will receive as a return on their investment.

From there, the sponsor takes care of all operations, including managing the property and providing regular reports back to the shareholders. The investors, meanwhile, are receiving completely passive income, all while having ownership of a tangible asset that may also appreciate in value over time.

Benefits of Real Estate Syndication

Real estate syndication is not the only method for passively investing in real estate, but it does offer a few key advantages that other investment types lack.

Unlike real estate investment trusts or real estate funds, syndication allows investors to have ownership over a tangible asset, rather than just investing in a company that owns real estate. This gives investors greater control over how their money is used, and it allows them to claim tax deductions that REIT and fund investments do not offer.

Another option that some investors explore is giving capital directly to real estate owners and operators. For example, you may provide a single-family rental operator with 10% of the funding for the purchase of a new property and in turn gain 10% equity. While this does offer some of the same benefits as investing in a real estate syndication, keep in mind that even this strategy is not fully passive. As the investor, you will be responsible for finding real estate professionals to invest in and conducting due diligence to make sure that your investment will be profitable.

Real estate syndication is the only way to have equity in a property and access the tax benefits of owning real estate, without having to source deals or manage the day-to-day operations of that property. Additionally, if you find an experienced sponsor who is using their network to source deals, you’ll likely have access to private or off-market deals that you would not be able to find on your own.

Are you looking to invest in real estate but aren’t sure where to start? Check out our Ultimate Guide to Commercial Real Estate Investing for more information.

Earn Fully Passive Income with Real Estate Syndication

When you hear someone talking about a passive investment opportunity, it’s important to remember that many so-called “passive” investments still require substantial time, effort, and expertise in order to see a strong return. That’s why it’s especially important to find a trustworthy, experienced partner who can help you cut through the noise and find the deals that will deliver on their claims.

If you’re an accredited investor interested in generating passive income through real estate syndication, our team at Excelsior Capital would love to connect with you. Simply fill out this form to get in touch, and a member of our team will reach out with more information within 24 hours.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.