What to do? (Busy accredited investor)

24 Replies

I am a busy professional and accredited investor looking for advice. Would you... 1.) Do a series of Turnkey investment properties (SFH) Or 2.) invest in MFH syndication deals I am looking for something passive. My problem with SFH is that scalability is going to be a problem. My problem with syndications is you do not have access to your capital. Thoughts?

Owning individual Turnkey investments are simply not as "passive" as many as would like you to believe, and certainly not as passive as investing in syndication.  As an accredited investor you have a lot of choices in the latter.  I would suggest you consider the amount of time you can/want devote to vetting turnkey providers, markets, and each property you are considering.  You should also expect to have to manage the property managers.  Of course, as you indicated, with turnkey you can leverage your capital, and potentially pull some capital out while holding on to the asset.  You have to decide which works better for you, and nothing says you can't do some of both.  Here's an article I wrote on Three Key Routes for Passive Real Estate Investing

All best in your REI

Thanks for the reply Larry. For simplicity sake, I made my post intentionally short. Didn’t mean to short change the work involved with Turnkey rentals. I have been vetting providers now for a while and am considering this as a viable option. I have been thinking about getting into syndicate deals for accredited investors for the shear passivity but I’m not sure if this is necessarily a good approach. From what I’ve seen, the returns can be just as good with less management on my end. I guess is the extra work of Turnkey worth the extra return especially for a busy individual?

All the best

@Marc M. , I own both single-family rentals directly, and invest through passive crowdfunding/syndication investments.  Each has its pluses and minuses. 

 If you purchase single-family rentals in a good market, and purchase solid properties, then it can be an excellent source of income.   On the other hand,  it takes considerable work to develop a portfolio that’s diversified over geography.  Also, there really is no way to tell for sure the turnkey provider did a good job for you or not, until years later when it’s too late to do anything about it if they didn’t. 

 The advantage of Crowdfunding/syndication is that you can invest in a lot more asset classes than just single-family homes which can diversify your portfolio. Also, you can get in at a lower price point, which again allows you to diversify your portfolio more.  You can also invest in different strategies, such as debt instead of just equity,  and can add value added strategies which tend to return more than buy-and-hold ( although they come with more risk).

 As far as returns, returns vary widely both in single-family houses and also in   crowdfunding/syndications.   You can find good returns in both and bad returns as well. 

@Marc M. While it is true that in a syndication, you cannot access your capital when you want, there is much less likelyhood that you will need add capital or use previous distributed cashflow to do a repair.  As for turnkey being scaleable, how many will you need to meet your goals or get you out of the rat race?  Getting good management and good tenants is the challenge in SFHs. 

In syndications your biggest time challenge is vetting the sponsor and the deal.  I recently had an investor that bought in a third party business consultant to vet me and the deal.  This cut out some of the potential risk for the investor.  

Of course as a sponsor of syndications, I feel that the syndication route is much more hands off and well as better returns when a value add is included. 

All great replies! Thank you so much for your contributions! I’m leaning more toward syndications at this point. I’d be happy to hear from any other BP members that have experience in either matters.

Thanks

@Marc M. I think that this question really boils down to how much you value your time. What other business ventures are you involved in? How much time do those take? Are they making you as much or more money than turnkey properties can? Essentially, what is your opportunity cost?

That being said, commercial MF is a great passive opportunity. Sure your investment isn't as liquid as some other asset classes, but it also offers a lot of benefits:

1. It diversifies your portfolio and is more recession resistant than many other asset classes.

2. It has some pretty powerful tax advantages (see my blog https://www.biggerpockets.com/blogs/10191/67979-po...)

3. It offers a truly passive investment opportunity and limits liability exposure compared to ownership of SFHs.

There are plenty of other advantages to commercial MF, that's just a few to prove that it's definitely something worth considering if you're looking for a passive opportunity. It also doesn't hurt the case for commercial MF that it's common to find equity multiples of 2.0x + over a hold of 3-7 years.

@Marc M. Seeing as you live in one of the lowest barrier to entry areas in the country I don't see why you would do a syndication.

If single family homes are not scale able enough for your tastes why not just buy a large commercial complex & own it in it's entirety? With a management company owning rental Real Estate is very passive. We have money flooding into the Cleveland area from all over the world right now. There are so many opportunities in your back yard.

@Marc M. it doesn’t have to be either/or. Certainly you could buy some TK and invest in syndications as well.  Gives you some diversification, plus if you needed access to some of your capital you could refinance or sell some of the TKs.  Or you could also incorporate the above advice to directly acquire commercial properties.  

But if I understand your posts, your primary constraint is your time.  That seems to rule out the direct commercial ownership option as sourcing and financing commercial real estate takes a lot of time.  And chances are, an experienced professional syndicator is likely to find superior investment opportunities as compared to the casual buyer, so the playing field between syndication and direct ownership is more level than one might assume. 

I don’t have experience with TK properties, but my guess is that securing financing for numerous small acquisitions would require a significant investment of time and frustration (I know that it takes me about ten times the effort to borrow $200K than $15 million).  

Some comments have referenced the time invested in vetting TK providers, but I think that’s a wash because if you are investing in syndicated offerings properly, you’ll be investing a similar amount of time vetting syndication sponsors. 

Long story short (too late!), we’ve heard from a lot of our investors that they carefully studied the TK option and ruled it out in favor of syndicated offerings. And I’ll bet that TK operators would say that they’ve heard many of their buyers say that they ruled out syndications in favor of buying TK houses. To each their own, as they say...

Originally posted by @Marc M. :
I am a busy professional and accredited investor looking for advice. Would you...

1.) Do a series of Turnkey investment properties (SFH)

Or

2.) invest in MFH syndication deals

I am looking for something passive. My problem with SFH is that scalability is going to be a problem. My problem with syndications is you do not have access to your capital.

Thoughts?

 You could replace your income in two years doing Wraps, Subject Tos and Lease Options selling to Tenant Buyers. It's Scalable, doesn't require banks and can be Passive by Joint Venturing with someone who knows what they are doing. You get $10k to $25k back each time you sell to a Tenant Buyer and cash flow each month. The Tenant Buyer takes care of all maintenance and repairs. Each property of $200,000 needs about $50,000 invested with no bank involvement and returns about $250,000 over the course of ten years. You have access to your capital when you need it and are protected from market corrections. Yeah, I know, it's "too good to be true". After 25 years of doing them, I've heard that a lot and I just smile.

@James Wise I totally get what you are saying. We live in a special place when it comes to rental property investing. My issue (and maybe your group can help with that) is at least with syndications you are leveraging the experience of the operator/sponsor. I have no personal experience running an operation such as a decent sized multifamily property much less any small retail building. My father in law (who is big in commercial investment on the west side) mentioned that I should also consider small 5-6 unit retail centers (no big box). Thoughts?

@Brian Burke Thanks for the reply. I’ve thought about not limiting myself to just one niche. I gotta pick a place to start and I’d like to get off on a good, solid footing. It’s tricky to pick with some many options. I feel like I am the typical analysis paralysis person haha.

@Marc M. Personally I think it's a better strategy to pick one formula at a time and focus on doing it well. 

Sounds like you've mostly seen the light on syndication (done well) vs TK (done well). There's no competition in scale, real returns and passivity.

Further, if you want to get educated in a short period of time; one of the best ways to do so is look at 100 deals (in this case: offerings) before doing any.  Get on some syndication deal flow lists, and sign up on some crowd funding sites.  Evaluate a deal or two per day. By the time you get to 100 deals you'll know exactly what a great deal looks like and you'll have a better understanding of how a great deal works from the investor perspective.

You should evaluate all sorts of asset classes (apartments, student, senior, retail, office, industrial, hotel, fund vs direct, etc) but I think you'll come to the conclusion that workforce housing is the best risk adjusted return available.

Happy to chat further some time.

Originally posted by @Marc M. :
I am a busy professional and accredited investor looking for advice. Would you...

1.) Do a series of Turnkey investment properties (SFH)

Or

2.) invest in MFH syndication deals

I am looking for something passive. My problem with SFH is that scalability is going to be a problem. My problem with syndications is you do not have access to your capital.

Thoughts?

Well said. I invest both actively and passively. If you decide to go the passive route, consider multiple asset classes (mobile home parks, self-storage, retail, industrial, multifamily). You could also consider NNN and retail control.

Personally I own About 50 properties that are 1-4 unit and I have made them turnkey. They do not take up much of my time, but they often times under perform my expectations (even using really conservative numbers). The multi-family properties that we own run so much more efficient and are much more stable. 

Personally I would invest in syndications or invest in your own apartments/commercial investments. You could also do both of course. You mentioned that you have no experience, so if that is holding you back, then find a syndication company that will let you invest and will help teach you along the way. Once you are comfortable you then have the option to do it on your own. 

Account Closed The one assumption that you are making, but not mentioning, is that Marc can find some that is doing what you are doing, is in need of the capital, and can be trusted.  I am sure there may be plenty of people out there, but how many frogs will he have to kiss before he finds a partnership that works?

Originally posted by @Jeff Greenberg :

@Bill T. The one assumption that you are making, but not mentioning, is that Marc can find some that is doing what you are doing, is in need of the capital, and can be trusted.  I am sure there may be plenty of people out there, but how many frogs will he have to kiss before he finds a partnership that works?

 Heh, heh. Actually the assumption I am making is that since he doesn't have a picture, when you check his profile he doesn't have a profile and he has no last name, I'm guessing he doesn't have any money either and is just pulling everybody's chain. LOL

If nothing else he got a conversation going.

If I was a phony I would just do the free version and not pay for the upgrade. I leave out my personal information as a security/privacy measure.

Mark,

Scale and forced appreciation are powerful differentiators for MF over SF.  I have both but am totally focused on adding more MF properties to my portfolio.  @Michael Bishop lays out some good comments on downside advantages and passive (time constraints) while I like @Brian Burke comment on being a hybrid investor.  I see way too many articles on BP where folks want the best answer while there may be several good ones and investing more time in things like evaluating your resources and skills, need for control, interests or passion, your time involvement, risk tolerances, etc are not discussed enough and may be more important than returns,  Or, if you like both, do both and only then you will truly learn what you like and don't like about each.  Couple articles on vetting a sponsor and why I like investing in large apartments.

https://www.biggerpockets.com/blogs/9145/53959-vet...

https://www.biggerpockets.com/blogs/9145/53820-why...

Thanks David Thompson. I appreciate the post.

@Marc M. - @Brian Burke @Michael Bishop   have both provided sound advice.  My mentor does not talk about diversification.  He talks about hedging your portfolio.  In the event one area goes down, you can rely upon the other portion.  As Brian has pointed out many of our investors in self storage prefer entering into it because it is a smaller version of apartments.  We can have 1,000 rentals at a fraction of the price compared to 1,000 apartments.  As Michael points out, Turn Key provides you with a alternative strategy.  Based upon your question, it appears you may be able to do both strategies..  More involved with Turn Key and more passive with syndication.

Originally posted by @Marc M. :
I am a busy professional and accredited investor looking for advice. Would you...

1.) Do a series of Turnkey investment properties (SFH)

Or

2.) invest in MFH syndication deals

I am looking for something passive. My problem with SFH is that scalability is going to be a problem. My problem with syndications is you do not have access to your capital.

Thoughts?

Syndication deals are good, but it just depends on what you're looking for. If you want access to your capital, then go with SFR. They tend to get you more for your money anyways. Try consulting with REAL Turnkey providers, not just agents.

Maybe look at the following:

Single Family vs. Multi-Family Investments

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here