Here’s the thing. I know that person is accredited. They just don’t know the accredited investor meaning or how it applies to them.

If you’re new to investing in private real estate syndications, you may not have heard that term before. Financial planners don’t talk about it because it doesn’t apply to the public stock market. But this term does come up in real estate investing because of SEC regulations.

This article covers what accredited investor status means, how to tell if you qualify, and what options are available either way.

Key Takeaways

• Accredited investors must meet specific SEC income or net worth thresholds to access private investment opportunities.
• Verification typically requires documentation such as tax returns, brokerage statements, or a letter from a licensed CPA or attorney.
• Accredited status opens the door to private equity, hedge funds, venture capital, and real estate syndications that are unavailable to the general public.
• Recent SEC updates have expanded the definition to include individuals with certain professional certifications and credentials.
• Understanding your accredited status is the first step toward building a diversified portfolio that includes alternative investments.

Introduction to accredited investors

First of all, the term accredited investor comes from the Securities and Exchange Commission (SEC). It’s a designation they created to make sure that if people invest in alternative investments, they have the financial ability to take on that risk. They are also the ones who decide what the qualifying levels are.

Their rules are based on income, net worth, or professional experience. If you meet certain criteria, you get access to opportunities like private real estate, private equity, or hedge funds.

How to qualify as an accredited investor

The specific qualifications include meeting one of the following:

Income: Your individual income needs to be over $200,000 for the last two years, or your joint income with a spouse needs to be over $300,000 for the last two years, with a reasonable expectation of the same income level this year.

Net worth: Your net worth needs to be over $1 million, on your own or jointly with a spouse, not including your primary residence.

Entities: Other groups, like private companies and family offices, can also qualify as accredited investors based on their total assets or the accredited investor status of their equity owners.

Certifications: Some professional certifications, like a general securities representative license or an investment adviser representative license, can also qualify someone as an accredited investor.

Verifying you meet accredited investor rules

When you look at investment funds, syndications, or other types of alternative investments that aren’t in the stock market, they’re considered unregistered securities. The sponsor or general partners who raise capital for real estate investments have to verify that you qualify as accredited before they can allow you to participate in the deal.

For our hotel syndications, the sign-up process for any particular fund or project requires us to verify that you’re an accredited investor. We do that through software, and it’s a pretty quick process. That’s how we’re able to offer opportunities while still following securities laws, since issuers must take “reasonable steps” to confirm your status.

Types of opportunities for accredited investors

Being an accredited investor changes what you can invest in. It opens the door to private deals that usually aren’t available to the general public. These are the kinds of opportunities that institutions invest in, and in many cases, they can offer better risk-adjusted returns than what you find in the stock market.

Types of opportunities can include:

• Private equity funds: Direct ownership stakes in private companies or real estate syndication funds.
• Venture capital funds: Early-stage startup investments with high growth potential.
• Hedge funds: Alternative strategies including long/short equity, distressed debt, and arbitrage.
• Private credit: Lending directly, with the potential for higher returns.
• Private REITs: Real estate investments that aren’t tied to public markets.
• Regulation D private placements: Most syndications are in this category of securities offerings that follow federal securities laws and are exempt from SEC registration.
• Alternative investment platforms: Technology-enabled access to alternative investments like crowdfunding sites.

Qualified purchasers vs accredited investors

You might also hear the term qualified purchaser, which is a subset of accredited investors, with a higher net worth threshold of $5 million or more in investments. This group has access to a broader range of investment opportunities, including direct investments in private equity and hedge funds.

Qualifying as an accredited investor

To qualify as an accredited investor, you’ll need to demonstrate that you meet SEC guidelines around income, net worth, or certain professional credentials. In practice, that means verifying financial information through documents like tax returns or brokerage statements. It also assumes you understand the risks that come with private investments.

Even after you are verified as an accredited investor, you’ll still receive the required legal and financial information for each investment. Sponsors are still obligated to disclose things like risks, fees, and material details about the deal. Being accredited does not remove those protections or disclosures.

Proving your accredited status

When investing in private securities, we must properly document our accredited investor status to meet regulatory requirements. The verification process varies based on your qualification method, but issuers must take “reasonable steps” to confirm your status.

Required documentation by qualification method

As I mentioned, we use software that verifies accreditation status, but other syndicators or investment companies may ask you to verify your status with documentation.

Income-based qualification:

• Federal tax returns for the two most recent years
• Recent pay stubs or employment verification letters
• W-2s and 1099s for comprehensive income verification
• Signed representation letters confirming income expectations

Net worth-based qualification:

• Bank statements from the past 90 days
• Brokerage and investment account statements
• Real estate appraisals (excluding the person’s primary residence)
• Credit reports showing liabilities
• Debt statements for accurate net worth calculation

Professional license verification:

• FINRA BrokerCheck verification
• State licensing board confirmations
• Current professional certifications
• Third-party verification letters

Third-party verification is often the easiest way to meet issuer requirements for a prospective investment. They confirm your accredited status by reviewing recent financial documents from the last three months. Acceptable third parties include:

• Certified Public Accountants (CPAs)
• Licensed attorneys
• Registered investment advisers
• FINRA-registered broker-dealers

Timeline and best practices

Verification documents should be current within 90 days of investment. It’s a good idea to keep organized digital files of all qualifying documents and update them quarterly. Consider setting up relationships with qualified third-party verifiers before you hear about investment opportunities.

For ongoing private fund investments, many general partners accept annual re-verification rather than per-transaction documentation. Always check with your legal counsel to verify compliance with specific offering requirements and keep proper documentation for potential regulatory review.

Responsibilities of investors

Being an accredited investor also comes with some responsibility. You are expected to do your own due diligence, understand how a deal works, and be comfortable with the risks involved, including the possibility of losing money.

The SEC assumes that accredited investors can evaluate private investments on their own and make informed decisions without the same protections required in public markets. That also means following applicable rules and disclosures, and considering how each investment fits into your overall portfolio and risk tolerance.

Regulatory environment

The SEC sets the rules around who qualifies as an accredited investor and how private investments can be offered. They also provide guidance and oversight, along with educational resources that explain how private markets work and the risks involved. Because these regulations can change, accredited investors are expected to stay informed and keep up with updates that could affect their investments.

What if you don’t qualify as accredited?

There are still syndicators that offer opportunities for non-accredited investors. Some of the paths I’ve seen are:

• Investment clubs: These clubs qualify for SEC exemptions that allow a limited number of non-accredited but financially sophisticated investors to participate. These deals are not publicly advertised, and the group invests together through a direct relationship with a syndicator or fund sponsor.
• Private JV agreement: This is exactly how we invested in our first hotel. If you already have a relationship with a real estate investor and they’re not advertising the opportunity, you don’t have to be an accredited investor to participate. These deals are structured as private joint ventures between a small group of investors and an operator.
• Certain crowdfunding sites: Some crowdfunding sites have gone through the higher levels of SEC paperwork and regulations to be able to offer investments for non-accredited investors.

Final thoughts on accredited investor designation

You’ll find that most real estate syndications require accredited investors because it’s the easiest way for sponsors to raise capital and stay compliant with Securities and Exchange Commission requirements. If you’re not accredited, don’t worry. The path is relationship based. Build direct relationships with real estate investors and let them know you’re interested in investing in opportunities.

If you’re curious about investing with Gateway Private Equity Group, you can check out our current offering, the Barcelona Hotel Fund, which focuses on acquiring boutique hotels in Spain.

Accredited investor meaning: FAQs

What qualifies you as an accredited investor?

An accredited investor is someone who meets specific financial or professional criteria set by the SEC. These rules exist to limit private investment opportunities to people the SEC believes can evaluate the risks on their own.

You qualify as an accredited investor if you meet one of the following:

• Income: Individual income over $200,000, or joint income with a spouse over $300,000, for the last two years, with the expectation of the same this year.
• Net worth: Net worth over $1 million, on your own or jointly with a spouse, not including your primary residence.
• Professional credentials: Certain securities or investment adviser licenses that the SEC recognizes.
• Entities: Specific structures like a private business development company or family office qualify based on assets or the accredited status of their owners.

Is it worth becoming an accredited investor?

Whether it’s worth becoming an accredited investor depends on what you want access to and how you plan to invest. The designation does not make someone a better investor, but it does change the types of opportunities available to them.

For many investors, it’s worth it because it opens access to:

• Private real estate and syndications: Deals that are not available in public markets.
• Private equity and private credit: Opportunities that involve direct ownership or direct lending.
• Less exposure to public markets: Investments that are not tied to daily stock market movements.
• Direct relationships with operators: The ability to invest alongside sponsors and understand how deals work.

Can a non-US person be an accredited investor?

Yes. A non-US person can qualify as an accredited investor. The SEC rules are based on financial thresholds and sophistication, not citizenship. Non-US investors can qualify if they meet the same standards, including:

• Income or net worth: Meeting the required income or net worth thresholds, even if assets or income are held outside the US.
• Entities: Foreign entities can qualify based on assets or the accredited status of their owners.
• Documentation and verification: Providing financial documentation and completing the same verification process required of US investors.

Additional tax or structuring considerations may apply, but being non-US doesn’t prevent someone from qualifying as an accredited investor.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.

One keeps the network running. The other is a help desk that guests call when something goes wrong.

Last spring, I pulled six years of tickets from one of our hotel properties. I expected outages and frustrated guests. What I found was our own front desk, calling again and again to ask for the monthly WiFi password.

Out of 106 tickets logged since March 2020, 42 were that one request. In 2025, 12 of our 13 tickets were staff asking for the password they had set themselves. Someone made it “cupid” in February and “penguin” in January, then called to ask what they had picked.

So this post is a confession and a framework. I’ll explain what a hotel WiFi system is and how to check whether your support fee is worth it.

What are the parts of hotel WiFi systems?

The hotel WiFi system is the equipment and support that together deliver internet to our guests and staff across the whole property. Most of it runs in the background, which is exactly why no one pays attention… until it’s not working. Then, everyone freaks out. 

The equipment side includes:

• Access points: Small units on ceilings and walls that broadcast the signal.
• Router: This is the box where internet enters the building. 
• Switches: Network switches connect everything with a cable.
• Software: Management software runs it all from one screen.
• Guest login: This is a web portal with a branded login page that a guest sees before they get online. 

The hardware and software are usually stable. The recurring cost is the human support contract layered on top.

The parts I’m paying for

There’s basically two buckets to any hotel WiFi system:

1. The network you own or lease. I tend to buy the equipment and finance it with monthly payments. 
2. The help desk support. This is who guests call when they can’t get online or have a question about wifi. 

Why hotels buy these systems in the first place

Guest WiFi is a utility and an expectation:

• In one Hospitality Technology 2025 Guest Engagement Study, 84% of guests cited Wi-Fi as a key factor when selecting one hotel over another.
• J.D. Power’s 2026 North America Hotel Guest Satisfaction Index Study measures guest satisfaction across seven areas, including hotel connectivity.

So, I find it’s worth investing in a solid hotel WiFi system. Guests notice a weak signal, and reviews follow.

Our ticket data: what our support line really does

Here are our numbers, straight from our vendor’s Wi-Fi Ticket Report. Over six years and 106 tickets, the network hardly ever goes down. The issue…. people kept needing the password.

Only 5 tickets in six years were actual outages. About 1 in 9 closed with a note that everything was already online and the caller had fixed it.

What $180 a month buys us

The support line costs $180 a month. Since March 2020, it’s cost us $13,680.

If we spread that across 106 tickets, it’s roughly $129 per ticket. In 2024 and 2025, the rate climbed to about $188 per ticket. In 2025 alone, we paid $2,160 for 13 tickets, and 12 were for someone asking for the password.

None of this is unique to us. Nationally, hotel IT costs rose 4.6%. From 2023 to 2024, IT Department expenditures at properties increased by 4.6%, greater than the 4.0% increase in total hotel expenses.

At the same time, internet service costs fell. Hoteliers benefited from a decline in the cost of service delivered by phone (-1.7%) and internet (-1.0%).

The bandwidth is cheaper, but the services and contracts around it aren’t.

Managed vs self-managed hotel WiFi

I use a managed service, where the provider staffs a help desk you can call any hour. If I had more resources, I could set up my own support desk, but that’s not the business I’m in.  

Managed service is worth it if the router is down or there’s a security issue. The problem is when your ticket mix doesn’t require the same level of support. Say 90% of your calls are just password requests… you’re paying help-desk rates for a task a self-service reset tool could handle for free.

This is an industry-wide trend. CBRE notes that an increasing number of hotels are outsourcing functions such as help desk, cybersecurity, and network management, which “will put upward pressure on IT Department expenditures in the future.”

How to audit your own hotel WiFi spend

As your support vendor for a list of your tickets during a specific timeframe, and then use Claude to:

• Sort each ticket into a category, such as outages, security alerts, password resets, and guest complaints.
• Calculate your cost per ticket by dividing your yearly support fee by the ticket count.
• Note the share of tickets that were password requests or issues staff could self-serve.
• Check whether your system offers a self-service password display or a rotating guest QR code.
• Renegotiate or re-scope the contract based on what you use.

If your cost per ticket looks anything like ours, the fix isn’t a new vendor. It’s a self-service password option and a plan that fits our real-world usage.

Scrutiny like this pays off at scale. CBRE’s Network Advisory Services identified $1 million in annual savings for a 120-hotel management organization by consolidating internet service providers.

What we’d keep and cut in our WiFi contract

So what would we do at our Arizona hotel? We’d keep monitoring and security. What we need to automate is paying premium per-ticket rates so a manager can find out that this month’s password is “penguin.” A password display at the desk or a rotating QR code eliminates the need for most of those calls on its own.

The point is simple, and it comes from a hotel owner’s perspective. Know your numbers before you renew.

Your hotel WiFi system is probably fine. Your support contract might just be answering a question your front desk can answer for free.

Connect with us.

Frequently asked questions

What is a hotel WiFi system?

A hotel WiFi system is the equipment and support that delivers internet to guests and staff across a property. That includes access points, a gateway, switches, management software, and usually a support contract.

Is managed hotel WiFi worth the cost?

It depends on your ticket mix, so pull your own data before deciding. Managed WiFi for hotels is worth it for real outages and security response, but questionable if most of your tickets are simple password resets.

How much does hotel WiFi support cost?

Hotel WiFi cost varies by property and provider, so treat any figure as a starting point. Our support line is $180 a month, which worked out to roughly $129 to $188 per ticket depending on the year.

Disclaimer

This article is for informational purposes only and is not legal or financial advice. The cost figures come from one property we operate and will vary widely by property and contract. Do your own analysis before making decisions about your systems or vendors.

We’re currently on both sides of this. We own hotels in the United States, and we recently walked away from a 1031 exchange because we couldn’t find properties that met our investment criteria. About two and a half years ago, we started looking seriously at properties outside the U.S.

This article covers what to look for when evaluating hotel investments for 2026.

What makes hotel investments different

When you invest in a hotel, you’re getting more than just property. You’re buying an operating business backed by a major real estate asset. This “business plus real estate” model separates hotels from passive investments like residential rentals or office buildings. 

Unlike a typical lease-based property, hotels generate revenue daily through room bookings, food and beverage sales, event hosting, and other services. This dual nature creates both higher complexity and higher potential returns. 

More importantly, it gives investors access to loans unavailable in the residential world, like SBA loans to creative seller financing options that can improve overall deal economics.

Pros of hotel investing

Hotels are more complex than most real estate because they’re active businesses. That extra work can be a downside, but it also creates opportunity. Hotels can generate strong cash flow, which works well in a higher interest rate environment. Unlike traditional real estate that has fixed leases, hotels can adjust their pricing daily based on demand. 

When you do this right, it can drive much higher returns.

Multiple revenue streams and income potential

Hotels make money in more than one way, which gives them an advantage over properties that rely on a single income stream. Room bookings are still the main driver and usually make up about 60%- 75% of revenue, but they’re not the whole story. 

Food and beverage, events, and other on-site services also bring in income. When one area slows down because of seasonality or market shifts, the others can help pick up the slack and keep cash flow more stable.

Primary Hotel Revenue Streams:

• Room bookings: Primary source about 60-75% of total revenue.
• Food and beverage: This includes restaurants, bars, and room service.
• Meeting and event spaces: Events like conferences, weddings and corporate meetings.
• Ancillary services: This can include parking, resort fees, spa, and fitness facilities.
• Loyalty programs and partnership commissions: Could be referrals with related tourism-focused businesses.

Hotels in great locations and strong markets can charge higher nightly rates during busy seasons and high-demand periods. In 2025, the recovery has been especially strong for luxury and urban hotels, which are doing much better than lower-end properties. 

Capital appreciation in high-demand markets

Beyond day-to-day cash flow, hotels can also grow in value over time, especially in major cities and well-known tourism markets. As demand increases and it becomes harder to build new hotels, existing properties tend to become more valuable. CBRE reports that new hotel construction worldwide is slowing to about 0.7% per year through 2028, which is very low by historical standards. That slowdown helps existing owners by reducing competition and supporting higher pricing.

Cities where it’s difficult and expensive to build new hotels usually see the strongest appreciation. San Francisco is a good example. As the market continues to recover and the tech sector rebounds, CBRE notes that hotels in the area have seen an 8.9% growth in revenue per available room. When demand comes back, and supply stays limited, that combination can create value for hotel owners.

Portfolio diversification and tax benefits

Hotels diversify a real estate portfolio in ways that apartments or office buildings don’t. Instead of relying on long-term leases and tenant credit, hotels depend on travel demand. Their success rises and falls with tourism, business travel, and how people spend on experiences. That gives you exposure to a completely different set of drivers.

There are several great tax benefits as well, like:

• Depreciation: You can depreciate both the building and the furniture, fixtures, and equipment, which often creates paper losses that offset income.
• Operating expenses: You can reduce income with expenses like staff, utilities, and marketing.
• 1031 exchanges: Hotels also qualify for 1031 exchanges, so you can defer capital gains taxes when you sell and reinvest in another property. Be sure to review this with CPA who understands hospitality real estate.

Cons of hotel investing

Hotels come with their own set of risks, and they’re very different from more passive real estate investments. The upside can be strong, but you’re also dealing with a lot more moving parts and sensitivity to the market. Some of the disadvantages are:

Market volatility and economic sensitivity

Hotels are more economically sensitive than residential or industrial properties. Demand can change quickly with economic downturns, travel disruptions, changing consumer sentiment, or competitive threats. We saw this firsthand with a great hotel property that we bought in an office park…… three months before COVID hit. Suddenly, there was no business travel, and what was a great location was now severely lacking. 

The recovery from pandemic lows has been notably uneven, with luxury and urban properties outperforming while economy segments have ongoing pressure from alternative options like Airbnb. This is changing the industry, creating winners and losers based on location and the quality of hotel management.

What we’re seeing right now is a bigger gap between hotels that are doing well and those that aren’t. Location matters more than ever, branding matters, and the guest experience really matters. As an investor, a so-so property in a so-so location with so-so management is a tough place to be, because the market doesn’t give much room for error.

High operating costs and management complexity

Hotel operations demand constant attention and expertise. As one experienced operator bluntly put it, “your GM is your MVP, without them you’re just a proud owner of a dumpster fire.” 

The general manager and the team they build make the difference between profitability and disaster. Hotels require 24/7 staffing across front desk, housekeeping, maintenance, food and beverage (if applicable), and management. Labor represents your largest controllable expense, and wage inflation has been substantial, with costs in the U.S. up 8% year-over-year according to industry data.

Beyond labor, other operating costs include:

Costs keep going up in all of these areas. For example, insurance costs are higher because of storms, wildfires, and extreme weather. Property taxes keep rising as cities look for more revenue to cover infrastructure repairs. Energy and utility costs, as well as maintenance, continue to increase, which puts pressure on margins and makes strong operations more important than ever.

Competition, financing, and capital requirements

Popular destinations can get crowded fast, with a lot of hotels competing for the same guests. Before buying, you really need to understand the competitive landscape. That means looking at what’s already there, what’s being built, how other hotels are positioned, and what kind of market share you can realistically capture. Underestimating competition is a mistake that can get expensive quickly.

Financing has gotten more complicated since late 2024 and into 2025. Higher interest rates have pushed borrowing costs up, lenders are asking for larger down payments, and they’re more selective about the markets, brands, and properties they’ll finance.

The upside is that commercial real estate gives you far more financing options than residential. Ways that we’ve financed hotels include:

• SBA loans
• Community bank loans
• Seller financing
• Syndications
• Private capital

Ways to invest in hotels

Here are the main ways to invest in hotels:

• Direct ownership: You buy the hotel yourself and control everything. This comes with the highest potential upside, but also the most responsibility, from operations to financing to staffing.
• Hotel syndications: You invest passively alongside other investors in a larger hotel deal. A sponsor finds the property and runs the day-to-day operations while you share in the cash flow, appreciation, and tax benefits.
• Hotel REITs: You buy shares in a publicly traded company that owns hotels. These trade like stocks, are easy to buy and sell, but don’t offer the same tax advantages or control as direct ownership.
• Crowdfunding platforms: You invest through an online platform that pools investor capital into hotel projects. The platform sits between you and the sponsor, handling communication and distributions.
• Public hotel companies: You buy stock in companies that own or operate hotel portfolios. These investments are more like traditional equities and follow the broader stock market.

How to evaluate hotel investment opportunities

Successful hotel investing comes down to doing the basics well. You need to understand the location, the numbers, how the deal is structured, and who you’re partnering with. This is where due diligence comes in.

The choices you make here impact your results for years, for better or worse.

Hotel business location and market

Location drives hotel performance more than anything else. You can’t rely only on broker packages or online research. Go and visit the property. Call competing hotels and ask about availability and pricing. Talk to people who work in the area. Hotels run 24/7, so there’s always staff around who can tell you things you’ll never see in a spreadsheet.

In the past year alone, we have flown to Oklahoma, Ohio, Indiana, and Texas to inspect hotels in person. Each time, we learn things we’d never be able to see with just the broker’s information.

You also want to look at what’s nearby. Tourist attractions, convention centers, business districts, airports, and major highways. All of this has an impact. For example, in 2025, hotels in city centers have bounced back the strongest, helped by the return of business travel and international tourism.

Market research means looking at a few things at the same time, not just one data point. Here’s what I focus on:

• Competition: How many hotels are in the market, which brands are there, and what occupancy looks like across those properties.
• Demand: Is demand steady year-round or highly seasonal? Is it driven more by leisure travelers or business travel?
• Local economy: What’s happening with tourism spending, business growth, and major employers that bring people into the area.
• New supply: Pay close attention to how easy it is to build new hotels. Markets with limited land, strict zoning, or high construction costs make it harder for new competitors to enter, which helps existing hotels keep or grow their daily rates.

Hotel industry metrics

You’ll need to know hotel-specific performance metrics so you can get a sense of how the hotel is doing:

• Occupancy rate: This is the percentage of available rooms that are filled, calculated as rooms sold divided by total rooms available.
• ADR (average daily rate): Average revenue per occupied room, calculated as total room revenue divided by total rooms sold.
• RevPAR (Revenue Per Available Room): The industry’s primary performance metric, calculated as ADR multiplied by occupancy rate, or total room revenue divided by total available rooms.

These metrics give you the complete story of hotel performance. A property might have high occupancy but low ADR, which means it’s filling rooms by discounting rates. And then if you see a high ADR with low occupancy, it means pricing is too high for market demand. Strong RevPAR in the hospitality industry means there’s the perfect balance.

Underwriting hotel real estate investments

Hotel investors use three main ways to underwrite a hotel:

• Revenue multipliers: This is the property value expressed as a multiple of its annual revenue.
• Cap rates: This is the net operating income (NOI) divided by the property’s value.
• Per-key valuation: This metric is the total price divided by the number of rooms, used to compare against market benchmarks.

When you look at a property, start with the trailing twelve months of performance so you can see a full year, including the slow seasons. This matters even more in seasonal markets where a strong summer or winter can hide weaker months. Don’t base your decision on peak season numbers alone.

You also need to understand the franchise agreement. Franchise fees are usually tied to revenue, and royalty payments of around 2%-4% are common. Those fees come straight out of your profits, which is why the underlying performance numbers really matter.

Investment strategy for hotel property investments

If you’re new to the hospitality business, don’t start with a 300-room hotel. Bigger properties just magnify every problem. They take more capital, more experience, and a lot more day-to-day oversight.

Starting smaller is better. This could be boutique hotels or limited-service hotels without full restaurants that are easier to run and avoid a lot of labor and management headaches. Something in the 20 to 80 room range is manageable, requires less capital, and still gives you the benefits of commercial real estate.

That’s exactly what we did. We started with a limited-service hotel and set up a joint venture agreement with someone who had years of hotel industry experience. This helped us learn the business without taking on unnecessary risk.

You can always scale up later, once you have more experience and the right team or partners like a hotel management company.

Franchise agreements and brand partnerships

The franchise model has strong advantages for hotel investors.

Benefits of franchise hotel investments

The brand puts its name on your building and brings a built-in booking engine and loyal customer base that would be very hard to create on your own. You’re tapping into their reservation systems, marketing reach, and brand recognition from day one.

Franchise hotels also come with a playbook. You get established operating procedures and details on how the hotel should run. It’s basically a hotel in a box, which makes execution much easier, especially if you’re newer to hotels.

Key components of franchise agreements

However, understand what you’re signing up for. As a franchisee, you own the land, you own the real estate, you own the operations, the employees are your liability, and you guarantee the loan. The franchisor provides the brand and platform, but you have all operational and financial responsibility. This structure means you control your asset and operations while leveraging their brand power.

Key components of these agreements include:

• Royalty fees: These are based on revenue and usually range from 2%-4%.
• Marketing fees: Cover national campaigns and brand promotion.
• Technology fees: Costs for reservation systems and property management software.
• Upfront application fees: These initial costs can be very high, exceeding $150,000.
• Agreement length: Franchise agreements are long-term contracts, around 10,20 years, with built-in renewal options.
• Performance requirements: Agreements include performance standards tied to key metrics like RevPAR and occupancy that you’ll need to meet.

Before you sign anything, review every single line item in the purchase and sale agreement. You can save a lot of money before you even close if you know what to look for. Negotiate where you can, especially if you bring leverage through experience or multiple properties.

Finding hotel investments

If you want to add hotels to your investment portfolio, you have to be proactive about finding deals and lining up financing. You can’t rely on just one broker or one platform. The brokerage world is fragmented, so you need to look in several places. Some steps:

• Diversify your search: Get on the email lists for multiple national brokerages.
• Network intensely: Go to hospitality conferences and start meeting owners and operators.
• Leverage relationships: Be ready to find those great “off-market” deals through your partners and network. We saw this firsthand, as our JV partner found the first hotel we invested in through his network.

Financing options for hotel investors

Here are the main financing options you’ll find for hotel investments:

• SBA loans: Small Business Administration loans have really great terms for qualified buyers.
• Conventional loans: Community banks and regional banks might be a good candidates to get started with.
• Seller financing: This is a creative structure where the seller is willing to carry the financing. We’re looking at this for one of our boutique hotels in Spain.
• Private capital: Leveraging friends and family or syndications. You can also go the same route as us with a joint venture (JV) agreement.
• Hybrid capital: You can also stack a few different capital options, like mezzanine debt and preferred equity.

It’s good to find several options. Shop multiple lenders, compare terms, and negotiate aggressively. The difference between so-so and great financing has a huge impact on your ability to see consistent returns and a return on investment.

Is now the right time for hotel investments?

We don’t get many chances to be early. For a long time, experienced investors have viewed hotels as one of CRE asset classes with great opportunity. Now more people are starting to pay attention, but there’s still a window if you know what to look for.

Hotel transactions are picking up, with volumes expected to grow about 15%-25% as some owners are forced to sell and funds reach the end of their life cycles. New supply is still very limited and demand in major cities is coming back.

This market rewards being picky. Picking the right hotel, in the right location, with a plan that works is more important than ever. Hotel investing isn’t for everyone. It takes involvement or the right partners who know hospitality inside and out.

But if you’re willing to deal with the complexity, do the work on location and market research, line up smart financing, and build the right management team, the upside can be meaningful and long-lasting. Or, you can partner with someone else and enjoy passive income without having to deal with the day-to-day operations.

Partner with Proven Hotel Investment Experts

At this point, you can see what hotel investing is like. There’s more going on operationally, the financing is more involved, and the general manager has a huge impact. That part isn’t easy. But you can also see the upside and how the current environment creates opportunities for strong returns.

You don’t have to figure this out on your own. At Gateway Private Equity Group, we focus on value-add hotel investments, handling everything from acquisition and renovation to day-to-day operations. Investors get to co-own performing hotels without running them, so you can benefit from multiple income streams and tax advantages.

If you want to learn more, check out our latest hotel investments fund here.

Are hotels good investments: FAQs

What is the average return on investment for hotels?

Hotel investments can have average return on investment ranges of 6% -12%. So many factors impact this number, including:

• Hotel type: Limited-service hotels usually have lower expenses and steadier margins, while full-service or luxury hotels can generate higher returns but come with more complexity, labor, and risk.
• Pricing strategies: Hotels that do a great job of managing rates adjust pricing daily based on demand, seasonality, and events. Strong revenue management makes a big difference in overall returns.
• Financing: Loan terms matter. Interest rates, leverage, amortization periods, and whether the debt is fixed or variable all impact cash flow and risk.
• Expenses: Labor, utilities, insurance, property taxes, and ongoing maintenance directly affect profitability. Hotels with tight cost controls and efficient operations tend to outperform.

Are hotels a risky investment?

Hotel investments are like any other real estate asset class, where high risk comes from skipping due diligence, not making informed decisions based on data, and not hiring a strong team. To reduce risk, look at:

• Location and market fundamentals: Demand drivers, seasonality, competition, and whether new supply is coming into the market. One of our best hotels was in a small town, right off the highway, with truck parking. It was all of these perfect scenarios in one hotel.
• Sponsor experience: If you’re passively investing, look at the operator’s track record with hotels specifically, not just real estate in general.
• Operational plan: Check out the plan for day-to-day management, including staffing, pricing decisions, and cost controls.
• Financing structure: Look for a conservative approach to loan terms, interest rate risk, and the amount of leverage being used.
• Deal structure: Since you’re investing to make passive income, look at the operating agreement details for return splits, fees, hold period, and alignment between investors and the sponsor.
• Downside protection: What happens if revenue drops or expenses rise, and how the sponsor plans to handle tough periods.
• Communication: How often the sponsor updates investors and how transparent they are when things don’t go as planned.

Can you invest in hotels?

Yes, you can invest in hotels. There’s a few ways to do it, depending on your level of involvement:

• Active ownership: You buy and operate the hotel yourself. This means handling financing, staffing, operations, and decision-making. It offers the most control and potential upside, but also requires the most time and experience.
• Passive ownership: You invest alongside others in a hotel syndication or similar structure. A sponsor handles operations and management while you share in the cash flow, appreciation, and tax benefits without running the hotel.
• Paper ownership: You invest through REITs, ETFs, or publicly traded hotel companies. These behave more like stock investments, are easy to buy and sell, and don’t involve property ownership or operational involvement.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.

It was a small taste of financial freedom, seeing that our time was no longer the only thing we could trade for money.

Of course, the path isn’t always smooth. We quickly learned that “passive” can sometimes mean late-night calls about leaky faucets. However, these experiences solidified our resolve. Building passive income through real estate is a path for anyone willing to learn the fundamentals and commit to the journey.

Understanding passive income in real estate

Whenever someone talks about building wealth, passive income is a cornerstone concept for financial freedom. Passive income is money you earn with minimal ongoing effort after the initial investment and setup.

Please understand that “passive” doesn’t mean zero work. It means income that isn’t directly tied to trading hours for dollars. In a W-2 job, you stop earning the moment you stop working, but with passive income, it keeps coming whether you’re sleeping, traveling, or focusing on other things.

Ways real estate can generate passive income

• Rental income:Provides monthly cash flow as tenants pay rent, covering our mortgage and expenses while ideally leaving profit.
• Property appreciation: Builds wealth over time as real estate values usually increase, creating equity that you can leverage or realize upon sale.
• Dividend payments: From real estate syndications, crowdfunding or similar vehicles deliver regular income without requiring you to own physical properties.

Comparing passive real estate investment to W-2 income

In a traditional job, if you earn $80,000 annually, you must work approximately 2,000 hours to receive that income. But, if you own a duplex where tenants cover the mortgage and generate $1,000 monthly in positive cash flow, you’re earning $12,000 annually with far less ongoing time investment.

Why does passive income matter so much for financial independence?

• Create a steady income stream: This passive income stream is independent of your time, so you can earn while pursuing other interests.
• Builds long-term wealth: Real estate can provide compounding returns, where you generate rental income and reinvest it, allowing the property’s value to appreciate.
• Provides flexibility for retirement: It reduces dependence on traditional pensions or 401(k) accounts.
• Gives you financial independence: This provides early retirement possibilities and choices about how to spend your days.

Real estate stands out among passive income vehicles because it combines tangible assets, tax advantages, leverage opportunities, and other wealth-building mechanisms.

Benefits of real estate for passive income

One of the greatest things about passive real estate investing is scalability and the power to diversify a portfolio. You can start small. This means you can begin with a single property or a real estate syndication investment and then increase your holdings as your knowledge and capital grow.

Real estate has different ups and downs than stocks and bonds, so it gives you a way to diversify your portfolio. When the stock market experiences volatility, real estate often remains stable or even appreciates. This can balance overall portfolio performance.

You can also diversify within real estate itself, spreading risk across residential properties, commercial spaces, vacation rentals, and indirect investments in syndications or through real estate crowdfunding.

Tax benefits of real estate investing

Real estate investing has many tax benefits that can increase your passive income. These include:

• Mortgage interest: You can deduct up to $750,000 of mortgage debt.
• Property tax deductions: In 2025, the SALT deduction cap is $40,000 for incomes under $500,000 in 2025.
• 100% bonus depreciation: This is now a permanent deduction for qualifying property placed in service after January 20, 2025, through the One Big Beautiful Bill Act.
• Operating expenses: You can also deduct operating costs like maintenance, insurance, and property management fees.
• Cost segregation: In our real estate syndications, we utilize this strategy to claim more deductions upfront and increase after-tax yields.

What to consider before real estate investing

Before starting your real estate investment journey, be sure to define your goals. What are your primary objectives?

• Is it a monthly cash flow to supplement your income today?
• Are you looking for long-term appreciation to fund your retirement in the future?
• Are you building wealth to pass to the next generation, or aiming for financial independence within a specific timeframe?

Your risk tolerance should also shape your strategy. For example:

• Conservative: If you need stability more than anything, you might invest in real estate investment trusts (REIT) or rental properties in established markets with predictable returns.
• Risk-tolerant: If you’re comfortable with volatility, you look at vacation rentals in emerging markets or value-add properties that need renovation.

There’s no universal “right” approach, only the strategy that works for your personal circumstances and comfort level. Start by writing down specific, measurable goals and timeframes before making any investment decisions.

Direct property ownership

There are a few ways you can generate passive real estate income from directly owning property.

Rental properties

A lot of people start with traditional rental properties like single-family homes or small multifamily buildings. They do offer steady rental income, but they aren’t a truly passive investment.

Even if you do a great job of screening tenants, you’ll inevitably deal with maintenance issues, occasional repairs, and, unfortunately, sometimes evictions. If your investment portfolio includes rental houses, they aren’t usually located in one central area. So that means you’ll find yourself traveling to different properties and losing operational efficiency.

Apartment complexes create more efficiencies since you can centralize maintenance and achieve better economies of scale. The challenge there is you’re now managing a community of tenants, and frankly, people don’t always get along. Neighbor disputes, noise complaints, and community dynamics add some complexity.

The reality is that rental properties require either your active involvement or hiring a property manager. If you’re willing to invest the effort and budget for management fees, these properties are a great strategy that offers control, tax benefits, and wealth-building potential.

What to know: Great control and strong tax benefits, but they require ongoing work unless you hire a manager. Operations become easier with scale, yet tenant issues and maintenance never fully go away.

Vacation rentals

Short-term vacation rentals through platforms like Airbnb and Vrbo are also an option. There’s a lot of growth potential here. Grandview Research predicts the short-term rental market will reach approximately $102.86 billion by 2030, growing at a 7.4% compound annual growth rate.

There’s also a lot of competition. In a lot of cities, there’s no limit to how many short-term rentals there are. As a result, I’ve seen several people sell properties because they couldn’t reach the occupancy rates they needed to make all the numbers work.

There’s also growing interest in secondary cities and unique properties. Current trends that can help you increase your monthly income include:

• Unique stays
• Mid-term bookings
• Pet-friendly

Also, short-term rentals have way more active management since they’re more like hotels. This includes guest communications, coordinating cleaning between stays, managing supplies, watching out for regulatory rules, and dealing with changes in seasonal demand.

What to know: Higher income potential but very hands-on. Success depends on market demand and standing out from heavy competition.

House hacking

House hacking is my favorite entry strategy for new real estate investors. The concept is simple: live in a property while renting out additional units, such as a duplex, triplex, or single-family home with a basement apartment.

This approach offers multiple advantages. You can greatly reduce or potentially eliminate your personal housing costs while also building equity and learning landlord skills in a lower-risk environment. Because you’re an owner-occupant, you can qualify for lower down payment requirements using FHA loans compared to investment property loans.

Living on-site also gives you hands-on experience managing tenants, handling maintenance, and understanding property operations. You learn what works, what doesn’t, and develop systems before scaling your property investment portfolio.

The scalability is powerful. Once you’ve mastered one property and built equity, you can move to another house hack, converting the first property to a full rental. Repeat this process several times, and now you’ve built a portfolio while never paying traditional rent or a mortgage out of pocket.

What to know: A low-cost entry point that cuts your housing expenses and helps you build equity while you learn real estate from the inside. The tradeoff is that you live next to your tenants, which can blur boundaries and feel challenging if issues come up.

Commercial properties

An advanced strategy is to own commercial real estate like office spaces, retail properties, and self-storage facilities. Commercial properties can give you higher returns than residential real estate. Plus, instead of a typical 12-month lease, commercial leases are often five to ten years or more, which reduces vacancy risk and tenant turnover.

Commercial tenants also take on more maintenance responsibilities. For example, triple-net leases require tenants to pay property taxes, insurance, and maintenance costs. This takes the operational burdens away from you as the investor.

The barriers to entry are higher. Commercial properties require larger down payments in the 25-35% range. Financing is more involved, and commercial loans have shorter amortization periods with balloon payments. The due diligence process is also more intense, as you’ll need to review the P&L numbers for each tenant and the lease details.

What to know: Higher returns and longer leases, but bigger down payments, deeper due diligence, and more complex financing.

Here is a quick summary of direct ownership for passive income:

Passive real estate investment

If you want property-backed returns without the landlord headaches, there’s many indirect ways you can invest.

Real estate syndications

If you’re an accredited investor, you can earn passive income from real estate through property syndications. In this structure, a group of investors pools their money to buy a larger property that would be out of reach individually. There is a sponsor, or general partner, whose job is to find the opportunity, bring investors together, and manage the asset.

These investments are usually structured as an LLC, and each investor owns a share of that entity. You get all the benefits of property ownership, including the tax advantages, the cash flow, and the appreciation, without having to handle any of the day-to-day work.

You can find syndications across nearly every commercial real estate asset class.

What to know: Syndications offer higher potential returns and strong tax benefits, but they require long hold times and are usually only available to accredited investors. They also rely heavily on the sponsor’s experience, judgment, and operational skills.

Real estate investment trusts (REITs)

REITs are also passive investing where you don’t own or manage physical properties. These are shares in a public company that trade on the stock exchange. REIT investments behave more like stocks, and you don’t get the tax benefits you’ll see with other forms of real estate investments. The types of options you’ll see include:

• Equity REITs: These directly own and operate properties like apartments, office buildings, shopping centers, and hotels.
• Mortgage REITs: This investment type holds mortgages and mortgage-backed securities to give you steady passive income from interest.

These are truly hands-off, passive income investments that require no landlord responsibilities whatsoever. Returns vary by REIT type, sector focus, and market conditions, but for investors who want stable passive income, REITs can be an easy option.

What to know: REITs are liquid and easy to buy, but they move with the stock market and don’t offer the tax benefits of direct real estate ownership.

Real estate crowdfunding

Real estate crowdfunding platforms are marketplaces that offer commercial-scale real estate projects to everyday investors. They are basically syndications, but the difference is that you don’t set up a direct relationship with the real estate sponsor. Instead, everything goes through the platform, including communications and real estate passive income distributions.

We’ve personally participated in real estate syndications and note funds, experiencing the genuinely passive nature firsthand. We funded repairs on a property flip and received a 10% return. While the investment period was brief (just a few months) and the total amount modest, the experience demonstrated how truly passive these investments can be. We also invest in note funds that generate regular returns without requiring any operational involvement.

Just like with syndications, you can invest across several different property types like multifamily developments, hotels, and mixed-use properties. Some platforms also allow non-accredited investors to earn passive income from very small amounts starting at $100.

What to know: Crowdfunding opens doors to opportunities that once required more capital, but you rely heavily on both the platform and the sponsor. Liquidity varies by project, and returns depend on deal performance.

Real estate ETFs

Exchange-traded funds focused on real estate are another way to get started with passive real estate investing. These funds hold multiple REITs and real estate companies, so you can easily diversify across dozens or even hundreds of holdings.

The advantages include easy diversification and very liquid investments.

What to know: ETFs give you exposure to real estate with almost no effort, but their returns move with the overall stock market and you don’t get direct real estate tax benefits.

Here is a quick summary of passive real estate types:

Financial considerations for real estate passive income

There are some financial realities of real estate investing besides buying a property.

Leverage in property investment

Leverage is a double-edged sword. It allows you to control valuable assets with a relatively small amount of cash, which can greatly increase your returns. However, borrowed money also increases your risk.

Here’s how it works:

You buy a $200,000 property with a 20% down payment of $40,000. The property generates $1,500 in monthly rent. After accounting for $1,200 in monthly expenses, including mortgage payments, property taxes, and insurance, you have $300 in positive cash flow.

That’s $3,600 annually on your $40,000 investment, representing a 9% annual return on your down payment, which is a lot more than high-yield savings accounts.

However, if you over-leverage by minimizing your down payment or underestimating expenses, even a brief vacancy can trigger negative cash flow that rapidly depletes your reserves. That’s why you should make conservative estimates and keep six to twelve months of operating expenses in reserves for each property.

Property management

For truly passive income, you’ll need to delegate day-to-day management. Property management companies typically charge 8-12% of the monthly rent to handle tenant screening, rent collection, maintenance coordination, lease enforcement, and tenant communication.

Management fees reduce net returns, but they buy back your most valuable asset, which is time. For investors seeking genuine passive income, property management is key. When you offload operations, you can spend your time on higher-value activities like identifying new investments, focusing on your career, or simply enjoying life rather than handling maintenance calls.

Operating costs

One place where new real estate investors can mess up is by not accounting for all of the operating expenses of a property. Beyond the mortgage payment, here are the other costs that can eat into your rental income:

• Property taxes: Property value appreciation means these costs go up each year.
• Insurance: These costs are increasing in many markets due to climate risk and inflation.
• Maintenance and repairs: You should budget 1-2% of the property’s value annually for ongoing upkeep.
• Capital expenditures: Major systems like roofs, HVAC, and plumbing require replacement every 15-25 years.
• Vacancy reserves: These are typically 5-10% of gross rent to account for turnover periods, so you can still pay the mortgage even when you’re not getting income.
• HOA fees: If you buy a property that has a homeowners association.
• Utilities: If not paid by tenants.
• Property management fees: Costs and fees if you decide to use professional management.

Conservative underwriting that takes all of these expenses into account can protect you from surprises.

Maximizing returns and minimizing risks

To generate passive income in real estate, you need a three-pronged strategy that increases gains while protecting you from potential losses. Here’s how:

Real estate market strategies

The best strategy is to identify high-growth markets before they reach their peak. That might be secondary markets, or it might be a specific asset class. Identifying before everyone else does gives you the best shot at both rental income and appreciation.

When evaluating markets, look at:

• Local employment growth and economic drivers: Are major employers expanding or relocating to the area?
• Population trends and migration patterns: Are people moving in or leaving?
• Rental demand and vacancy rates: What’s the current supply-demand balance?
• New development and supply pipeline: Is a lot of new construction coming that might oversaturate the market?
• Regulatory environment and landlord-friendly laws: Do local laws support property owners or create excessive burdens?

It’s best to invest in areas you know well or can commit time to researching before deploying capital. Stay updated on economic changes, infrastructure development, and emerging neighborhoods that signal future appreciation.

Diversification strategies

I don’t recommend putting all your capital into a single property or market. Instead, you can diversify in several ways:

• Property types: Residential rentals, commercial properties, vacation rentals, and indirect investments each respond differently to economic cycles.
• Geographic locations: Different cities and states experience varying economic conditions and regulatory environments.
• Investment strategies: Combining direct ownership, REITs, and crowdfunding can give you a balance. I personally do this. We syndicate hotels, but we also own residential properties, and we passively invest in other real estate investments.

Risk mitigation strategies

Beyond diversification, here are some specific risk mitigation strategies you can use to protect your investment portfolio:

• Tenant screening: Every time a tenant leaves a property, there are costs associated. The best strategy is to use thorough tenant screening with credit checks, employment verification, rental history, and background checks to reduce evictions and payment issues.
• Cash reserves: Plan for 6-12 months of operating expenses per property so you have a cushion for vacancies and repairs.
• Insurance coverage: Make sure to get enough liability and property insurance to protect against catastrophic losses.
• Regular maintenance: Be proactive and address small issues before they become expensive problems.
• Lease agreements: Have an attorney review your lease agreements to protect your rights and set clear expectations.

Tax strategies

Tax advantages of real estate can transform a mediocre investment into a strong performer. Key strategies include:

• Depreciation deductions: The permanent 100% bonus depreciation for qualifying property placed in service after January 20, 2025, allows you to fully expense qualifying assets in the first year.
• Cost segregation studies: For commercial properties, these increase early-year deductions and improve cash flow.
• 1031 exchanges: You can defer capital gains taxes when you sell a property by buying another of equal or greater value. This is huge for compounding wealth.
• Mortgage interest deductions: Deducting interest on up to $750,000 of mortgage debt.

Long-term wealth generation

The greatest fortunes in real estate usually come from patience and long-term holding rather than flipping or short-term speculation. You can increase your returns even more by reinvesting equity through cash-out refinancing to buy additional properties.

Historical data shows real estate appreciates approximately 3-5% annually on average, though this varies by real estate market and property type. Combined with mortgage principal reduction, a property you buy today could easily be worth 50-75% more in fifteen years while your loan balance decreases by 30-40%. That’s a huge amount of wealth growth that happens automatically.

Scaling your portfolio

To grow your portfolio, save cash flow from your first property to apply as a down payment for your second property. As equity builds, leverage it through refinancing to buy more properties. This is what’s called a “Buy, Rehab, Rent, Refinance, Repeat” strategy or BRRRR.

What I’ve personally seen is a natural progression from active to more passive investments as you grow your wealth. Early in your real estate investment journey, you might actively manage rental properties to maximize returns and build equity. Over time, as your portfolio expands and your net worth increases, you can switch to more passive income ideas like syndications, mortgage funds, and REITs.

Partner with Gateway Private Equity Group

The interesting thing about hotels is that they can generate much higher returns than residential real estate. They’re also incredibly active since they operate more like small businesses. The advantage for our investors is that they get the upside without taking on that level of work.

We’re building a portfolio of Spanish boutique hotels so our accredited investor partners can co-own performing real estate that provides passive income and tax advantages.

Want to learn more about our Barcelona Hotel Fund? Click here to check it out.

How to build passive income with real estate: FAQs

What is the best way to make passive income with real estate?

The best way fits the amount you have to invest and the time you have. A few potential scenarios:

• Under 50k: Get started with REITs, ETFs, or crowdfunding sites with as little as $100.
• 50k-100k: Rental properties with mortgages that allow for lower downpayments.
• $100k and up: You can grow to larger income streams with real estate syndications or crowdfunding.

What is the 3-3-3 rule in real estate?

This rule says to keep 3 months of reserves, plan for 3 months of vacancies, and hold properties for at least 3 years. This gives you:

• De-risk: Set up an emergency fund for unexpected maintenance and other costs that can happen.
• Buffer: Sometimes it can take a while to find tenants, so when you’re looking at your budget, plan for 3 months of vacancies and make sure you have enough reserves to cover.
• Optimize spend: This timeframe allows for some appreciation and helps avoid short-term transaction costs.

Is rental income passive income?

Yes, rental income, distributions or dividends you receive from real estate investments gets counted by the IRS as passive. This category also means you can deduct property expenses from this income on your Schedule E tax form. The types of income streams include:

• Syndications: Pay rental income via distributions of profit following a specific revenue split outlined in the offering memorandum.
• Crowdfunding sites: Also pay rental income per the profit split details in the subscription agreement.
• REITs: Must pay 90% of their profits to shareholders via dividends.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.

If you’re investing because you want passive income right now, cash on cash is the more important metric. If you’re investing to build wealth over time, IRR is a better metric.

I’ll cover both, along with the other metrics I mentioned. Knowing the details of the formula and what to look for can help compare different real estate investment projects.

What is cash-on-cash return?

Cash-on-cash return measures how much income the property generates compared to the cash you invested in the deal. It looks only at the annual net cash flow and ignores appreciation or profits at sale. It answers a simple question of how much cash flow this property paid you this year, based on your actual cash invested.

Personally, I pay close attention to this metric. At this stage of life, I’m focused on opportunities that generate passive income. Along with investing in our own deals, I invest in other syndications to diversify my portfolio, and I’m usually looking for at least a 10% cash-on-cash return.

To calculate your cash-on-cash return, you’ll take the total cash invested divided by the annual cash flow, which equals the cash yield.

Here’s an example:

• Initial investment: $100,000
• Annual cash flow: $10,000
• Annual cash on cash return: $100,000/ $10,000 = 10%

Cash flow and debt service

So what happens on the back end for a syndicator to be able to provide distributions and a return to you? Basically, whatever is left after the property pays for expenses and debt service payments is cash flow.

When you’re looking at investment properties, here’s how I’d evaluate to see if the projections from the syndicator are realistic or not:

• Net operating income: What are the sources of income, and is it enough to cover expenses? What are the opportunities to increase income, which would then increase net cash flow? In hotels, we look at things like winning large travel contracts or increasing revenue through areas like food and beverage.
• Expenses: It’s a good idea to look at the operating expenses for the specific project and property type and see if they’re realistic. For example, in hotels, there’s a certain level of payroll that we expect, and if it’s low, we question how the property can operate at that level.
• DSCR: This number represents the debt service coverage ratio and tells you if the property makes enough money to generate cash flow. It’s calculated by dividing cash flow after expenses by debt service payments. A DSCR of 1 means the property can cover its debt, and a DSCR of 1.2 means it makes 20% more money than needed to cover the real estate loan.

After you’ve looked at these areas as part of your investment due diligence, you’ll get a sense of whether there’s going to be enough cash flow and what kind of return metrics are realistic.

Financing options and impact on your returns

Financing and debt service flexibility greatly impact your cash-on-cash return. For example, one of the big benefits to our Barcelona Hotel fund project is that we’ve found financing options to be more flexible in Spain than in the United States. For example:

• Interest rates: Current commercial real estate loans are about 3-4% lower than what we currently see in the U.S. This increases the amount of cash yield and investor distributions we can generate.
• Seller financing: We see a lot of small family-owned properties, and sellers are more willing to offer seller financing, which can keep our debt service low.

If you compare properties between the U.S. and Spain, you’ll find that similar boutique hotels would sell for 5-10x the price here in the United States. Yet, we can command the same type of nightly hotel rates you’d see here. All of this means better cash flow and better returns, which is why Spanish real estate investment properties are hot right now.

What is internal rate of return (IRR)

Internal rate of return is a whole different metric and isn’t necessarily about annual cash flow at all. IRR measures the annualized return of an investment over the entire hold period. It accounts for the time value of money, not just how much you receive. It’s the interest rate that makes the net present value of all of the property’s cash flow zero.

You can use internal rate of return to compare deals with different timelines. And you’ll see a higher IRR when you get cash earlier than later.

The calculation itself requires specialized tools, but accounts for:

• Initial investment: Your initial cash outflow into the syndication or real estate project.
• Cash inflows: Cash flow distributions that you receive during the hold period.
• Final sale: Cash inflows from selling the property or exiting the investment.
• Timing: When the inflow or outflow occurs.

Other metrics in passive real estate investment

Some of the other metrics you can use to evaluate investment properties include:

Equity multiple

This measures how much you get back compared to your equity invested in the project. If you invest $100,000 and the total return over the hold period is $300,000, the equity multiple is 3.0.

The drawback to using equity multiple to evaluate alternative investments like real estate is that it doesn’t factor in time. It only looks at total dollars in and total dollars out.

Return on investment

Most people are familiar with this metric, which shows the total gain or loss compared to the original amount you invested. Here’s an example of how it works in real estate investing:

• Initial investment: $100,000
• Annual cash flow for 3 years: $5,000
• Proceeds at sale: $10,000

The calculation is:

• Total cash return: $25,000
• ROI calculation: $25,000/$100,000 = 25%

Net operating income (NOI)

NOI shows how much income the property produces after paying its operating expenses. It’s the number that reflects how the property performs on its own before the loan payment. To calculate it, take the total income the property brings in and subtract the operating expenses.

Here’s an example:

• Rental income: $50,000
• Maintenance expenses: $5,000
• Payroll: $10,000
• Property taxes: $5,000

The calculation is:

• Income less expenses: $50,000 – $20,000 = $30,000

Cap rate

Cap rate measures the property’s net operating income compared to the purchase price. Say the example property type above costs $500,000, here’s how to calculate the cap rate:

• Net operating income: $30,000
• Property market value: $500,000

The calculation is:

• NOI/market price: $30,000/$500,000 = 6% capitalization rate

Cap rates tell you about the property risk. A higher cap rate means a higher risk property, which you might see with run-down properties that need a lot of maintenance, tenant clean up, or raising rents to meet market conditions.

Meanwhile, a brand-new Class A apartment complex that’s very stable will have a lower capitalization rate because there’s way less risk.

Cash on cash return vs IRR: which makes more money?

I’m going to be like an IT person and say “it depends”. That’s why you have to look at every deal based on your individual needs and what you’re looking for. Here’s a quick little matrix that you can use:

First-year challenges in real estate investing

The reality of investing in any property, whether you’re actively investing or you’re investing in a property syndication, is that it takes some time to stabilize the property. So you don’t always get a lot of cash flow in year one. Properties that you invest in for more than a year can see results from those initial stabilization efforts.

For example, these are the kinds of things a syndicator tackles in year one:

• Rental income: Evicting bad tenants and finding ideal tenants who pay rent on time and stay for as long as possible.
• Deferred maintenance: Taking care of any maintenance that the previous owner neglected.
• Marketing: In hotels, we might rebrand the property or increase marketing.

Final thoughts for all real estate investors

The bottom line is that looking at these various metrics can help you understand an investment’s performance and whether it’s the right opportunity for you.

Investors often use both cash-on-cash return and IRR to evaluate the potential of real estate investments. To make the best decisions, you’ll want to compare apples to apples as much as possible. These calculations give you a way to do that.

Our Barcelona Hotel fund offers a mix of both with projected cash flows and an IRR of 21.73% and an equity multiple of 3.05. Click here for the offering flyers and details to learn more.

Cash on cash return vs IRR: FAQs

What is the difference between cash on cash VS IRR?

The biggest difference between the two is that cash on cash just looks at an annual number, and IRR looks at your total investment over time. Which is better? It depends on your goals if you want:

• Passive income: The cash-on-cash return indicates how much cash flow you can generate from the investment. Let’s say you want to make $50,000 in passive income, and the return is 10%. You’ll need to invest either $500,000 in one investment or divide the $500,000 into multiple syndications or projects to get to that income level.
• Grow wealth: If you want a 2x return on your investment within a specific timeperiod, this is when you’d look at internal rate of return (IRR). It tells you the total return, including cash flow plus proceeds from the sale, and assigns a higher “score” for reaching the return faster.

Is 7% cash-on-cash return good?

7% cash-on-cash return is OK. It’s a 7% return on your investment. It’s higher than you can get with a:

• High-yield savings account
• Money market account

But it’s lower than you can get with:

• Strong investment properties
• Solid stocks or index funds

Most syndication real estate investments target cash-on-cash returns closer to 8-12%.

When to use cash-on-cash return?

You should focus on cash-on-cash return if you’re trying to generate passive income. If your goal is something like $100,000 a year in passive income, you want to look closely at investments that produce steady cash flow.

To meet your goal:

• Capital: Know how much capital you can invest and look at the projected cash-on-cash return for each project.
• Research: Do your due diligence on the syndicators and property type/market opportunity.
• Invest: Invest in one project or spread your capital across a few passive investments to reach the income level you want.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.

I think everyone understands the idea of buying a single-family home, renting it out, and making rental income. But it can feel intimidating to think about buying a hotel with 100 rooms or a commercial office building with 12 stories. The reality is that you can do it if you have the capital and partner with an experienced real estate operator.

This article covers what real estate co-investing is, the roles involved, and the pros and cons for everyone involved.

What is real estate co-investment?

Real estate co-investing is when several investors pool their money to buy larger projects they couldn’t afford on their own. That’s the general concept. There’s a sponsor who handles all the work involved, and there are passive investors who have little to no control over the day-to-day management of the investment.

Now, the structure and how that comes about can include any of these four types of models:

1) JV partnerships

Joint ventures usually involve two investors. One investor handles property operations and the overall success of the project, and the other party acts as a capital member providing the funding. From there, the profits get split according to the agreement.

This is how we structured our first hotel deal. The JV agreement gave us access to an operator who knew hotels, which gave us time to learn the industry. It also helped us get a bank loan, as no bank would finance a property of that size without proven experience on the team.

2) Real estate syndications

Real estate syndications are where an operator or general partner finds an opportunity, vets the opportunity, and then raises capital from limited partners to invest in that specific deal. The general partner is responsible for operations and the overall success of the project, while the passive investors are responsible for providing the capital.

These are usually one-to-one, meaning the syndication invests in a specific property.

3) Real estate funds

Real estate funds are very similar to syndications except they don’t identify a specific property up-front. Instead, multiple investors pool their resources to build up a capital fund, and then experienced managers vet opportunities to buy with that fund.

You still have limited partners, and then the general partners basically become fund managers who look for the best opportunities to generate returns for everyone involved. Our current offering, the Barcelona Hotel fund, is an example of this.

4) Crowdfunding

Crowdfunding is really just a platform or marketplace that connects passive investors to projects in different asset classes and areas of the country. These are projects you wouldn’t know about if you didn’t sign up for the platform. So crowdfunding is really like a middleman software platform to connect the two parties.

The underlying structure for various investment opportunities is usually a syndication or a fund.

Why real estate co-investment is growing

The whole commercial real estate private equity market is forecasted to grow at a CAGR of 45% from 2025 to 2033. Reasons why we’re seeing this kind of growth include:

• Increased demand for real estate exposure: Institutional investors and even individual investors want to include real estate in their investment portfolios. But they want to passively invest just like they do with the stock or bond market.
• Technology: New investors like Gen Z gravitate towards tech-enabled investment opportunities, including real estate co-investment opportunities. Advancements in blockchain and AI also make it easier than ever to access real estate investing passively.
• De-regulation: Increased deregulation continues to make it easier for sponsors to offer co-investment opportunities. The proposed Retirement Investment Choice Act opens it up even more, allowing individual investors to invest in real estate assets with their 401(k)s.

Who are the players in a co-invest deal?

We have already mentioned some of the different players, but let’s go into a bit more detail so you can understand what to look for when considering co-investment opportunities in syndications, crowdfunding, or funds.

Lead sponsor

The lead sponsor, also called the syndicator or general partner, is the person responsible for doing the work. They vet opportunities, handle due diligence, and negotiate the deal.

Once they secure the deal, they structure the capital stack. They decide how much to raise from investors, how much to borrow from the bank or another source, and they personally guarantee the debt.

Co-investors

Next, you have the co-investors. These are the passive investors in the project. They’re also called limited partners. Co-investors are responsible for vetting the opportunity based on their own financial goals. They’re also responsible for doing due diligence on the syndicators.

After that, they contribute their capital. That’s it. They have zero liabilities. They don’t personally guarantee the debt. Their only risk is the money they put into the project.

Responsibilities in co-investment opportunities

What are all the steps that everyone should be aware of if they’re looking to get into co-investment?

Lead sponsor responsibilities

Here’s a high-level of the co-investment sponsor’s responsibilities:

• Building the business plan: The GP is responsible for finding the opportunity, vetting the opportunity, and building an investment strategy and business plan around the specific project.
• Preparing the co-investment package: Once the GP has identified a good co-investment opportunity, they’ll work with their legal teams to develop an operating agreement and terms for the investment.
• Aligning timelines: This is a tricky part, which is where the GP has to manage a property purchase timeline, the funding timeline with the bank, and raising capital and private equity timelines.
• Asset and property management: Once the property closes, the GP becomes responsible for executing on the business plan and overall performance of the asset.
• Reporting and distributions: These are also responsible for investor relations, which includes reporting and providing distributions on profits during the investment period.

Co-investor responsibilities

Passive individual investors benefit from the sponsor’s expertise, and they have only a few responsibilities:

• Due diligence: LPs should vet the investment opportunity. This includes looking at the market, the sponsor’s investment strategy, and getting a sense for the specific asset class. It also involves looking at the offering agreement, which includes management fees and profit split details.
• Funding: Once the LP decides to invest, they’ll need to contribute capital and sign the offering agreements.
• Monitoring: The last step for limited investors is to monitor the status of their investment through the technology and communication provided by the sponsor.

Co-investment deal structure

When you invest in one of these real estate deals, you’ll review the offering agreement. It outlines the structure, roles, responsibilities, and how you earn a return on your investment. The structure depends on factors related to governance, economics, conflicts, and tax or regulatory status.

Here are the general parts:

• Legal structure: The entity used for the syndication or fund. It’s usually an LLC or limited partnership that defines ownership, liability, and governance.
• Fees: These refer to the compensation paid to the sponsor or general partner for managing the deal, including acquisition, asset management, and disposition fees.
• Profit splitting: This covers a specific return to investors and how cash flow and profits from operations or sale get divided among all the investors.
• Capital contributions: The amounts of money each investor contributes. You’ll also see GPs invest alongside limited partners, which makes sure everyone has aligned objectives.
• Investor rights & reporting: This covers how investors participate, their rights to information, voting on specific matters, and financial reporting.
• Financing: The offering agreement includes details on acquisition-related debt and how mortgage payments get handled from the property’s income.

Benefits of co-investment in real estate

What are the benefits for all parties involved in a co-investment deal? Here’s a quick comparison:

Details on each of these include:

For individual investors

Here are the main benefits for passive investors:

• Passive investment: The number one benefit is the chance to own a direct investment share in a real estate property without doing any of the work. That’s the goal for most people. Who doesn’t want a great ROI or equity multiple without handling the logistics of the deal?
• Tax benefits: The direct investment also means you get access to all the tax benefits of real estate, like depreciation expenses and 1031 exchanges to avoid capital gains taxes when you sell.
• Education: The best sponsors take time to also educate investors on the asset class or deal. What I mean by this is we meet regularly with our investors, and if they want to learn more about hotel operations or what it takes to be a sponsor, we’re happy to share.

For sponsors

Sponsors also benefit from co-investment opportunities by:

• Larger deals: Raising capital allows the GP to buy larger properties than they could buy on their own. You’ll find that GPs usually have extensive experience, but there’s a point where they need outside capital to grow their real estate portfolio.
• Pay for performance: The more they perform, the more a GP can make in each co-investment deal. For some people, that’s very motivating, and it’s also good for LP investors since it means higher returns on their investment.
• Track record: As GPs do more and more deals with multiple investors, it helps build up their portfolio and experience. It becomes increasingly easier to raise capital and continue growing.

Risks of co-investment in real estate

Like all investments, there’s always drawbacks and risks to consider, which include:

For individual investors

Here are the main drawbacks of these passive investments:

• No control: LP investors have no control over the property or fund itself. You’re completely relying on the GP to make investment decisions and execute the strategy.
• Illiquid: Most of these real estate funds or syndications have a longer investment period that you have to commit to. You can’t usually get out of your investment until the completion of this timeframe.
• Concentration risk: You’ll want to be careful not to be too concentrated in one area of the country or one asset class. For example, multifamily has been the darling of real estate funds for many years, but just like the stock market, you wouldn’t want all your capital in just this one asset class.

For sponsors

Sponsors take on the most risk, and this includes:

• Personal liability: Sponsors take on personal liability for financing with the bank or other loan source. This risks their personal assets if the co-investment goes wrong.
• Compliance: The SEC has very specific rules about taking on co-investors, and the GP is responsible for following those. For example, if the fund is a 506(c) offering, the GP has to make sure to accept capital only from accredited investors.
• Operations: The GP has several factors that can impact property operations, including staffing, market dynamics, or even government decisions like interest rates. This is why sponsors stress-test various scenarios to plan for potential risks.

How we approach co-invest opportunities

Gateway Private Equity Group focuses on quality hotel assets in the United States and Spain. We’re a fully integrated real estate investment company that handles all aspects of the investment from sourcing, vetting, and managing commercial real estate deals.

We’re currently focused on building a brand of boutique hotels in Spain, operating under our Barcelona Hotel Fund.

We’re also committed to transparency and the best investor experience. To do this, we provide access to investment performance and status reporting in real-time in our technology-powered investor portal.

To learn more about Gateway Private Equity group and our current co-investment opportunities, sign up to receive updates and communications.

Real estate co-investment: FAQs

What is the 7% rule in real estate?

The 7% rule says that the property should generate at least 7% of its purchase price in income to be a good investment. This is one quick way to look at investments in terms of cash flow, but some of the other ways that we often use in commercial real estate include:

• Equity multiple: This number looks at the total cash you get from a real estate investment, divided by the total equity you put in the deal. It shows how many times over the original investment you get back.
• Internal rate of return (IRR): This is a calculation of your return on an investment that takes into account the time value of money.
• Cash on cash return: This is a simple calculation that looks at how much you invested and how much cash flow you get each year. It doesn’t look at the total lifetime cash flow, and it doesn’t take into account the timeframe.

What is an example of a co-investment?

An example of co-investment includes any of these, where investors pool capital for real estate projects:

• Real estate syndication: These are single asset investments, like a specific apartment complex or hotel.
• Real estate fund: Funds create a pool of money to buy a series of commercial real estate assets that meet specific investment criteria.
• Joint ventures: JV agreements are usually smaller partnerships where one party provides capital and the other handles all the operations, but there can be scenarios with a larger group of passive investors.
• Real estate crowdfunding: Crowdfunding is a platform that connects sponsors and passive investors. It then manages the ongoing relationship, including communication and investor payments.

How is co-investment different than co-ownership?

These are both ways to buy properties with different levels of risk, liability, and work involved:

• Co-investment: Multiple investors pool funds to buy a commercial property. The sponsor takes operational ownership, all of the risk, and liability. Passive investors only risk their capital and do not have decision-making authority over day-to-day operations.
• Co-ownership: This is direct ownership of a property by multiple parties. Everyone gets listed on the deed, and each co-owner has legal rights and responsibilities for the property. Co-owners are involved in managing the property or share decision-making authority.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.

This article explains what the equity multiple formula is and how it compares to other real estate metrics. So, when a syndicator starts throwing around numbers, you’ll know exactly what they’re talking about and what it means for your investment.

What is equity multiple?

Equity multiple measures the total cash distributions received compared to your initial total equity invested. It’s a view into an investment’s performance. The higher equity multiple, the better, since it means you make more on each dollar invested.

It basically tells you whether a commercial real estate investment was a good deal or not.

Types of equity multiples:

You’ll hear of a few different types of equity multiples, including:

• Levered equity multiple: This formula assumes that the GP plans to use bank financing as part of the project. The equity multiple formula looks at cash distributions after paying debt service. You’ll usually see higher returns in this scenario.
• Unlevered equity multiple: An unlevered investment assumes 100% equity and no debt. For example, our current project in Spain is a cash purchase with no debt and a projected unlevered equity multiple of 3.05.
• Multiple on invested capital (MOIC): This is another term for equity multiple.

Characteristics of equity multiples

Here’s a few key characteristics of equity multiples:

• Time-agnostic: The formula measures total return without considering your investment hold period. So an equity multiple of 3x your initial investment is great if you got that in 2 years. But if it takes 20 years, it’s not a good investment.
• Cash-focused: It’s an actual number based on actual cash flows.
• Risk assessment: A higher equity multiple means better performance unless it’s a 20-year investment, like I mentioned above.
• Benchmarking tool: It’s a helpful metric for making a quick comparison across different potential investments.
• Investor communication: GPs use this metric to provide simplified reporting to investors.

Why should you care about the equity multiple?

To calculate the equity multiple, start with how much cash you made. Cash distributions that passive investors might receive include:

• Monthly rental income
• Refinancing proceeds
• Cash at the property sale

So you take all the money received and divide that by your initial invested capital, which gives you the equity multiple. Let me give you an example from one of our previous hotel projects with simplified numbers for illustration purposes.

Initial investment

$1 Million. This was a 1031 Exchange rollover from several years of various commercial real estate property investments.

Cash flow

We bought this property in 2017 and held it for 8 years. It took one year to stabilize and create reserves before we started seeing cash flow. The total cash distributions from operations over the 8 years were $400,000.

Property sale

The property sale price was $2M over the initial purchase price.

Applying the equity multiple formula

Here’s how we calculate equity multiple for this property:

• Total cash distributions: $2,400,000
• Initial investment: $1,000,000
• Equity multiple calculation: $2,400,000/ $1,000,000 = 2.4

For every $1 of invested capital, we got back $2.40 over the holding period.

Now…. this is a property where we brought in an operations partner via a JV agreement and split all the profits 50/50. So while the property’s equity multiple was 2.4, our actual equity multiple was closer to 1.2.

Equity multiple vs. other real estate metrics

Equity multiple is just one of several metrics you can use to decide on syndications. Here are other metrics to know:

Internal rate of return (IRR)

Internal rate of return (IRR) is a measurement of the investment’s overall profitability that considers the time value of money. Getting $1M in 2-3 years is better than getting those total cash distributions in 10 years. Most people use specialized tools to calculate IRR so I won’t provide the formula here but the key components are:

• Initial investment amount: Just like with equity multiple, we need to know the initial outlay.
• Cash flows: This includes both inflows, like rent or other income, and outflows, like loan payments.
• Number of periods: We need to know the number of time intervals that the cash distributions occur. This could be payments on a monthly, quarterly or annual basis.

Using the specialized tools, you’ll get a discount rate, which is when the net present value (NPV) of all cash flows equals zero.

On every syndication, the GP will have a projected IRR based on their plans for the property. These are forecasts on future cash flows, but since they’re forecasts only, they may not happen this way at all.

Let’s look at my hotel example again and calculate the real internal rate of return. I found a GPT inside of ChatGPT that will do investment calculations, and I gave it these numbers:

• $1M initial investment
• 8-year hold
• 8 years of monthly rent at $400k total
• $2M cash at sale

And it gave me an internal rate of return of 12.9%. The GPT also gave me its opinion:

“A 12.9% IRR is solid and typical of a well-performing real estate or private equity deal. The rent yield is modest, but capital appreciation drives most of the return.”

Cash on cash return

This number takes the property’s pre-tax cash flow as a percentage of the total cash invested. It tells you how much passive cash income you’re getting relative to the cash put into the property. To calculate it, you take the annual pre-tax cash flow divided by invested capital and multiply by 100.

Taking the hotel example again, this looks like:

• Monthly rental income: $50,000
• Initial outlay: $1,000,000
• Cash on cash return calculation: $50,000/ $1,000,000 = 5%

Return on investment

Most people think about this metric for any kind of investment. It shows how much you made compared to what your invested equity. To calculate it, we just need the investment gain minus the investment cost multiplied by 100.

With the same hotel example, this looks like:

• Investment gain: $2,400,000 – $1,000,000 = $1,400,000
• Initial outlay: $1,000,000
• Calculation: $1,400,000/ $1,000,000 x 100 = 140%

Limitations of the equity multiple calculation

You can’t really just use one metric to evaluate property syndications. That’s because each has its own limitations, and equity multiple is no different. A few drawbacks include:

• No time value consideration: A 2.0x return over 2 years is way different from the same multiple over 10 years. The challenge is that multiple treat them the same, but the same equity multiple that gives you more cash sooner is better.
• Tax implications ignored: After-tax returns can be completely different between investments with the same equity multiple.
• Cash flow timing blindness: Equity multiple doesn’t distinguish between early versus late distributions.
• Return efficiency absent: Fails to measure capital efficiency or risk-adjusted performance

To get a complete picture of an investment opportunity, you’ll also want to consider the other metrics I shared earlier. This helps you get closer to understanding an investment’s absolute return potential.

Considering an investment’s potential risks

Even when you use the other metrics and put everything together, real estate investments always have risks. Be sure to do your own due diligence on both the opportunity and the syndicator in these areas:

• Track record: Review the syndicator’s track record and experience with similar properties or asset classes.
• Business plan: Ask about the business plan, projected returns, and key assumptions behind the deal.
• Financing: Consider the syndicator’s planned financing structure, including loan terms and how much leverage they plan to use.
• Market: Review the property’s market, location, and potential for long-term growth.
• Partnership agreement: Read the Private Placement Memorandum (PPM) and other offering documents so you’re aware of details like sponsor fees and performance incentives.
• Communication: Evaluate how well the sponsor communicates with investors and how often you’ll receive updates.

Equity multiple formula and investment opportunities

Real estate syndication opportunities almost always publish the projected IRR, cash-on-cash returns, and equity multiple. You can use this combination of metrics compared to the GP’s business plan to evaluate which projects you want to invest in.

In our current Barcelona Hotel Fund, for example, we’re projecting an unlevered IRR of 21.73% and an equity multiple of 3.05. Numbers like that only work when the business plan, market, and team align. If you’d like to see how we’re approaching this project and the business plan behind it, click here to learn more.

Equity multiple calculation: FAQs

What does 1.5 equity multiple mean?

It means that for every dollar you put into a commercial real estate investment, you receive $1.50 back over the investment’s lifetime. This adds up all the returns, including:

• Operating income: This can be rent payments or other income, like parking fees.
• Cash-out loan financing: If you refinance the property and pull out cash, this counts towards returns.
• Cash at property sale: This is money left over after selling and paying off the property loan.

And then divides those returns by the total equity investment you put into the deal.

What is a good equity multiple in real estate?

A good equity multiple depends on your investment style. You’ll see different equity multiples depending on the commercial real estate project. For example:

• Class A apartment complex: This is a more conservative type of investment with lower risk than other types of projects. You might see a lower equity multiple around 1.5 or so because the asset is already performing.
• Commercial office building: Say the syndicator finds a great deal on a commercial office project because it’s partially rented and needs capital investment to bring in more tenants. This is riskier and will have an opportunity for a higher equity multiple starting at 2 to higher.

So basically, any equity multiple of 1 or over is “good” but what you consider good might be different for someone else.

How to calculate equity multiplier?

To calculate equity multiple, add up all cash distributions received and divide by the total equity invested. Anything above 1 is a profitable investment. Anything below that is a loss.

• Total distributions: Rental income, money from refinancing, and proceeds at sale.
• Total equity invested: Initial capital, reinvested profits, and any additional funds invested with capital calls.

The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals and advisors before making any decisions or taking action based on this information.

If you already have a full-time job like I do in tech, that’s not exactly appealing. I don’t want calls from tenants during my workday or on weekends. I’m lucky because my husband does that for a living. He’s been in real estate for over twenty years and knows it inside out.

But if you don’t have someone like that in your corner and still want to invest, that’s where property syndication comes in. I cover what it is below and how it compares to other types of passive real estate investments.

What exactly is a property syndication?

Property syndication is when several investors pool funds to buy a commercial property. It’s one of the best ways to invest in larger real estate projects without having to take on all the responsibility yourself.

And it’s a way for individual investors to own commercial real estate investments that would normally be out of reach. Because even if you have enough money to buy a large property, most banks won’t give you a loan without some kind of experience.

With a real estate syndication, an experienced investor, called a sponsor or general partner (GP), brings together a group of passive investors to buy a property.

Who is involved in a property syndication?

I explained that there’s a GP who brings everyone together. The other main role is the passive investor, who’s called a limited partner (LP). The roles and responsibilities of each include:

How is a property syndication structured?

A property syndication gets organized by creating a separate LLC or LP that owns the property. Investors do not own the property directly. Instead, they own a share of this entity.

Operating agreement

An operating or partnership agreement defines the specific structure and sets various expectations, like:

• How much each investor contributes.
• Who has decision-making authority.
• How the syndication distributes money.
• What happens if the syndication sells the property or an investor leaves.

Most of the funding comes from investor equity and a loan from a lender. The entity receives rental income, pays property expenses and the loan, and then distributes remaining cash to investors based on the agreement.

Profit payouts (distributions)

The GP provides cash flow from operations to investors in the form of distributions. The way these get split is all part of the real estate investment syndicate’s operating agreement.

Key elements include:

• Preferred return: Investors receive a set return first, before the GP sees any profits.
• Return of capital: After the preferred return, investors usually receive their initial investment back.
• Hurdles: Certain return benchmarks like IRR or equity multiple must be met before the split shifts in favor of the GP.
• Profit splits (carry): After those IRR hurdles, profits get split between investors and the GP. You’ll commonly see a split like 70/30 or 80/20.
• Catch-up provisions: Some structures allow the GP to “catch up” to a target split once investors earn the preferred return.

Sponsor fees

The agreement also outlines the fees the GP charges for acquiring, managing, or selling the property. Remember that the GP does all the work to find the deal, spends money on due diligence, and takes on the most risk. Fees cover some of those costs and risks.

Tax treatment

For tax purposes, the IRS classifies the entity as a pass-through, and each investor receives a Schedule K-1 that reports their share of income, losses, and depreciation. As a syndicator, it’s our responsibility to get those tax forms to our passive investors. And every year, we’re pushing our accountant to get the K-1s out by the March 15th IRS deadline.

Who can invest in a property syndication?

Most of the time, property syndications require you to be an accredited investor. This is due to the Securities and Exchange Commission (SEC) regulations. Basically, the real estate syndicate falls under SEC Regulation D, which includes exemptions that allow us to raise capital legally without going through full SEC registration.

The two options are:

• Rule 506(b): Syndicators can include investors they already personally know and up to 35 non-accredited investors.
• Rule 506(c): This is the route we take with our real estate syndications. We can publicly advertise the opportunity, but the SEC only allows for accredited investors to participate.

What is an accredited investor?

The SEC defines an accredited investor as someone who meets at least one of these income or net worth requirements:

• Income: $200,000 a year, or $300,000 if filing jointly
• Net worth: Over $1 million, not counting their primary home.

Types of real estate syndications

When you’re looking at different investment opportunities, there are two different ways you can invest in a real estate syndication deal.

Equity investments

Equity investments mean you own a share in the property entity. Like we talked about earlier, that’s usually an LLC or LP that holds the real estate asset. You make money from the rental cash flow and the property’s appreciation, and you also get the tax benefits that come with ownership.

This is the structure we use for all of our real estate syndications.

Debt investments

Debt investments are a popular asset class right now. The main difference is that you’re acting like the lender. It’s basically like being the bank. You provide the capital, earn interest on your loan, and get your initial investment back when the loan matures.

You’re not an owner in the property, so you don’t share in the appreciation or the other perks that come with real estate ownership. But, it can be a good strategy if you want to diversify your passive income investments.

I’ve been looking at a few debt funds. Most of them require a minimum investment and set time periods of one to three years. The longer you commit, the higher the return on your capital.

Benefits of property syndication

Why would you want to join a real estate syndication deal in the first place? Here’s the biggest reasons:

Passive income

To me, this is why you invest in real estate. The whole goal is to put your capital into investment vehicles that pay you a return and give you regular income. One of my friends in Rotary told me that if it weren’t for his investments in mobile home parks, he wouldn’t have been able to retire.

The best part about passive income is that you can still have a W-2 job (like me) and you don’t have to worry about daily operations like you would if you had direct property ownership.

Diversify investments

I’ve always believed in diversifying both investments and income. Sometimes real estate performs well, and sometimes it doesn’t. The stock market can hit record highs one year and drop to painful lows the next.

That’s why I think it’s smart to spread your money across different types of investments. It helps manage risk and keeps you from putting too many eggs in one basket.

Inflation hedge

In 2022, U.S. inflation spiked to around 8,9%. The Federal Reserve raised interest rates to bring it back to normal levels, but the impact is still with us. When you compare the cost of goods and services from 2020 to 2025, we’re paying about 25% more on average.

So how does real estate help? Let’s look at one of our smaller rental homes as an example.

We bought it in 2017 for $182,000, and today it’s worth about $350,000. To outpace inflation, the property only needed to rise more than 25% in value. Instead, it appreciated roughly 92%.

That’s way more than keeping up with inflation.

And that’s just the appreciation. We also get all the other financial benefits that come with that one property, like rental income and depreciation deductions.

Tax benefits

Tax benefits are the icing on the cake with real estate investing. They aren’t the reason to buy a property or join a real estate syndication, but they help you keep more of your income every year. Here are the main ones:

Depreciation

This is a paper expense that allows you to reduce your taxable rental income each year by writing off the cost of the property over 27.5 years. This lowers your taxes and allows you to keep more of your passive income. Plus, it reduces your taxable active income as well.

One of the strategies we use in our real estate syndications is to accelerate depreciation to take more up front. To do this, we pay for a firm to do a cost segregation study which we then submit with the property’s tax return. This greatly reduces taxes on your passive income in year one.

Deductions

These are tax write-offs for expenses relating to your real estate investment. Say you invested in our Barcelona Hotel Fund and wanted to go see the property for business purposes, you may be able to deduct travel expenses from your passive income.

I’m not a tax or financial advisor, but you could ask your CPA for more details.

1031 exchange

Finally, you can defer taxes entirely when you sell by using a 1031 exchange. This lets you move profits from one property into another without paying capital gains or depreciation recapture. Just note that if you don’t roll over the proceeds into a new real estate investment, you will eventually owe those taxes.

As of this writing, we’re in the middle of a 1031 exchange, and it’s definitely tricky. You have to identify the property early, before you’ve had the chance to do thorough due diligence. Because of that, some of the properties we were considering are no longer viable, and our options have narrowed.

It’s a bit of a catch-22. We don’t want to buy a property unless it’s a solid deal, but the 1031 rules could leave us in a position where we end up paying the capital gains tax consequences if we can’t find the right one in time.

Drawbacks of property syndication

I never want prospective investors to think that real estate investing is always perfect. And if you are investing in a syndication, there are some risk factors and drawbacks to consider. These are the main ones:

Illiquidity

You’ll need to commit your capital for several years. It’s not easy to get it back if you need it, so review the PPM and offering documents carefully and make sure you understand the expected hold period. For example, our U.S.-based hotel syndications usually have a seven to ten-year hold.

You can’t think of real estate like the fix-and-flip rental properties you see on HGTV. I’m not saying you won’t see your capital sooner, but property operations take time to get underway and for the syndicator to execute their plan.

Your options to exit are also limited. You might find another investor to buy your share, but the syndicator has to approve that, since they don’t want just anyone in the deal. Some funds have secondary markets, but that’s rare.

Lack of control

The reason many investors choose a real estate syndication is because it’s passive, but that can also be a drawback. As an LP, you don’t have control over management decisions and have to rely on the sponsor for managing properties and executing the business plan.

That also means you take on sponsor risk, since you’re depending on their experience, judgment, and integrity.

And let’s be real, not every deal works out the way you hope. We have a hotel that’s been hit hard by a series of challenges. Everything from COVID to being located in an office park where the major employer is struggling to rising labor costs for housekeeping and maintenance. It hasn’t been our strongest investment, and that’s part of the reality of real estate.

What matters in this scenario is how the sponsor responds. In our case, Mike paused all his fees, applied for grants and other funding programs, and negotiated with the bank to help improve the property’s financial situation.

Look at the sponsor’s past performance, and someone who steps up and actively works through these kinds of unforeseen challenges.

Market risks

All real estate carries market risk. You might buy your dream home, only to find out a few years later that the area is declining and no one wants to live there. Suddenly, you can’t even sell the property for what you paid. That’s the reality of real estate.

When you look at opportunities, ask questions about the downside. What risks exist? What could go wrong? There’s no such thing as a perfect investment. Higher returns usually come with higher risk, so you need to understand that these things can happen and they can impact your investment.

Syndications versus other passive real estate investments

You can also passively invest in real estate projects through these alternatives to a real estate syndicate:

REITs: Real estate investment trusts are publicly traded companies that own and operate a real estate portfolio. You buy shares in their company via the stock exchange, and you can buy and sell your shares whenever you want.
Crowdfunding: Real estate crowdfunding platforms are marketplaces where you pick and choose investment opportunities. Since it’s a platform, everything goes through that specific site. You don’t interact directly with the sponsor, and all your communications and returns go through the site.
Joint ventures: This is one of my favorite approaches to real estate investing but it doesn’t work in every scenario. One partner handles the day-to-day management of the property and the other partner provides the entire investment. Then, the partners split the profits. This is exactly how we got into our first hotel.

Comparing private real estate investments in a syndication versus other ways to invest in real estate:

Real estate syndication investment strategy

It might surprise you to know that even though Mike and I syndicate hotels, we also invest in other syndications. Why? The same reason I mentioned above, which is diversification. I don’t have experience with self-storage, commercial office buildings, or senior housing, but I think they’re all great ways to add portfolio diversification.

So I invest passively in other syndications to do just that.

Here’s how I look at any real estate syndicate:

Investment objective

This starts with why I’m looking to invest in the first place. My biggest goal right now is cash flow through rental income. That immediately rules out opportunities like owning land or building spec homes because those don’t generate regular income.

Risk tolerance

You should define your level of risk tolerance and how much of your initial investment you are willing to lose. For me, it depends. A project with lower investment minimums doesn’t get as much scrutiny here as those that have a higher initial level.

Asset class

I also look at my current investments across multiple properties and try to find ways to diversify into different asset classes or markets. I already mentioned my interest in areas like mobile home parks and self-storage.

And, although it’s not a real estate syndication, I recently invested in an oil and gas fund. For me, it’s about adding another layer of diversification and gaining exposure to a different asset class than what I usually invest in.

Funds available

Start by looking at how much money you have available for real estate. From there, decide how much of it you’re willing to put into alternative assets and how much risk you’re comfortable taking. Once you know that, you can figure out how to allocate those funds across different types of investments.

Personally, I like a mix. I’m looking at a debt fund as a less-risky option that pays more than a bank account but still feels relatively stable. I’m also looking at other syndications that help me diversify beyond hotels, since that’s been most of our focus.

Evaluating real estate syndication deals

Passive investors should vet the sponsor and the opportunity with a due diligence process before getting into any syndication. Here’s what I’d look at:

• Sponsor track record: You want to understand the sponsor’s experience with the specific property type in the syndication. It’s not easy to jump from one asset class to another, so look for longevity and proven results in previous deals.
• Property management: Get a picture of the operational team and their plan to execute the strategy. Even the best deal can fall apart if the team can’t manage expenses and maximize rental income.
• Opportunity: Learn about the property itself. Why this deal? What makes it stand out in this market? And what’s the business plan behind it?
• Capital stack: Ask about the property loan terms. This is what caught many multifamily projects off guard when the Fed raised interest rates so quickly in 2022. GPs with variable-rate loans saw their financing costs jump in a short amount of time, and many deals fell apart.
• Offering agreements: The general partner shares key terms in the Offering Memorandum or Private Placement Memorandum. Look at details like profit splits, sponsor fees, investment periods, and potential returns.
• Communication: I want to know the sponsor’s communication style, cadence, and level of engagement with investors. In our case, Mike meets with all of our passive investors quarterly and sends monthly updates.
• Technology: Since I work in tech, this one matters to me. What investor portal or software do they use so I can check on the status of my investment anytime?

How do real estate syndications make money?

Here’s how a real estate syndication makes money and who benefits:

• Cash flow: This is the profit left over, deducting operating expenses and loan payments from rental income. Both GPs and LPs benefit here. GPs have incentives to increase this cash flow as much as possible.
• Appreciation: Both GPs and LPs can make money here in two ways. First, when we sell the property, we all receive a higher sale price than we paid for it. Second, if we don’t want to sell the property, we can also do a cash-out refinance.
• Tax benefits: While you don’t exactly “make money” with tax benefits, they do reduce your taxes on passive income, so you get to keep more of it. Both GPs and LPs benefit here.
• Sponsor fees: This is income for the GP from finding, managing and selling the property. The GP benefits here.

Metrics to evaluate returns on real estate syndications

Here is a high-level overview of what potential investors should look for when they see a syndicator advertising the projected returns on investment opportunities.

Cash on cash return

This is the pure return that you get each year compared to what you invested. So, let’s say you invested $100,000 and get $10,000 per year in distributions; that’s a 10% cash-on-cash return.

Equity multiple

Equity multiple measures how much total cash you receive compared to your original investment. It includes your annual cash flow, any profits from the property sale, and any payouts from a refinance. All of that together makes up your equity multiple.

As an example, we just sold one of our hotels in July 2025, and the equity multiple on that deal came out to over 3x. It included the annual profits plus the capital gains at sale.

Internal rate of return

Internal rate of return, or IRR, is the annualized compounded growth rate expected on your investment. It’s a complicated calculation that looks at both the timing and the amount of each cash flow. The idea is that money you receive now is worth more than the same amount in the future, and IRR takes that into account.

Should you invest in a commercial real estate syndication?

Whether or not you should invest in a syndication really depends. Have you always wanted to own a piece of commercial real estate? Are you looking to diversify your portfolio? Do you want something that could generate a higher return than your other investments?

As you can see, there are a lot of questions. I can’t answer those for you, but they’re worth thinking through. What I can tell you is this: investing in real estate has been one of the biggest wealth builders in my life. But it’s tough to do at scale as an individual investor. That’s where a syndication might make sense.

Barcelona Hotel Fund for accredited investors

If you have accredited investor status and want to learn more about our latest syndication, take a look at our newest project here. We’re curating a collection of small boutique hotels just outside of Barcelona that cater to people who want to get away and enjoy an elevated experience. These properties host events like corporate retreats, weddings, and wellness getaways.

Property syndication: FAQs

What is an example of syndication in real estate?

An example is when a group of people pool their money to buy multifamily, retail, or industrial properties. The syndicator handles property management and splits the profits with all of the investors in the deal.

Are real estate syndications worth it?

They can be if you want passive income with potentially higher returns. However, these are long-term investments that tie up your capital, so you want to make a good decision on which syndications to invest in.

How does syndication work?

A syndicator finds the opportunity, raises capital from passive investors to buy a property, manages it, and splits returns with passive investors.

The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals and advisors before making any decisions or taking action based on this information.

The quick version is that a higher IRR usually is a better opportunity. But that number alone doesn’t tell the full story. So, even though it’s a boring topic for people who hate math (like me) it’s a good idea to know how to calculate IRR so you know what a sponsor is saying about the opportunity.

This article covers the basics of internal rate of return real estate and how to use it to evaluate syndication opportunities.

What is internal rate of return in real estate?

If you’re used to owning a single-family home as a rental property, you probably haven’t had to do an IRR calculation. But in commercial real estate, the IRR formula is a metric everyone uses to see if the property’s a great opportunity.

Sure, there’s a whole bunch of other real estate numbers you can look at, but an IRR gives a good metric of what’s going on.

Basically, it captures the annual return on a project while also factoring in the time value of money and when you get paid. Because getting $100,000 next year isn’t worth the same as getting it five years from now, and the IRR metric adjusts for that timing.

Why does the internal rate of return matter?

So why does this matter? First of all, every real estate syndication you look at will include the property’s IRR. Second, real estate is a long-term investment, so you need to think about what it means to have your money tied up for years. What’s the opportunity cost of doing that?

Returns might look great on paper, but if you could invest in another syndication or a different type of asset, the internal rate of return helps you compare options and make better investment decisions.

Key parts of internal rate of return in commercial real estate

There are main components of the internal rate of return include:

• Initial investment
• Cash flows
• Timing of cash flows
• Discount rate
• Net present value

Initial capital investment

Before you can start the calculation, you’ll need to know what goes into the upfront investment.

• Property acquisition price: This is pretty straightforward. This is how much we’re going to buy the commercial property for.
• Closing costs: Just like any other real estate deal, you’re going to have costs when you finalize the purchase.
• Due diligence expenses: There’s a lot that goes into due diligence. Some of the costs we often have include hiring people to do a market analysis, traveling to locations, and paying for inspections. All of these add up as part of due diligence.
• Immediate capital improvements: Some properties require you to handle renovations or make improvements right away. We see this in the hotel space where the franchise brand requires new carpeting, furniture, or signage.

All cash flows

Cash flows represent the movement of money in and out of the property.

Cash inflows

Positive cash inflows come from rental income or, in our case, hotel stays. These cash flows should grow annually with market rates. We also capture tax benefits through depreciation deductions and potential tax credits.

Cash flow assumptions use Net Operating Income (NOI), which is revenue minus operating expenses.

Additional income streams could include parking fees, laundry revenue, and storage rentals.

Cash outflows

Outflows include operating expenses like property management fees, maintenance, insurance, taxes, and utilities. Other outflows include capital expenditures for major repairs or improvements and debt service payments.

Exit proceeds

When the property sells, investors receive the net sales price minus selling costs (broker fees, legal expenses, transfer taxes). Market appreciation greatly impacts overall proceeds.

Holding period

Timing is everything. Earlier positive cash flows contribute more to IRR than later ones because of the time value of money. A property that has strong cash flows in years 1-2 will show a higher internal rate of return than one with back-loaded returns, even with identical total returns.

Timing of cash flows

You’ll need to know if cash inflows come monthly, annually, or on some other interval. Here are a few scenarios in commercial real estate investment:

• Tenant turnover or lease renewals: When tenants move out or new ones move in, rental income can drop or increase depending on vacancy periods or new lease terms.
• One-time events: In the hotel space, we see uneven cash flows for one-time events like conferences or large group rentals.
• Expense reimbursements: In triple-net (NNN) leases, tenants reimburse owners for property taxes, insurance, or maintenance, which can change.
• Capital improvements: If the property undergoes upgrades, cash flow may dip temporarily due to capital budgeting costs or reduced occupancy during construction.
• Sale of units or parcels: In mixed-use developments or condo-style commercial projects, income may spike when individual units or sections are sold.
• Refinancing: The real estate syndicator might refinance a property mid-hold, which creates a one-time cash inflow.

Discount rate

The discount rate is the percentage rate used to figure out how much future money is worth today. It’s the rate at which the value of all future cash coming in equals the money spent now. Simply put, it’s the breakeven point in today’s dollars.

If the IRR is higher than your predetermined discount rate, the investment looks good. If IRR is lower, it might not be.

Net present value

Net present value is how much an investment is really worth today by adding up the value of all the money you expect to get in the future. It’s then adjusted for the fact that future value is never as valuable as money in your hand right now.

Types of internal rate of returns in real estate

There are three types of IRR formulas:

1. Unlevered IRR: This looks at the return on a property without considering any loans. It shows the pure performance of the investment based only on cash flows from the property itself.
2. Levered IRR: This IRR metric involves counting the impact of financing. It shows the return on the investor’s actual cash invested after debt costs, so leverage amplifies gains or losses.
3. Modified Internal Rate of Return (MIRR): This IRR function assumes you reinvest earnings at a normal rate, not the project’s own high return. It gives a more realistic number and helps you compare projects more accurately.

How to calculate internal rate of return

Bear with me as I give an example of how commercial real estate investors calculate IRR. Since this is a blog post and most of us use software to automate this step, we’ll go with more of the theory than actual manual calculation. This is from one of our hotels.

Hotel investment property details:

Step 1: Calculate annual cash flow before sale

Annual cash flow is NOI , Debt Service

$600,000 , $350,000 = $250,000 per year

Step 2: Loan balance at sale

Assuming a 25-year amortization at 5.2%, the remaining loan balance after 8 years ≈ $3,034,000.

Step 3: Net sale proceeds to equity

Net Proceeds = 7,488,000 , 3,034,000 = 4,454,000

Step 4: Cash flow summary

Step 5: IRR calculation

The cash flow stream to equity investors is:

• Year 0: ,1,200,000 (initial equity investment)
• Years 1,7: +250,000 per year (annual cash flow after debt service)
• Year 8: +4,704,000 (annual cash flow + sale proceeds)

The cash flow series:
[-1,200,000, +250,000, +250,000, +250,000, +250,000, +250,000, +250,000, +250,000, +4,704,000]

This cash flow series’s internal rate of return is approximately 20.9%.

Step 6: Sensitivity notes

Returns can change quite a bit if the sale price or operating income changes over time. A sensitivity analysis helps see how much the internal rate of return might move if the numbers turn out better or worse than expected.

The table below shows how different sale prices and net cash flow levels would affect the internal rate of return. It gives a quick view of what the results could look like in stronger or weaker market conditions.

Summary of the property internal rate of return

In our IRR example, this hotel could provide an internal rate of return between 17.2%-24.2%. The range completely depends on inputs like future cash flows, how long the investment period ends up being, and the disposition price at exit.

Reality is, IRR isn’t set in stone, and the hotel could do better or worse than our projections, which is why you’ll want to see other details like due diligence and market research.

Internal rate of return real estate red flags

There’s always many sides to every story, so if you’re looking at an IRR for an investment property, you should know that it’s not the be-all and end-all. Here are some red flags you should look at and consider when you’re looking at potential investments.

Assumes reinvestment at IRR: IRR assumes you reinvest all interim cash flows at the same rate as the IRR, which may not be realistic. In reality, reinvestment rates are often lower.

Multiple IRRs: Complex projects with irregular cash flows can have multiple IRRs which makes it confusing to interpret which is the right one.

Ignores project scale: IRR doesn’t account for the size of the investment. A smaller deal with a higher IRR might be less profitable overall than a larger deal with a lower IRR.

Timing sensitivity: IRR is sensitive to the timing of all the cash flows. Changing when cash flows happen can greatly change IRR, even if total returns are similar.

Overemphasis on short-term gains: IRR can indicate that a property investment with high returns is the right choice, but it may miss long-term value and stability.

Does not reflect risk: IRR ignores risks or uncertainties in the cash flows, which should be a part of any investment analysis.

Evaluating real estate syndications based on internal rate of return

The challenge when you are looking at opportunities is that the internal rate of return is one of the key metrics that you’ll see. There might be some other numbers that a syndicator lists, but most of the time, it’s about projected IRR. So how do you decide if a potential real estate investment is the right fit for you?

So how do you decide if a deal is right for you? Here’s how I approach it.

Start with the IRR

Start with the projected IRR because it’s one of the fastest ways for comparing investments. A strong IRR helps you quickly identify which deals might deserve a closer look.

Review the details of the deal

Once I’ve filtered deals based on IRR, I look specifically at what’s being offered. My checklist looks like this:

• Due diligence: What kind of research and underwriting went into the deal? Are the projections realistic
• Capital stack: What are the financing details? Is the debt long-term or short-term? What’s the leverage ratio?
• Distributions and waterfalls: How and when will returns be paid? How are profits split between investors and the sponsor? Is there an alignment in incentives?
• Sponsor track record: What experience does the sponsor have? Have they managed similar assets successfully?
• Communication: How transparent is the sponsor? Will you receive consistent updates?
• Technology: What system or portal is used to track your investment and updates?

Benchmarks for internal rate of return in real estate investment

If you want to get an idea of what’s a good IRR, Inegra Realty’s Viewpoint 2025 report shows the following benchmarks by strategy:

Core / stabilized properties: These are fully leased, low-risk assets in strong markets that have steady income. Typical IRR: 6,9%

Core-plus investments: Slightly higher risk with minor improvements or leasing upside. Typical IRR: 12,16%

Value-add opportunities: Underperforming properties that need renovations or repositioning to create higher returns. Typical IRR: 15,20%

Opportunistic deals: High-risk, high-reward projects like new development or major redevelopment. Typical IRR: 20%+

Final thoughts on using IRR for property investment

There are a lot of different metrics you’ll hear in real estate, and the best advice is not to treat any of them as stand-alone validation. The internal rate of return is a good starting metric, but it should be just one piece of your overall decision criteria.

Now, since this is my blog, I’ll do a quick shameless plug. If you want to learn more about passive hotel investments, check out our Barcelona Hotel Fund offering here.

Internal rate of return real estate: FAQs

What does a 20% IRR mean?

A 20% IRR means that the syndicator projects the real estate investment to grow by 20% per year on average during the time you hold your investment.

What is the 7% rule in real estate?

The 7% rule says that the property’s gross annual rent should be at least 7% of the purchase price. For example, if a property costs $400,000, it should generate about $28,000 per year in rent ($400,000 × 0.07), or roughly $2,333 per month.

How to calculate IRR on real estate?

To calculate IRR on real estate, list all cash flows and find the discount rate that makes their net present value zero. You can do this using Excel’s IRR function with your cash flow data.

The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals and advisors before making any decisions or taking action based on this information.

Many of my peers have gone down that path. Most start with single-family rentals, and some move into small multifamily properties. One question I get asked a lot is how to move into larger commercial deals. The truth is, that’s not easy to do when you’re working full-time. Even if you have the capital, do you have the experience? The right team? Would a bank even lend to you?

That’s where real estate syndication investment opportunities come in. They give you a way to invest in commercial properties you probably couldn’t take on alone.

So what kinds of opportunities make sense right now? And how do you vet deals to know if they’re the right fit for you? This article covers it all.

Understanding real estate syndications

Real estate syndication lets investors pool their money to buy larger, high-quality properties that would be out of reach individually. This investment model was previously only available in Wall Street circles. But today, technology makes it more accessible for investors who want to diversify their portfolios with commercial real estate.

Real estate syndication framework

A real estate syndication is a partnership model where multiple investors pool their capital to buy commercial properties. Without combining money and resources, most real estate investors couldn’t buy these properties on their own.

Syndicated real estate investments are structured as private placements under SEC regulations, including Regulation D Rule 506(b) or 506(c).

These deals are structured as Limited Liability Companies (LLC) or Limited Partnerships (LP). This entity structure protects investors from personal liability and allows for pass-through tax benefits.

The typical hold period is 3-7 years. Your money stays invested during that time and the goal is to earn steady cash flow and long-term appreciation.

Real estate syndication roles

Every real estate syndication has at least these three roles:

General Partners (GPs): Also called sponsors, GPs are the experienced team members who identify, acquire, and manage the property. They handle day-to-day operations, asset management, and strategic decisions.

GPs may contribute 5-20% of the required capital and receive management fees plus carried interest.

Limited Partners (LPs): This role includes passive investors who contribute capital but have no operational responsibilities. In exchange for capital, you receive passive income through quarterly distributions and participate in profits when the property sells.

Asset management: These teams oversee property operations, tenant relations, and value-add improvements to maximize returns.

Real estate syndication benefits vs. directly owning property

If you’ve owned a rental property or even just your own home, you already understand the work that goes into managing real estate. Syndications give investors a way to invest in commercial real estate without taking on all that responsibility. Here’s how they compare:

Professional management

In a syndication, experienced sponsors handle the business plan, financing, and day-to-day operations. You’re investing alongside professionals who do this full-time.

With direct ownership, you’re the one dealing with repairs, tenants, and management headaches.

Portfolio diversification

Syndications let you spread your investments across different property types and markets. That can reduce your exposure to a single asset.

When you own properties directly, your capital is tied to a single location or building, which can increase your risk.

Access to premium properties

Pooling capital with other investors allows you to buy high-quality, institutional-grade assets that would otherwise be out of reach.

On your own, even a strong balance sheet limits what you can afford, both in size and location.

Passive income generation

The structure of real estate syndication deals is to produce passive income without hands-on involvement. You get distributions and updates, not maintenance calls.

Direct ownership means you’re actively managing, making decisions, and handling problems, even with a property manager in place.

Here’s a quick summary table comparing these types of real estate investments:

Examples of passive investor scenarios

Here are some examples of scenarios from people I’ve talked with recently who are looking at real estate syndications.

Tired of being a landlord

One of my peers owns two single-family homes out of state. They’ve appreciated, but he’s over the management headaches. He’s planning to sell both, use a 1031 exchange, and roll the proceeds into a new investment.

After selling, he’ll have about $500,000 in cash, which is enough to buy something smaller on his own, but not enough for a quality multifamily property.

That’s why he’s looking at syndications, where he can get into a larger commercial deal with stronger cash flow potential.

Business owner turned passive investor

Another investor used to run an Amazon delivery business while working full-time. His whole goal was to build multiple income streams. The issue is that he found it exhausting to manage while working full-time.

He’s interested in commercial real estate syndications as a way to build wealth and learn the business without handling day-to-day operations.

Out-of-state homeowner

One of my former coworkers turned their personal home into a rental property in California after moving to Arizona. Managing from afar has been tough, and California isn’t exactly landlord-friendly. Their plan is to sell that property and reinvest locally.

Since their experience is limited to single-family homes, they’re considering putting part of the proceeds into a syndication. This would allow them to earn passive income and learn more about hotel investing.

Real estate investment syndicate property types

Some of the top real estate investing opportunities include specific property types and certain areas of the country.

Property types for private real estate investments

1. Multifamily properties: These are apartment communities with multiple rental units under one roof. They can provide steady cash flow and are often viewed as one of the most resilient real estate asset classes.
2. Build-to-Rent communities: These are purpose-built neighborhoods of single-family homes designed for renters. They appeal to renters who want separate homes with the amenities of an apartment complex.
3. Hospitality: Hotels and resorts fall into this category. Returns can be strong, but performance depends heavily on travel trends, management, and the economy.
4. Self-storage facilities: This is a low-maintenance, recession-resistant real estate project type. People and businesses always need extra space, which keeps demand steady even when the market slows down.
5. Industrial/logistics: These include warehouses and distribution centers that keep supply chains running. They’ve grown in demand with e-commerce and continue to be a strong long-term investment strategy.
6. Medical office buildings: Healthcare properties leased by doctors and medical providers. They have long-term tenants and stable occupancy since healthcare demand doesn’t fluctuate as much as other sectors.

Real estate markets

Some of the top markets to consider adding to your real estate portfolio include:

Austin, Texas

Austin’s job growth is steady at around 3.6%, and wages are up nearly 6% year over year. Due to tech, manufacturing, and professional services, the city remains one of the strongest large-market economies in the country.

Phoenix, Arizona

Phoenix keeps building momentum with new jobs and major investments in tech and manufacturing. The city’s economic base continues to grow with large projects in semiconductors and clean energy.

Nashville, Tennessee

Nashville continues to expand across hospitality, healthcare, and retail. The city is also embracing technology in ways that strengthen its economy. With strong job creation and steady population growth, Nashville remains one of the most balanced metro areas in 2025.

Atlanta, Georgia

Atlanta’s economy remains strong, with growth across information technology, healthcare, logistics, and manufacturing. The city’s depth of talent and steady infrastructure growth help it hold its ground, even as a few areas cool off.

Emerging Midwest markets

Cities like Indianapolis, Kansas City, Grand Rapids, Milwaukee, and Cincinnati are gaining attention from real estate investors. They are affordable, have job diversity, and a strong quality of life. Real estate investors like these markets for their growth potential and affordability compared to big coastal cities.

International markets

We’re in the process of buying boutique hotels in Spain. We’ve found that both Spain and Portugal offer strong opportunities for hospitality investors right now. Their economies are growing, tourism keeps climbing, and prices are still well below what you’d pay for similar properties in the United States.

Real estate syndication structure and returns

Your investment in commercial real estate syndications follows a structured waterfall distribution model.

Returns follow these key performance metrics:

• IRR (Internal Rate of Return): This is the annualized return accounting for the time value of money.
• Cash-on-Cash return: Annual cash flow divided by your initial investment.
• Equity multiple: Total returns divided by your initial investment.

Example $100,000 investment scenario:

If you invest $100,000 in a deal with a 5-year hold and a projected 15% IRR, you could expect around $200,000 total at exit. That includes about $50,000 from cash flow distributions and $150,000 from the property sale.

Recent tighter lending standards have pushed up minimum investment amounts. Lenders want bigger equity cushions, and sponsors need more capital to offset higher borrowing costs from rising interest rates.

Real estate syndication tax benefits

One of the tax advantages of real estate syndications is that they’re structured for pass-through taxation. That means income and expenses go straight to each investor’s individual tax return instead of being taxed at the entity level.

Real estate also comes with more tax incentives than most other asset classes. Here are five of the biggest benefits:

1. Depreciation deductions

Commercial properties depreciate over 39 years, which spreads out the cost a little each year. For a $5 million property, that works out to roughly $128,000 to $185,000 in annual depreciation. In real estate syndication deals, each investor gets a share of that depreciation based on their ownership percentage.

These paper losses can help offset income from your day job or other investments to reduce your overall tax liability.

Passive investors see these deductions on their annual Schedule K-1s, which document your share of the syndication’s income, losses, and deductions for tax purposes.

2. Cost segregation studies

This tax strategy accelerates depreciation by reclassifying building components like fixtures and landscaping into shorter depreciation schedules. It essentially front-loads tax advantages. These depreciation-related losses can offset only passive income.

If you don’t have enough passive income, you can carry the losses forward until you can use them or until the syndication sells the property.

This is one of the very first strategies we implement once we take over a property to help give our investors a boost in keeping as much passive income as possible.

3. 1031 Exchanges

A 1031 exchange lets you sell a property and reinvest the proceeds into another like-kind property while deferring capital gains taxes. This keeps more of your money working instead of going to the IRS.

In a real estate syndication, you can roll profits from one deal into another. You might move from a multifamily property into a hotel or self-storage investment. This allows you to delay paying capital gains taxes and keep reinvesting in new opportunities.

4. Opportunity Zone investments

Opportunity Zone investments can reduce and potentially eliminate capital gains taxes. It involves investing in designated low-income or underdeveloped areas.

When you reinvest profits into a qualified Opportunity Fund, you can defer paying taxes on those gains until the end of 2026 or when you sell the new investment, whichever comes first.

If you hold the investment for at least 10 years, you can completely avoid paying taxes on any appreciation from the Opportunity Zone asset itself. This strategy rewards long-term investors who want to grow wealth while supporting community development.

5. Pass-through deductions (Section 199A)

Section 199A, known as the pass-through deduction, lets qualifying real estate investors write off up to 20% of their rental income. To qualify, the rental activity in the syndication needs to operate like a business with regular and ongoing involvement that meets IRS safe harbor rules.

This deduction came out of the Tax Cuts and Jobs Act and runs through the 2025 tax year. It doesn’t apply to C corporations and has income limits along with some other IRS restrictions.

How to find real estate syndication opportunities

You can find syndication opportunities through multiple channels. Traditional direct syndications have a minimum investment between $25,000-$100,000. Other channels, like crowdfunding platforms, have lower entry points.

Traditional investment channels

One way prospective investors can find lucrative real estate opportunities is through direct relationships with sponsors.

Direct relationships

A common way to get started in real estate syndication is by networking with people you already know. You might meet potential partners or sponsors at a real estate event, through colleagues, or by word of mouth.

Building a direct relationship with a sponsor is valuable because it gives you early access to upcoming opportunities and deals.

In our real estate syndications, we take a boutique, personalized approach. Some of our investors prefer to stay completely passive and don’t care what’s happening with the investment property as long as they receive their distributions.

Other real estate investors want to understand the business and learn how everything works. Direct sponsor relationships give you this kind of personalized engagement.

Investment clubs and groups

You can also join investment clubs focused on real estate syndication investing. Some of these groups share information about different syndications, then collectively evaluate whether a deal looks worthwhile. Others help individual investors get started by pooling capital so that the group can access larger opportunities together.

This kind of model can have perks. Members might qualify for reduced minimum investments or better fee structures. It’s essentially collective bargaining for limited partners who want to get into high-quality deals with a stronger position at the table.

Broker-dealers and family offices

You may also come across real estate syndication opportunities through your financial advisor. If you have a family office, you’re probably getting pitched new deals all the time.

But if you’re a normal investor and your advisor brings you an opportunity, there’s real value in that. You’re tapping into institutional networks that give you access to premium deals, and you’re likely getting an extra layer of due diligence before the opportunity even reaches you.

These are often more sophisticated investment structures, but that can be a good thing when they’re managed the right way.

Crowdfunding platforms

Crowdfunding platforms are public marketplaces for syndications. Limited partners don’t have a direct relationship with the sponsor. You can see multiple properties and syndications to invest in and decide which ones to move forward with after doing your due diligence.

The platform handles all the legal documentation and manages the payments, so instead of getting distributions directly from the sponsor, everything flows through the platform. In other words, it’s a middleman.

The main differences from individual real estate syndication deals are that they have more individual investors, smaller minimum investments, and the platform automates the process.

Some common real estate crowdfunding platforms include:

Who can invest in a real estate syndication?

The Securities and Exchange Commission has specific regulations that sponsors must follow when offering real estate investments, and who can invest. Here’s how it breaks down:

Accredited Investors

To qualify as an accredited investor, the SEC states that you need to earn at least $200,000 a year ($300,000 for couples) or have a net worth over $1 million, not counting your primary home. Accredited investors get access to a wider range of deals, including:

• Premium real estate platforms with minimum investments of around $5,000 to $25,000.
• Direct syndications that typically start at $50,000 or more.
• Exclusive, institutional-quality projects that aren’t available to the general public.

The SEC doesn’t have a formal registration or certification process for accredited investors. Instead, you’ll self-verify or get verified through the syndicator during due diligence.

Also, if you are investing using an LLC instead of personally, it can qualify as an accredited investor if it has total assets exceeding $5 million, or if all equity owners are accredited investors.

Non-Accredited investors

If you don’t meet those financial thresholds, you can still invest, but your options are more limited. You can access:

• Regulation CF (crowdfunding) opportunities with lower entry points as low as $500 and up to about $5,000.
• Public real estate investment trusts (REITs) or real estate funds that let you invest in diversified property portfolios and trade on the stock market.
• Joint venture partnerships where you partner with operators to manage the real estate property on a one-to-one basis.
• Certain crowdfunding platforms that accept smaller, non-accredited investors

The main difference comes down to access and flexibility. Accredited investors can invest directly in private deals, while non-accredited investors usually participate through regulated, smaller-scale platforms.

Evaluating real estate syndication deals

When you’re looking at any kind of real estate syndication, your success really depends on how well you evaluate both the sponsor and the deal itself. We currently have higher interest rates, economic uncertainty and rising inflation. Experienced sponsors know how to navigate this kind of environment a lot better than someone who’s just getting started.

Key sponsor evaluation criteria

Here’s what you can look at in a sponsor before you move forward with any real estate deal:

• Track record: Look for 5+ years of performance across market cycles, including how they managed challenges during COVID-19 and increased interest rates.
• Alignment of interests: Ask about co-investment levels to see if the sponsor puts their own money into the real estate syndicate. You’ll also want to understand how the sponsor gets paid and if this incentivizes them to optimize property management and overall operations.
• Fee structures: Compare acquisition, disposition, and asset management fees to see if they’re reasonable compared to other real estate syndications.

Due diligence checklist

You’ll also want to do your own due diligence on the opportunity itself. This includes:

1. Financial analysis: Look at rent rolls, operating expenses, and capital expenditure projections to see if they are realistic.
2. Market assessment: Consider the overall market and what’s happening with employment growth, population trends, and the new supply of competing properties.
3. Legal review: Review the private placement memorandum and operating agreements.
4. Property inspection: Read the property inspection report and deferred maintenance requirements.
5. Exit strategy: Check for details on the hold period assumptions and disposition timing for the sale of the property.

Commercial real estate syndication strategy

You should also consider the overall strategy and whether the syndication fits your financial situation and goals.

If you’re a conservative investor, you’ll probably want to focus on opportunities that offer steady cash flow in established markets. These are usually value-add deals, where the sponsor plans to renovate, raise rents, and boost the property’s value. Returns on these types of projects tend to fall in the 8-12% IRR range and provide predictable rental income.

If you’re comfortable taking on more risk, you might look at ground-up development projects like building a new hotel or converting an office building into multifamily units. These deals can have substantial risk, but the potential returns are usually higher, in the 15-20% IRR range.

Reducing risks in real estate syndication deals

The 2008 financial crisis is an example of what happens when investors take on too much leverage or try to time the market. Now, higher borrowing costs actually create a natural buffer. It keeps everyone a little more disciplined which leads to healthier and more stable deals.

In our hotel projects, we always lock in loans with longer terms. That way, the higher interest rates are already factored into the numbers upfront, and we’re not caught off guard if rates change.

It is also a good idea to diversify across different markets and property types to create a more balanced risk and return profile. Syndications usually move independently from public markets, which makes them a strong way to diversify your portfolio.

Your syndication investments should fit alongside your other real estate holdings, especially since most deals come with a 3-7 year hold. For conservative investors, keeping syndications around 10-20% of your portfolio can be a good balance. That approach also gives you room to benefit if interest rates start to come down and cap rates compress, lifting property values.

Steps to invest in a real estate syndication

Alright, so you’ve found a deal you’re excited about and you’re ready to move forward. What happens next? The process can vary depending on the sponsor, but here’s how it works with our hotel deals.

Step 1: Review the offering materials: You can find the materials on our main syndication deal page. These give you the basics of the opportunity. Then, if you want to dig deeper into the details, we’ll have you sign an NDA to access the full packet.

Step 2: Complete the subscription agreements: Once you’re comfortable with the opportunity, you’ll fill out the subscription documents. This outlines how much you plan to invest and how you’re investing, like via an LLC or personally.

You’ll also verify your accredited investor status, which we handle through software built right into the portal.

Step 3: Set up your bank details: You’ll enter your bank information for ACH transfers. This lets you send your initial investment and also receive your returns, which are called distributions.

Step 4: Track your investment: You can check on your investment anytime in our investor portal. You’ll see property metrics, performance updates, and reports. We also send regular email updates.

If you’re one of the investors who wants to learn more about hotel investing, we schedule one-on-one sessions so you can ask questions and see how things work behind the scenes.

Step 5: Receive distributions and tax documents: As the property generates income, you’ll receive distributions directly to your account. Each year, you’ll also get a K-1 to share with your accountant for tax purposes.

Step 6: Exit and profit: When the property sells, you’ll receive your share of the sale proceeds based on the structure outlined in the PPM.

Is a real estate syndication right for you?

You’ll need to decide if a syndication makes sense for your situation. Sometimes the right opportunity comes along and you realize it’s a fit, even if you’ve never considered syndications before. Other times, you might be coming out of a 1031 exchange and trying to figure out where to place that capital and whether a syndication is the right move.

The key is to do your homework. Research different options, talk with several syndicators, and get a feel for how they operate before you invest.

I’d also invite you to connect with us. Find out what we’re seeing in the hotel market, why we’re focused on Spain right now, and any other real estate investing questions you want to dig into.

Real estate syndication investment opportunities: FAQs

Should I invest in a real estate syndication?

A syndication can make sense if you want to get into commercial real estate, diversify your portfolio, and don’t want the hassle of managing property. It’s a way to invest passively while still owning a piece of larger, higher-quality assets.

Is now a good or a bad time to invest in a syndication?

It depends on the deal. A syndication is just a structure, and fundamentals matter more than anything. Look at the market, location, and asset type. A well-run deal in a strong market can perform in any cycle, while a weak one won’t work no matter the timing.

What are some real estate syndication websites?

Crowdfunding platforms like CrowdStreet or Fundrise are public marketplaces where you can browse different real estate deals. If you want a more personalized experience, that comes from working directly with a syndicator through their own site, like ours.

The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals and advisors before making any decisions or taking action based on this information.