When I began investing in real estate, I focused on single-family rentals because I did not know that I could actually buy a commercial building with my level of income and savings.

Over time, I gained incredible knowledge and experience investing in real estate. But a commercial building? That was something I thought was out of my reach.

In my mind, commercial real estate was for the big corporations and the uber-wealthy, something unattainable to me at that time. Luckily, I was wrong.

Let’s Start With Generational Wealth

Essentially, generational wealth is defined as wealth that is passed from one generation to another. This can include cash, real estate, stocks, bonds, businesses and investment funds.

There is, not surprisingly, a great gap across the races and genders when it comes to generational wealth. According to a recent Survey of Consumer Finances, the average white family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. The gap doesn’t stop there — the National Women’s Law Center reports that for every dollar of wealth owned by a man, women own 82 cents. For every dollar of wealth owned by a white man, Black and Latina women own 9 cents. This statistic is staggering.

There are a multitude of historical factors that play into the wealth gap, including discrimination and gender bias, but for now, let’s focus on how to close it.

Closing the Gap

One way we can close this wealth gap is by becoming owners and investors in hotel properties. Becoming owners helps to build wealth that creates passive income, helps build a portfolio and gives one a lasting legacy. But how do we do that?

Generally speaking, when one decides to get into the ownership side of the hotel business, one has two ways to go about it: sponsor the deal or become a limited partner investor.

What Is a Sponsor?

In a real estate transaction, think of the sponsor as the one who “quarterbacks” the deal. While there may be many people involved with a real estate transaction, from lawyers to lenders to appraisers and everyone in between, the sponsor is the individual — or in some cases, a group or company — that brings the deal from conception to completion.

The sponsor is the owner, the one aggregating the capital, the one guaranteeing the loan and the franchise agreement, when applicable. The sponsor takes the biggest risk and subsequently garners the greatest reward.

The sponsor not only finds the deal but completes the market and financial analyses and conducts due-diligence, negotiates the terms of purchase and sale, structures the deal, and raises capital from investors and lenders.

Post-acquisition, sponsors are fiduciaries of the investment and should oversee asset management and operations to maximize the value of the hotel. This can include formulating income enhancement strategies, renovations and day-to-day operations.

The plus side to all of this hard work? The financial rewards in sponsorship outweigh those of simply becoming an investor.

First, there is the acquisition and/or development fee, which is billed to cover the work and expenses incurred during the buying or building process. Most sponsors also will be investors in the property, assuring a return on the investment, and many will also take an annual management fee, producing an annual “income” from the property.

What Is an Investor?

The investors partner with the sponsor to provide the equity, or cash, needed to close the deal. Just like when buying a piece of residential property, equity is needed to secure the loan from the bank. It’s the difference between what the lender is willing to loan you and the total costs of the project. This is where the investors come in.

The beauty of being an investor is that the risk-to-reward ratio is what one puts in, and the investment can vary widely, ranging from low thousands of dollars to use your own imagination. There is a limited amount of risk, and people tend to invest amounts they find comfortable. Limited partners are often silent, with little to no say in what goes on with the property, management or day-to-day operations.

But what they do have is skin in the game and a path to passive income when the deal goes through and the property is profitable. An investor is entitled to a full return of investment of his or her capital, plus a “preferred return,” an additional amount above a certain threshold. This is a terrific option for many looking to invest or to simply get a foot in the door of owning a piece of the proverbial hotel pie.

What’s the Difference?

While both investing and sponsoring a hotel transaction will garner returns, becoming a sponsor has infinitely more possibilities for generating true wealth and building a portfolio that can be passed from one generation to the next. Through annual fees, return of investment and property ownership, sponsorship provides a pathway to close the wealth gap.

*This article was originally published on Hotel News Now.