Is it possible to achieve financial freedom through syndications?

Can you build passive income through real estate WITHOUT investing your time? 

It is certainly possible.

There are 3 resources you can bring to the table when investing in real estate:

• Time
• Experience
• Capital

If you are working a W-2, you probably have more capital than you do time or experience. The good news? You can bring the capital to the deal where someone else is doing the work. Here is a hypothetical example of how this might work:

Meet Tom, a successful tech professional who wanted to start building passive income. Unfortunately, he didn’t have enough spare time between his job or family obligations to go identify properties, renovate them, or manage them.

After searching around for a bit, he stumbled upon the concept of real estate syndication, which is where a group of investors like himself pool their money together to go buy larger, commercial real estate, such as large apartment complexes or self-storage facilities.

These investors invest as Limited Partners alongside an operator (or General Partner) who is responsible for actually running the day-to-day operations of the deal.

This means that once Tom and the other investors wire the money, their job is done. All they have to look forward to are the monthly checks they receive in their bank account as the operator works toward stabilizing the property and increasing rents.

Tom is a partial equity owner in the building and gets all of the traditional benefits he would expect from real estate (cash flow, tax advantages, etc.). With a syndication, he can also put much less of his own capital into a deal and still control a larger asset with better economy of scale.

Encouraged by the potential decided to invest only $50,000 into a multifamily syndication with an 8% targeted cash on cash return and a 5-year hold period.

In the first year, Tom invested $50,000 and started receiving an 8% return, earning $4,000 in cash flow per year - checks deposited to his bank account, every month.

While not life changing cash, it’s his first taste of truly passive income.

Feeling encouraged by the initial success, he decides to continue investing $50,000 per year into syndications. 

By year 5, he’s deployed $250,000 generating $20,000/year in cash flow, which is enough to cover his rent every month.

But here is where the real power starts… 

At the end of year 5, Tom receives a notice that after executing the business plan, improving the property, and raising rents, the sponsor is looking to sell the property, return capital and distribute remaining profits to investors.

Tom stands to get his initial $50,000 back PLUS an additional $25,000 in profits.

He can use those profits however he wants, but he chooses to re-invest his initial capital and profits back into another syndication ($75,000). 

From years 6-10 he continues to re-invest his profits from sale (in addition to $50,000 every year as he did from years 1-5) and by the end of year 10 he has $875,000 invested generating $70,000/year in passive income.

That is a full time salary, completely removed from the input of Tom’s time.

Because he's kept his expenses low, Tom is now “work optional” and can take some time off to travel or focus on some passion projects without worrying about where his next paycheck will come from.

But what if he loves his job and wants to keep going? Let’s also assume he’s been crushing it and can now afford to put $100,000 per year into syndications:

After 15 years he will have over $2,300,000 invested generating $185,000/year in passive income

After 20 years? $5,000,000 generating nearly $400,000 per year - a fantastic lifestyle by anyone’s standards.

This is also assuming he was spending his cash flow this whole time vs reinvesting it to create further velocity! 

Have your cake and eat it too, I guess?

Tom is now completely financially free. He can do whatever he wishes with his time and has enough passive income to sustain a very high quality lifestyle if he chooses.

He spends his days traveling most of the year with his partner, attending his kids’ games and events, working on a few passion projects, whatever he wants.

Of course a picture-perfect scenario like this is unlikely and there will be ups and downs (not to mention, taxes which I ignored here for simplicity), but nonetheless it’s a good illustration of the power of real estate and passive syndications.