Commercial Multi Tenant Real Estate: Passive vs. Active Investing
The real estate industry has changed, creating unique opportunities for hungry investors. Group investment strategies have become a popular option for investors looking to access the benefits of real estate investment without the late-night maintenance calls, periods of vacancy, and dodgy tenants causing irreparable harm to their property.
Opportunities like commercial multi tenant real estate allow investors to passively enter larger scale deals otherwise out of their reach should they go it alone while offering a secondary hedge against inflation and uncertain economic times.
This blog examines the difference between passive and active investment and why the multi-tenant opportunity is such a powerful resource for investors to build wealth.
The Difference Between Active and Passive Real Estate Investing
First, let's examine the main differences between active and passive investors.
- Active investor: Manages the property, including maintenance, legal obligations, and tax obligations. These real estate investors must abide by and be current with the latest local, state, and federal laws and evict tenants, know the relevant statutes, and invest money to maintain or add value to the property. Additionally, an active investor may want more control over the deal or see it as a learning experience.
- Passive Investor: Invests money is a managed fund, trust, or private equity group that invests and manages their money. Passive investors receive regular payments and a large payout upon the sale of the property. A passive investor would rather watch regular payments come in while they work on other things or enjoy the free time and less stress!
The time requirement is one of the most significant differences between the two investing strategies. For example, an active investor who purchases a rental property will be on call 24/7 to deal with issues. However, a passive investment opportunity requires very little of your time to realize returns.
What Are the Benefits of Passive Investing through Multi Tenant Real Estate?
One of the most significant and impressive benefits of multi-tenant real estate investing is that the investor can enter a deal on a large-scale multi-million dollar asset they otherwise would not have access to. When choosing a commercial investing group, the buy-in requirements are much lower than if you wanted to purchase an entire commercial building on your own.
In addition to that significant benefit, there are plenty of others!
Risk and Liability
When you invest in a multi tenant property deal, you're only liable for your investment amount. Conversely, suppose you invest and manage a rental property. In that case, you may deal with damages, weather issues, problem tenants, legal troubles, or even negative equity, which can be much more costly than your original mount.
As a passive investor in a multi-tenant deal, there are no hidden fees, maintenance emergencies, or large-scale repairs that you must cover personally. Instead, all the costs are outlined and communicated effectively by the management company.
Even with a less than 100% occupancy rate, a multi-tenant asset can (and most likely will) pay dividends. In addition, the lessees of the property are running different commercial enterprises, meaning a downturn in one particular industry may only impact part of the asset.
Active real estate investment involves bookkeeping, legal obligations, invoicing, staying on top of rent, and a range of document-heavy processes that can cut into your working day and free time.
However, as a passive investor, much of the tax offsetting and tax advantages are done on your behalf and easily managed with a K1 form at tax time.
Passive Investing With Kenwood Property Management
So, the question is should you add real estate to your portfolio? That depends on your lifestyle demands, capital access, and experience. It also depends on whether you wish to be an active or passive investor!
While the benefits of passive investing in a real estate deal may seem overly optimistic, it's important to remember that the success of such an option rests at the feet of the syndicators or portfolio managers who acquire and administer the property.
Look at some ways we at Kenwood Property Management ensure our real estate deals have the highest chance and success rate.
- Ongoing communication to build long-term commitment
- Hosting events where tenants can learn business skills and insights
- Building relationships with each tenant
- Providing additional safety and comfort measures in our buildings
- Charity work
- A 24/7 customer service lifeline
A community-focused mentality with our tenants can build longer-term commitments and a greater lease renewal rate. As our investments can go on for more than 20 years, this is fundamental to maintaining excellent returns for our investors and overall tenant happiness. To ensure our investments' longevity, profitability, and community nature, we manage each property, meaning total control over the asset.
For Passive Investors
The minimum buy-in for a passive investor choosing Kenwood Management is $25k, which applies whether you are an accredited investor or not. As a value-focused private equity group, we pay dividends of 7-8% annualized.
Additionally, the asset sponsors will only receive payment once investors have received their initial investment amount.
Choose Multi-Tenant Real Estate For Passive Investing Success
Property investing has changed for the better and created opportunities for all investors to access large-scale multi-million dollar deals that make real passive income for participants. Contact the team if you'd like to learn more about earning passively with a multi-tenant real estate deal!
Learn more about investing in multi-tenant properties when downloading our free resource, "Why Multi-Tenant Commercial Real Estate Is a Good Investment."