First investment, syndication or invest on my first house hack?

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First investment, syndication or invest on my first house hack?

Melissa Deacon
Member since 2022 · 8 posts · 3 votes

I'm very new to investing and have never owned a property. My husband and I are working on educating ourselves and saving at least 20% for our down payment. Ultimate goal is to house hack a duplex as our first property then keep investing in small multifamily. We also know some people that we trust that have their own investment company and do syndications on large multifamily properties, minimum 50K to invest with them. My husband and I don't know if we should put our first 50K in the syndication or just find our own property or vice versa.

Thank you in advance.  

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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y

My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.

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  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

    Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

    If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.

    3Reply
  • Ash Hegde
    Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes
    3y

    Agree with Scott. Your goal seems to be to have your own properties so it would be best to get going on that goal with a house hack as planned. Later on in your investing career a passive position with a syndication could be a compliment. 

    1Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    3y

    It depends what your long term goals are.

    Are you trying to build a passive or active portfolio?

    Investing in syndications as an LP is a true form of passive investing.

    But if you are looking to be more active in your portfolio, I suggest going the house hack route.

    1Reply
  • Dumisani Thomsen
    Rental Property Investor · Minneapolis, MN · Member since 2022 · 20 posts · 17 votes
    3y

    I'm a big fan of house hacking to get started in REI. My wife and I house hacked 3 properties (2 duplexes, 1 triplex) in less than 3 years which really propelled our portfolio forward.

    The biggest benefits of a hack are: low down payment options, subsidized living costs to increase cashflow to increase the gap between your income and expenses, ability to get a HELOC while you're living on the property to acquire more properties and the learning opportunities especially if you're not familiar with leases, management, remodels, etc.

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  • Rick MartinPro Member
    Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
    3y

    Do you genuinely want to be a landlord and have the time to manage a real estate business? Maybe a house hack can help you answer that question. Going this route, I don't recommend sharing walls or floor/ceilings, especially if you plan to have children. Ask me how I know.

    People often believe they want to get into the real estate business and find out that finding deals, getting qualified, and then dealing with unruly tenants isn't all that is cracked up to be. They find out that it's the cash flow, appreciation, and ability to take advantage of the depreciation they like(which can be accomplished by investing in syndications).

    Both have that "BRRR" potential, where you can potentially pull your principal back out and redeploy.

    If house hacking is part of a bigger plan, I say go for it. If not, consider starting to build passive income streams by investing in our first syndication.
    0Reply
  • Mohammed Rahman
    Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
    3y

    Ditto what Scott said @Melissa Deacon - if you've never owned property before, but know you want to, then it would make most sense to look into a househacking situation at first. This will put a roof over your head while you get help paying off your mortgage. 

    I typically recommend syndications, REITS, or other funds (like fundrise) to people that just want exposure to real estate without having to think or do any of the work associated with it. Syndications also involve partnering up with people, which may or may not be what you truly want to do. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    I think it's best to invest on your own. You may discover a new passion. You may learn it's not for you. Either way, you will eventually learn what a good investment looks like and what kind of return you can expect. then you can decide to continue growing or invest in syndication or some other route.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    3y

    Syndications wouldn't be the right fit for now. Get into investing, get some experience under your belt, keep growing your capital, then reassess.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    as @Scott E. stated

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  • Brandon RushPro Member
    Real Estate Agent · Portland, CT · Member since 2019 · 761 posts · 849 votes
    3y

    Hey Melissa,

    As @Nathan Gesner mentioned, I also believe it is best that you start on your own and go from there. There are many lessons to learn from owning properties yourself. You will learn various aspect of investing such as landlording, property management, taxes, vendor management, systems and so much more. From this experience, you will learn what your strengths, weaknesses, what you enjoy and what you hate. Also, if you ever did decide to invest in a syndication, you will have a better understanding of what you are investing in as you have some general experience. 

    I took the same route starting out and happy I did. I acquired three properties and then invested in my first syndication. I learned a lot from my three properties and it may it much easier for me to understand what was going on in the fund I was investing in. Also, while investing in those properties, I learned so much about myself I did not know before such as I am not a fan of interfacing with tenants, I am not handy, and I really enjoy using property managers lol. 

    Good luck on your journey!

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Own your property, you're going to learn so much more. Syndication is way too passive.

    0Reply
  • Jim PfeiferBusiness Member
    Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
    3y

    As a few have said, the first thing you need to decide is if you want to be active or passive.  House hacking is very active and syndications are very passive (after the initial due diligence).

    The thing that has surprised my about the responses is that people think you need to invest actively in real estate before you invest in syndications.  I don't understand this - it is true that most syndication investors start in active real estate, but they become passive investors for many reasons.  The main reason I became a full time passive syndication investor is because I was not a good asset manager.  I have about 40 doors and I was not good at managing the property manager and none of the properties cash flowed to proforma.  The market saved me and I made money - but not because of what I did.  If I had learned about syndications earlier, I would have likely been better off.  The difficulty with starting with syndications is the same difficulty in started with active real estate - you don't know anything.  So for active investing you sign up for a Community like BP and you educate yourself and then you put that education into action - and you learn more.  The same is true for syndication investing - find a Community, learn and then put your education into action and start investing.  I know plenty of people who have had success using a Community and education to skip the active real estate investing and get right into syndications.

    The first step is to determine if you want to be active or passive.  Active - you will need to manage tenants or a PM, you will need to find, buy and rehab properties.  You will need to maintain properties and deal with tenants.  If this sounds interesting to you - go for it and be an active investor!  Passive - you will need to find and vet syndicators, you will need to analyze deals and markets and then you will need to invest in a deal.  After that, you have no responsibility other than collecting (hopefully) cash flow and reading reports.  The returns for passive and active are not that different - unless you are active and have a sustainable competitive advantage like superior market knowledge.

    The other knock on syndication investing is that the minimums are high.  That's true - they are typically $25,000 or $50,000.  But you can effectively reduce your minimums by using a group investing platform like Tribevest.  You can get into more deals with the same amount of money by leveraging your network and Community and investing together.

    There is no right or wrong answer to your question - it is really up to you to decide and I think the first step is to figure out how active you want to be!

    0Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    3y
    Quote from @Scott E.:

    My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

    Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

    If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.


     I would say it's the opposite. Buying a duplex or small apartment teaches you very little about passive investing in syndications.

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    3y

    Sounds like your net worth is under 500k... if that's the case stick with turnkeys or rentals.

    I did not go to syndications once I had 11 turnkeys and accredited.

    0Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    3y

    If the ultimate goal is to house hack and invest in small MF, then that is what you should do. 

    My question is, what are you trying to accomplish? Is it time freedom? Financial freedom? Quitting your job, setting yourself up for financial success? Do you want to do it full time? Do you like your job and want to do this on the side? 

    Passive investing is great for the busy professional, who has a good income and wants to grow their passive income and set themselves up for financial freedom or someone that wants more time freedom. Active investing is good for someone that wants to create a new job and run a business. 

    0Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y
    Quote from @Todd Dexheimer:
    Quote from @Scott E.:

    My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

    Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

    If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.


     I would say it's the opposite. Buying a duplex or small apartment teaches you very little about passive investing in syndications.

    You make a good point. But investing in a syndication responsibly requires you to have some understanding of how a real estate transaction works, how to underwrite deals, how to run comps, understanding a pro-forma, etc. Buying a duplex won't give you all of the education needed to invest in a syndication, but it will give you some solid, relatable, real-life experience. Referring back to the original post, we're talking about somebody who has never owned a property before.

    0Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    3y
    Quote from @Scott E.:
    Quote from @Todd Dexheimer:
    Quote from @Scott E.:

    My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

    Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

    If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.


     I would say it's the opposite. Buying a duplex or small apartment teaches you very little about passive investing in syndications.

    You make a good point. But investing in a syndication responsibly requires you to have some understanding of how a real estate transaction works, how to underwrite deals, how to run comps, understanding a pro-forma, etc. Buying a duplex won't give you all of the education needed to invest in a syndication, but it will give you some solid, relatable, real-life experience. Referring back to the original post, we're talking about somebody who has never owned a property before.


    I would say half of my investors have never owned a property before (besides their house) and they have no desire to become a landlord. I agree with your points on underwriting and understanding how the investment works, but the number one rule for passive investors is to vet the sponsor and team, then vet the location, then vet the business plan and asset and then vet the underwriting. 

    Having investors with first hand experience with rental homes or their own business does make it nice, but not a requirement

    1Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    3y

    Hi @Melissa Deacon! My thoughts might differ from some of my friends above. 

    I would ask what your goal is. I've been an entrepreneur and investor since I left Ford Motor Company 29 years ago. One thing I've learned is the power of focus. The power to create wealth and enjoy life by laser focusing strategically and staying in my lane. I've chased a lot of shiny objects over the years and it usually did not create the wealth or enjoyment I expected. Since then I've learned to say no to a lot of side hustles, and say yes to doing one thing really well. This is what I recommend. 

    So if your goal is to be a full time, active real estate investor, I recommend you start with a house hack. Or something like that. But if your goal is to focus on a different career, a family, and/or a dozen other things...not full time real estate investing...hands-down I would recommend you start investing in syndications and passive real estate opportunities. Let someone else be the expert and carry the heavy load and take the risk and sign their name on the deck. You are in the right place to get answers. Good luck and happy investing! 

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  • Ben V.
    Real Estate Agent · FL · Member since 2022 · 54 posts · 31 votes
    3y

    There is no greater teacher than experience. You wont get much of that with a syndication. Buy your own home, house hack, do repairs, manage tenets, pay your taxes, ensure escrow is correct, meet agents of all sorts, GET INTO THE GAME! It's fun and you will learn a whole heck of a lot more doing it yourself. After that, the world is your oyster :)

    Cheers!

    0Reply
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