Do Rental Properties or Real Estate Syndications Generate Higher Profits?

by | Feb 23, 2023 | Investing Advice

Which investment provides a better return, rental properties or real estate syndications? Real estate syndications offer a hands-off investment, saving investors from maintenance issues, tenant complaints, and cashflow dips. However, rental properties require more legwork, such as finding a broker and coordinating with lenders. As someone with a portfolio containing both types of investments, I can honestly answer this question.

Real Estate Syndication

To provide a clear comparison, let’s examine the cashflow of a $50,000 real estate syndication investment versus a rental property. Investing $50,000 in a real estate syndication with an 8% return would generate approximately $333 per month in cashflow.

On the other hand, owning a rental property requires more effort, such as finding a broker, a property manager, and coordinating with lenders. Moreover, in order for a rental property to be profitable, the monthly rental income needs to exceed the mortgage and other bills.

Example

Let’s take the example of a four-plex in Alabama that was purchased for $240,000 with a $50,000 down payment. The monthly mortgage payment was $1,350, and the total monthly obligation including taxes and insurance was $1,731. In December 2018, with three out of four units occupied and only two tenants paying rent, the rental income was $2,035 before expenses. However, after deducting management fees, HVAC service fees, and utility fees totaling $660, the net cashflow was $1,375. Unfortunately, this was still not enough to cover the mortgage and other expenses, resulting in a loss for that month.

Looking at several months’ worth of data, we see that in October, with all four tenants paying rent, the rental property generated a positive cashflow of $235 after expenses and the mortgage payment. However, in November and December, the rental income fell short of covering the mortgage and other expenses, resulting in negative cashflow. Overall, these four months produced a total cashflow of just $4.

While rental properties have the potential for greater income, they also come with unpredictable maintenance expenses and tenant turnover. On the other hand, real estate syndications offer a hands-off investment with consistent cashflow. Ultimately, the decision of which investment to pursue depends on individual preferences and goals.



So, Which is Better?


There’s no right answer for everyone. As you can see, I still invest in both types of properties. There’s value in both. Rental real estate does have a potential for greater income – if the stars align and you have a fully occupied property with low maintenance costs and tenants that pay rent. There’s no such thing as a maintenance-free property though, and to boost rental rates, you’ll want to do some improvements here and there. For a no-fuss investment with consistent cashflow, then a real estate syndication might be your best bet.

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