For many investors, passive income through multifamily syndications offers an ideal balance of hands-off engagement and steady returns. Yet, some investors wonder: Is there a way to step beyond passive investing and take on a more active role?
At Nighthawk Equity, we understand both sides of the equation, and while we cater primarily to passive investors, it's worth understanding what it takes to make the leap to a more hands-on role in multifamily real estate.
Here’s a guide that could help you evaluate if you’re ready for that next step—and what options exist for those looking to do more than just park their capital.
The Power of Passive Investing
When you invest passively, you’re essentially putting your money to work through a trusted operator. The operator handles the intricacies: finding the right property, securing financing, and managing day-to-day operations.
Passive investors receive distributions and a share of the profits while remaining largely removed from operational involvement. This hands-off approach is the primary allure for many, as it allows you to benefit from real estate without committing significant time or energy.
But what if you're tempted to capture more than just your share of the pie?
Transitioning from Passive to Active: What You Should Know
For those intrigued by the possibility of transitioning from a passive investor to an active role, multifamily syndications provide several paths to explore, each offering a varying degree of involvement.
Here are a few ways you can shift from passive investing to active participation:
1. Contributing Risk Capital
One of the primary ways investors get more involved in multifamily syndications is by providing risk capital. When acquiring an apartment complex, operators often need funds for earnest money and other initial expenses. By stepping in to cover these costs, you can earn a slice of the deal. However, keep in mind that this capital is at risk; if the deal falls through, you may lose your contribution. For the right investor, though, this is a strategic way to gain experience and equity in a deal.
2. Being a Loan Guarantor
If you have a strong financial statement and a track record, you may be able to act as a guarantor for the loan. This involves leveraging your financial strength to help the operator secure financing, and in return, you can earn equity in the deal. It’s a way of stepping into the general partnership without being as operationally involved. Of course, this comes with its own set of risks—particularly if the operator fails to perform, or if there are legal issues with the property. But for those with the right qualifications, it’s a viable path to becoming more active in the multifamily space.
3. Sourcing Deals
Operators are always on the lookout for great deals, but finding them can be time-consuming and challenging. If you can source deals and bring them to the table, operators may reward you with equity or a general partner role. Sourcing deals is highly valued in this industry, and it allows you to be an integral part of the transaction without directly managing the property.
4. Raising Capital Through a Fund
Raising equity for deals is another way to transition into a more active role. Many investors are now creating “fund of funds” models where they raise capital from investors and place it into a syndication. In this model, you act as the middleman between the syndication and the investors in your fund. This approach is increasingly common and can offer lucrative returns, but it requires building trust with your investors and handling the legalities of managing a fund.
5. Asset Management
If you’re ready to roll up your sleeves, you could also get involved in the operations side, acting as an asset manager. This means overseeing the day-to-day operations of the property, ensuring the business plan is executed, and troubleshooting any challenges that arise. It’s the most hands-on approach and typically the most time-consuming. For some, the ability to directly control the outcome of a property’s success is worth the extra effort.
Is Active Investing Right for You?
Not everyone is suited for the active side of multifamily investing. As Garrett Lynch from Nighthawk Equity puts it: “Operating and owning apartment complexes is not for the faint of heart.” Taking on a general partner role comes with significant responsibility, from managing risk capital to the day-to-day operations of a property. These roles can be both time-consuming and complex, and they require a deep understanding of the market, the asset, and the operational side of real estate.
If you’re unsure whether the active route is for you, ask yourself these key questions:
- Do you have the time to commit to sourcing deals, managing properties, or raising capital?
- Are you comfortable taking on the risks associated with active management or risk capital?
- Do you have the necessary skills or financial strength to act as a guarantor or asset manager?
- Are you passionate about real estate to the point where you’re ready to trade time for potential gains?
Striking the Right Balance
For many, a hybrid approach can offer the best of both worlds. As Garrett mentions, “I’m one of those people who invests passively and is an active investor.” It’s possible to enjoy the stability and lower time commitment of passive investing while selectively choosing to be more active in certain deals that excite you.
This way, you can capture a larger share of the upside in deals you’re particularly passionate about, without putting all your time and resources into active management.
At Nighthawk Equity, we pride ourselves on helping our investors grow, whether they’re seeking passive income or looking for more active involvement in multifamily syndications.
We specialize in sourcing high-quality assets and managing them to ensure long-term success, but we’re always here to answer your questions, whether you’re considering an active role or simply want to learn more about passive opportunities.
If you’re interested in exploring the possibilities of multifamily investing—whether as a passive investor or beyond—connect with us at Nighthawk Equity. Our team is ready to help you navigate the options that align with your financial goals.
