Rentals vs Real Estate Syndications – Which Is Best?

by | Feb 9, 2022 | Uncategorized | 0 comments

I’ve owned single-family rentals, retail, and multifamily real estate for the past 30 years, but you don’t need to have been in the game as long as I have to know that these investments require time and energy. 

Investing in residential real estate can be challenging because, typically, you as the investor also become the landlord. Responsibilities can include finding the property, funding the deal, renovating the property, interviewing tenants, and performing maintenance, even with a property manager on board. Plus the cost for a property manager on smaller income properties can be as high as 10% annually.

The trouble is, it doesn’t stop there. You have to repeat most of the process over again when each tenant’s lease is up and again anytime you want to expand into new property.

 

Why Single Family and Small Multifamily Rentals Drain The Fun Out of Investing

Small multifamily rentals are a step up from single-family homes because you have more tenants that can cover the rent if one moves out. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each. 

The struggle remains, though. Even if you hire a property manager, other tasks like bookkeeping, strategic decisions, and maintenance/repair costs are still all on your plate. Becoming a hands-on investor (AKA landlord) is equivalent to running a small business, which you probably don’t have time for, especially if you are already working full-time.

 

How Passive Real Estate Investments Bring Your Groove Back

Did you know there are fully passive investments available in commercial real estate? These are professionally managed and operated investments so you don’t have to deal with any of the three scary T’s  – Tenants, Toilets, and Termites. Nope!

According to Forbes, once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s why:

 

1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the property.

You won’t be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.

 

2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets. 

By investing with experienced deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.

 

3. Did You Say Tax Benefits?

Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period. Score!

You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property. (Always check with your own CPA on your personal situation.)

 

4. Limited Liability

When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $50,000, your biggest risk would be losing that $50,000. You wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk. In the mentorship group I’m in, with over 100’s of syndications, no one has ever lost their initial investment.

 

5. Positive Impact

When you own small rentals, you make a difference in one to four families’ lives, which is wonderful. But with real estate syndications, you have the chance to change the lives of hundreds of families and entire communities with just one deal.

Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively. And that’s something you just can’t gain from stocks and mutual funds.

 

Now You Get To Decide: Rentals or MF Real Estate Syndications?

If you’re unsure where or how to invest in real estate and even less sure about the responsibility level you can take on in managing a property, take another look at your values.

If your deepest desires involve time freedom, continuing to work full time while you build a portfolio, or owning large property that you do not manage on your own, then go for syndications. On the other hand, if you think managing a small rental and working directly with tenants sounds enticing, rental properties are your golden ticket. 

 

Before you make this choice, however, let me reassure you about 3 things: 

  1. The experience you gain from owning small rentals is irreplaceable. 
  2. Personally owning rental properties is not a prerequisite to investing in commercial real estate syndications.
  3. You don’t need to start with small multifamily properties to scale up to larger  properties.(100+doors)

 

Either way, investing in real estate is a great way to diversify your portfolio and mitigate risk. It gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.

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