Syndirater is a real estate syndication research platform for Limited Partners, by Limited Partners.


Do Syndications Really Provide "Simple Passive Cashflow"?

You don't have to look far to find claims that the way to financial independence is to buy real estate. Within real estate, there are many different paths you can take: buy single family homes for rental, fix-and-flips, turn-key rentals, BRRR method, small multifamily, mobile home parks, self-storage, hotels, office, industrial... on and on. Along the way, you might be told that investing in syndications offers "simple passive cashflow." There are even podcasts, websites, and investing companies with such names or something like it.

Don't listen to them.

There are many good reasons to invest in real estate syndications. We've written many posts to make this case on this website. You might also listen to others about why and when it might make sense (and when it doesn't). For example, we liked this video on YouTube of the White Coast Investor talking about when and how real estate investments might be added to your portfolio.

But "simple passive cashflow" is not on the list of reasons to invest in real estate.

If you invest in syndications for "simplicity," it is almost always the case that you will be disappointed. It's not simple. Compared to, say, a Bogleheads 3-Fund Portfolio--well, there's no comparison on the "simplicity" front. And to be clear, there are huge benefits to investing in a simple fashion.

On to "passive," well, it's a bit more passive than some types of investment but it is definitely not totally passive. Again, compared to a basic portfolio of stocks and bonds, there is not a case to be made for the added "passivity" of direct real estate investing or investing in syndications. Why? You need to do much more diligence in a syndicator or an individual deal than you do in, say, a total market index fund. You need to understand with whom you are becoming a partner, you need to communicate with them, and you will need to pay attention to the communications you receive. While some investments can and will be essentially passive, leading to reliable monthly or quarterly checks and ultimately a nice exit–yes, we've had some of those--many will not.

And that brings us to "cashflow." It is true that some real estate syndications do exactly what the syndicator tells you they will and that "mailbox money" will flow in like clockwork. From time to time, they might do better than what they have promised in terms of cashflow. But many times the pro forma is off. The "cashflow" you have been promised comes in way later than it is meant to. Sometimes the cashflow never comes. Sometimes it starts and then it stops.

Perhaps more important to note, sometimes the "simple passive cashflow" is not only non-existent--it comes with a request for more cash from you in the form of a capital call. Those capital calls have become more and more frequent in recent months as rates have continued to stay higher for longer. Syndicators who did not get fixed rate debt are needing more cash to make it to the next rate cap purchase or refinance. They didn't get the financing right--so they need more from you.

So: do not fall for a syndication with the promise of "simple passive cashflow." A syndication may provide that, but don't count on it for rent money, or mortgage money, or tuition-for-your-kids money, or food on the table money. You are setting yourself up for disappointment. While real estate syndications can be hugely beneficial investments, and there are many good reasons to add them to your investment mix, the false promise of "simple passive cashflow" should not be your rationale for jumping in.