When I first started investing passively in real estate syndications, I thought I could be completely hands-off. To some extent, that’s true—but what I quickly realized is that even as a passive investor, staying informed is critical, especially during turbulent economic times. Inflation and rising interest rates aren’t just buzzwords—they have a direct impact on my portfolio and the returns I expect from it.
Over the past couple of years, I’ve experienced firsthand how economic headwinds like these can influence passive real estate investing. I wanted to share my journey and the lessons I’ve learned so far—hopefully it helps someone else navigate their own investment decisions.
The Inflation Wake-Up Call
Like many investors, I originally viewed real estate as a hedge against inflation. And in many ways, that’s true. I’ve seen properties in my portfolio appreciate significantly simply because the cost of construction materials and labor rose, which increased the market value of the existing buildings we were already invested in.
But what really opened my eyes was the way inflation affected rental income. One of the apartment syndications I joined in Texas had the ability to raise rents annually. As inflation ticked up, those rent increases followed—meaning higher monthly distributions for me. It felt like my investment was keeping pace with inflation, rather than falling behind like many of my stock holdings were.
That being said, inflation isn’t all upside. I also noticed that operating costs went up—everything from maintenance to property taxes. Thankfully, I had chosen sponsors who were conservative in their underwriting and had already accounted for these rising costs. They weren’t caught off guard, and as a result, the performance of my investment stayed on track.
Fixed-Rate Debt: The Silent Hero
One of the smartest things I did—though I didn’t fully appreciate it at the time—was invest in deals that used long-term, fixed-rate loans. Now that I understand the impact inflation has on the real value of debt, I’m grateful I prioritized this in my due diligence.
In one of my multifamily syndications, the sponsor locked in a fixed rate before interest rates started to climb. As rents increased due to inflation, the loan payments stayed the same. That gap—between growing income and steady debt service—translated into higher returns for us investors.
It was a lightbulb moment for me: inflation isn’t something to fear when you’re invested in the right kind of real estate deal with the right kind of debt structure.
The Interest Rate Squeeze
Then came the interest rate hikes.
Suddenly, the deals coming across my inbox looked very different. The projections were more conservative, and sponsors were more selective. I even saw a few opportunities pulled entirely because the financing no longer made sense.
I won’t lie—this gave me pause. Rising interest rates meant higher borrowing costs, which meant tighter cash flow. Some syndicators even had to revise their expected returns downward. But instead of retreating, I took this as an opportunity to dig deeper.
What I found was encouraging: seasoned sponsors were adjusting their strategies. They were focusing on value-add deals in markets with strong fundamentals, prioritizing cash flow over speculation. And instead of over-leveraging, they were securing fixed-rate loans where possible and building in buffers for rising expenses.
That’s when I learned that downturns reveal who the strong operators really are.
How I Evaluate Deals Differently Now
With a few years of experience under my belt, I’ve changed how I approach passive investing in today’s environment. Here’s how I’m adapting:
- Cash Flow Is King: I now prioritize deals with strong, immediate cash flow over ones that rely heavily on appreciation. I want that buffer during economic uncertainty.
- Sponsor Due Diligence Is Non-Negotiable: I spend more time researching the sponsor than the deal itself. If they’ve successfully navigated previous downturns, that’s a huge green flag.
- I Ask About Debt: I make sure the deal has long-term, fixed-rate financing. Variable debt in a rising interest rate environment is just too risky for my taste.
- Diversification Is a Must: I’m spreading my investments across different markets and asset classes—like multifamily, self-storage, and industrial—to minimize exposure to any single economic shock.
- I Think Long-Term: Short-term volatility used to stress me out. Now I remind myself that real estate is a long game. If the fundamentals are strong, time tends to reward patience.
The Syndicator’s Role—Why I Value Transparency
More than ever, I value transparency from my syndicators. I appreciate when they send regular updates, not just the good news but the tough realities too. One sponsor I work with hosts quarterly webinars to walk us through the financials and answer our questions live. That kind of communication builds a lot of trust—especially when the market is shaky.
I’ve also noticed that the best sponsors aren’t just reacting to economic changes—they’re preparing for them. They underwrite conservatively, build in reserves, and have multiple exit strategies. That level of professionalism is what gives me confidence to keep investing, even when the headlines are screaming recession.
My Takeaway: Don’t Be Passive About Being Passive
If there’s one thing I’ve learned, it’s this: just because I’m a passive investor doesn’t mean I should be passive about staying informed.
Economic forces like inflation and interest rates will always fluctuate. But by understanding how they affect my investments, and by aligning myself with smart, experienced sponsors, I can navigate these headwinds with confidence.
Passive real estate investing has helped me build a stronger financial future—one that feels resilient even when the market doesn’t. It’s not about chasing the biggest returns. It’s about making smart, steady decisions and trusting the process.
If you’re a fellow passive investor—or thinking about becoming one—my advice is this: educate yourself, choose your partners wisely, and remember that volatility is part of the journey, not the end of it.
