Passive investing’s primary goal is to build equity gradually over the long haul. Passive in the case of commercial real estate investments also refers to the investor’s involvement. Passive income, therefore, means earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved. It brings with it the prospect of a return on investment (ROI) much greater than in traditional banking savings account for example. Someone contributing funds into a third-party company or individual’s product or service without ownership, managerial, fiscal and/or legal rights and obligations is more commonly known as a passive investor.
When a sponsor assembles the finance for a real estate transaction, there are two groups—apart from the lender—with vested interests who need compensation for their roles: the sponsor and the investor.
After the bank or non-bank lender has been paid a direct interest return on the debt they provided, these groups share the profits from the transaction between them.
The sponsor is paid what is called, in real estate language, a ‘promote.’ In the non-real estate investment world, this is known as ‘carried interest.’
The purpose of the promote is motivation and incentive for the sponsor to do their best to ensure a successful, profitable project.
Passive real estate investing denotes the passive investment of funds into new and/or existing properties with the prospect of making a large ROI. Passive real estate investing in multifamily funds often provides an even greater caveat by investment in a sponsored syndication. For example, passive income generated from multifamily funds like those offered by Trion Properties have provided a substantial boost in income for its accredited investors. Many have used the income as way to improve their daily way of life, while others view it as preparation for an early retirement. Regardless of motives and uses, passive income is best when you can trust the investment sponsor.
At Trion, we make it easy for our accredited investors to invest and monitor their investments by providing digital documents, fast access to K1 documents, quarterly reports, and status calls. As for our track record, well that speaks for itself.