Real Estate Co Investment For Passive Income In 2026

As of 2025, the global commercial real estate market has an estimated value of $6.72 trillion. If you’re wondering how you can benefit from this huge opportunity, real estate co investment might be the right strategy.

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:

Stakeholder	Benefit	Description
Investors	Passive investment	Own a direct investment share without handling the work involved in the deal.
Investors	Tax benefits	Access to depreciation, 1031 exchanges, and other real estate tax advantages.
Investors	Education	Learn about the asset class and deal operations.
Sponsors	Larger deals	Raising capital allows GPs to purchase larger properties than they could alone.
Sponsors	Pay for performance	Strong performance increases GP compensation and supports higher LP returns.
Sponsors	Track record	Positive deals build experience and make future capital raises easier.

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:

Party	Risk	Description
Investors	No control	LPs rely entirely on the GP for decisions and execution.
Investors	Illiquid	Capital is tied up for the full investment period.
Investors	Concentration risk	Risk of being too concentrated in one region or asset class.
Sponsors	Personal liability	Sponsors carry personal liability for financing and property debts.
Sponsors	Compliance	GPs must follow SEC rules when accepting co-investors.
Sponsors	Operations	Property performance can rely on staffing, market changes, and government actions.

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.