One trending opinion passed over breakfast, between subway stops, or in a line for coffee is that all real estate investments are considered passive income. [1] However, this couldn’t be further from the truth.

The argument is that investors “don’t actually work for the[ir] income in the same way that [they] would earn a job salary.” [1] Still, there is a difference between an active and a passive investor.

A passive investor in multifamily real estate is a limited partner whose liability is limited to their investment amount. They do not actively participate in the renovation, construction, property management, acquisition, or overall ownership labor in a deal. In this article, we will continue defining the role of a passive investor in multifamily real estate deals.

WHAT IS PASSIVE INVESTING?

Passive real estate investing involves investing money into real estate ventures without actively managing the properties or participating in day-to-day operations. This approach allows investors to avoid the responsibilities of being a landlord while enjoying all the benefits of real estate investing. [2] With a passive real estate investment, investors can generate cash flow without the time-consuming responsibilities typically associated with property ownership.

In contrast to active real estate investing, which often involves hands-on responsibilities such as property management, renovations, or resident interactions, passive investors typically take a more hands-off approach. Another party handles resident screening, property maintenance, repairs, and renovations. As a passive investor, you will be contributing capital but won’t be involved in overseeing the property. [2] Two common ways to passively invest in multifamily real estate are through REITs and private placements. REITs and private placements have a few differences, some of the most notable being the number of properties available, ownership, accessibility, minimum investment amount, liquidity, tax benefits, and returns. [3]

Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is a corporation, trust, or association directly investing in income-producing real estate, and it offers a more accessible entry point for those with limited funds. REITs can own, operate, or finance income-generating real estate. By purchasing shares in a REIT, investors can gain exposure to the real estate market without directly buying, managing, or financing a property. [4][2] This process differs from real estate funds because REITs regularly distribute dividends. While some funds offer distributions, many primarily provide value through appreciation.

This indirect or passive investment method benefits novice investors by allowing them to start with relatively low amounts of capital. REIT shares can be purchased for much less than a down payment on a property. REITs are often traded on major public securities exchanges (except for non-traded or private REITs), providing liquidity and the flexibility to buy or sell shares easily. [4][2]

REIT-offering entities may specialize in property types such as office buildings, shopping malls, or multifamily apartment buildings. [6] Investing in a REIT means you are simply buying shares in an investment. So, you do not own the real estate properties purchased by the REIT. Instead, you own shares in the entity that owns those assets. [2] 

Another benefit of investing in REITs is the potential for diversification. REITs typically own a portfolio of properties, like residential, commercial, and industrial real estate across various locations. This diversification can mitigate risks compared to owning a single rental property, which might be subject to local market fluctuations or property-specific issues.

This investment vehicle typically involves many geographically and categorically diverse properties across multiple markets. According to a Nareit analysis of the S&P Capital IQ Pro and member company data, there are roughly 580,000 properties in REITs in the United States. [3] However, you do not get a say in which assets the REIT purchases or where.

REITs are also required by law to distribute at least 90% of their taxable income to shareholders as dividends. This ensures a steady income stream, which can attract investors seeking regular cash flow.  However, because REITs distribute most of their earnings, shareholders are taxed on the dividends they receive, often at ordinary income tax rates. [6]

Private Placements

A private placement deal is when multiple investors pool their resources to invest in real estate (single asset or portfolio). Multifamily properties can be expensive, making them more complicated for lone investors to obtain. [5] Exclusivity can also limit the pool of potential investors in private placements. Private placements are usually only available to accredited investors, but non-accredited investors may be able to invest in select private credit funds or crowdfunding endeavors.

Investing in a multifamily property can have several advantages. Multifamily properties can generate consistent cash flow through monthly rental income and are potentially more reliable than a single-family unit with only one resident. Multifamily private placement solves the problem of direct ownership by giving investors all the benefits of multifamily investment properties minus all the hassle and physical labor of managing these multifamily homes or communities. This can be a strategic real estate approach if you want to invest in real estate but also want a passive role.

In a private placement deal, all investors have to do is choose whether or not to participate. Depending on the deal structure, they earn income throughout the hold period or realize equity growth once the deal is done and the property is resold. The sponsor does all of the work, from locating the investment property to putting the deal together, securing the financing for the deal, negotiating with the seller, completing due diligence, collecting rental income, and handling distributions among investors. [5]

WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING

Being the general partner in a multifamily real estate deal requires significant time, energy, and resources. If you want passive income, consider working with an established sponsor with a proven track record to arrange your deals.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 Bam Capital. All rights reserved.

SOURCES:

[1]: Alliance Virtual Offices. (2025). “Active Real Estate vs Passive Real Estate Investing.” https://www.alliancevirtualoffices.com/virtual-office-blog/active-real-estate/#:~:text=Virtually%20all%20real%20estate%20investments,year%20working%20in%20real%20estate.

[2]: BAM Capital. (2024). “How to invest in a rental property for beginners.” https://capital.thebamcompanies.com/start-investing-real-estate-get-passive-income/

[3]: Nareit. (2024). “REITs Across America.” https://www.reitsacrossamerica.com/united-states

[4]: SmartAsset. (2023). “How to Buy an Investment Property With No Money Down.” https://smartasset.com/investing/how-to-buy-an-investment-property-with-no-money-down

[5]: Goodegg Investments. (2024). “Multifamily Syndication In 2024 And Beyond.” https://goodegginvestments.com/blog/multifamily-syndication-2024/ 

[6]: Nuveen. (n.d.). “Tax benefits and implications for REIT investors.” https://www.nuveen.com/global/insights/real-estate/tax-benefits-and-implications-for-reit-investors