Is Investing In Rental Properties Or Real Estate Syndications Right For You?

by | Jul 14, 2022 | Investing Advice

Single-family & Multi-family homes require a sizable investment of time & effort. If you have any experience owning Single-family or Multifamily homes, you know firsthand the time and effort that these investments require. We’ve acquired over 100 Single-family rentals together and we will be the first ones to tell you that it takes a lot of time to manage individual properties.

Investing in residential real estate can be challenging because, as the investor, you’re required to oversee everything related to the property. Your responsibilities include finding the property, funding the deal, renovating the property, screening tenants, & handling maintenance. You must have the wherewithal to deal with stressful situations, unexpected expenses, & lost time running the property. This is a seemingly never-ending process which is repeated every time a tenant’s lease is up. The things you are striving for in life; like spending more time with family, working less hours at the hospital or office, and building wealth— seem to be distant in the future.

In this article, you’ll learn the pros and cons of investing in commercial syndications vs. owning residential rental property. One investment strategy is hands-off while the other is very hands-on. Which is best for you ultimately depends on your resources, your time, and how involved you want to be. 

 

Single-family and Small Multifamily Rentals Require a Lot of Time and Energy

 

While small Multifamily rentals have some advantages over Single-family homes, owning rental properties is time-consuming. Multifamily properties are frequently a more efficient way to own rental property. For example, when a tenant moves out, the tenants in the other units are still covering the mortgage. It’s also easier to manage one property with multiple tenants than multiple properties with one tenant.

Even if you hire a property manager to help with the day-to-day operations, bookkeeping, strategic decisions, and maintenance, the big decisions and all their costs still fall in your lap. This can be incredibly challenging if you work a full-time job because being a rental property owner means running a small business.

Why You Should Consider Passive Real Estate Investments

Did you know there are entirely passive investments available in commercial real estate? These properties are professionally managed and operated investments, so you aren’t required to do any heavy lifting, ever.

Recently, Forbes put out an article explaining that once investors begin to understand passive commercial real estate investments, they commonly start moving toward syndications. This shift is taking place for good reason. Here are the main reasons why:

1. Minimal Time Investment

Real estate syndications are a “set it and forget it” type of investment. In a syndication deal, all you are required to do is put in your money, collect the monthly cash flow during the hold period, and receive your profits upon the sale of the property.

You’ll never be required to perform maintenance, screen tenants, or deal with unexpected emergencies. As the passive investor, you have the luxury of letting the sponsor team and the property management team expertly tend to those items. All you have to do is sit back, enjoy the returns, and focus on living your life. It almost sounds too good to be true, doesn’t it?

2. Opportunity to Diversify

Even the savviest investors can’t be an expert in every property investment phase, which is especially true when it comes to different markets.

By investing with an experienced deal sponsor, you can easily diversify into various markets and asset classes to which you wouldn’t otherwise have access. In addition, you can rest assured that the professionals are taking care of business, allowing you to quickly and easily scale your portfolio, while also mitigating risk.

3. Attractive Tax Benefits

You get pass-through tax benefits when investing in real estate syndications, similar to owning personal rentals. This means you’ll be able to write off most of the quarterly payouts, giving you tax-free passive income throughout the holding period, which is a huge added benefit for passive investors.

Be advised, however, that you’ll likely owe taxes on the appreciation income you earn upon the sale of the property. We advise you to consult your own CPA regarding your personal financial situation.

4. Limited Liability

As a passive investor investing through real estate syndications, your liability is limited to the amount of your initial investment. For instance, if you were to invest $100,000, your most considerable risk throughout the deal’s life would be losing that $100,000. You are not responsible for the entire value of the property if the deal unexpectedly goes south. This also means that none of your other assets would be at risk.

5. Opportunity to Make an Impact

When you own personal rental properties, you have the opportunity to make a difference in two to four families’ lives, which is terrific. With real estate syndications, on the other hand, you have the chance to change the lives of hundreds of families and whole communities-at-large with just one deal.

Every syndication deal creates a cleaner, safer, and more pleasant place for people to live. These improvements positively impact the community and the environment. This is an extraordinary opportunity that investing in stocks and mutual funds just can’t provide.

 

Which Is The Best Fit For You?

 

Deciding whether to actively or passively invest in real estate is a big decision. While owning personal rental properties gives you invaluable experience, it’s not a prerequisite for investing in commercial real estate syndications.

Regardless of which avenue you take, investing in real estate is a great way to diversify your portfolio and mitigate risk. You also have an opportunity to have a positive impact on the families who will live in your units and a positive effect on the environment and community.

As you consider which investment strategy is best for you, rental properties versus commercial syndications, it is crucial to consider your personal goals, desired lifestyle, and risk tolerance.

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