First-time multifamily investing - purchase or syndication?

12 Replies

I'd like to begin investing in apartments, and have done quite a bit of research so far.  Up until recently, I thought I wanted to purchase an apartment on my own (8-12 units).  However, I've been talking to people about participating in a syndication deal as a passive investor.

Any thoughts on the best way to start investing in apartments for a first-timer?

My goal is to ultimately match my day job income in the next few years.

Two totally different approaches to real estate.

Syndication - Like you said, passive investment. Perhaps if your general team is willing, they can bring you on board to learn, and gain experience during the process.

Personal investing - Gives you the ability to be in charge, utilize leverage, refinance or sell upon your needs, tax advantages (although syndications do so in other tax advantageous ways), ability to grow exponentailly by stacking your NOI into the next investment.

Either way, the best of luck to you!

Hi @Tim Gathers

Lots of great content on this site for figuring that out for yourself. Re replacing income:  Divide your desired passive annual income by 12% and that's roughly how much equity you'll need in income property.  For most people the best formula is to create income (preferably multiple streams) elsewhere (job, business, both) and funnel as much of the excess income as possible into professionally managed income property.

For example my day jobs (property management co and syndication business) create value and cash flow for me which I in turn funnel back into the biz and income property.

You need big funnels of income to get truly wealthy (financially free) in real estate. Otherwise; buying property is a get rich very, very slow approach.  

First thing is first - you are setting your goals too low. I make much more money via apartments than what I could do in a job. So, don't set a limit of matching your job.

Secondly, the thinking goes like this:

In order to be a wise syndication investor, you need to know how to reverse engineer the offerings. Do you?

If not, owning some real estate is one of the ways to learn the basics of the business. I would say unless you are in a financial analysis profession, such as risk analyst, CPA, etc. it would probably be somewhat difficult to go from zero of not owning any property to breaking down syndication offerings.

Good Luck!

@Tim Gathers get you a piece of a syndication deal to learn the ins and outs and easy way to build a little bit of a track record ("Hey I own a piece of this deal in...").

Happy to discuss more the ins and outs of active vs passive investing with you. If you are patient and have a good cash making biz so you can keep investing in syndications, you can easily get to your goal in next 5-10 years. 

Hi Tim,

Here are the main difference between active investing (i.e. buying 8-12 units on your own) and passive investing (i.e. investing in an apartment syndication)

  • Control: you have no control as a passive investor and all of the control as an active investor
  • Time commitment: the ongoing time commitment for active is much higher than for passive
  • Risk: you are exposed to less risk as a passive investor
  • Experience: you will gain much more experience as a active investor
  • Upside potential: since you control 100% of the deal, there is more upside with active investing

You'll have a better chance of replacing your day job income as an active investor, unless you have six figures sitting in your bank account that you can passively invest.

Raising money for your own syndication is also an option, but as @Ben Leybovich said, it will be difficult to go from zero real estate experience to raising money to buy a deal. 

Your best bet is to buy a deal yourself and depending on how that goes, decide to continue as an active investor or passively invest instead.

@Theo Hicks , nice comparison list!

@Tim Gathers , if you want to syndicate your own deals, you'll likely need to build credibility with banks, brokers, etc. There are two primary ways to do that:

1. Invest passively alongside a proven Syndicator to gain insight

2. Start small and scale. I.e. start with a duplex, then a four-plex, than an 8-12 unit, then a 50 unit, then a 100+ unit that you can syndicate.

If you try to syndicate a large deal right out of the gate, you'll likely find that a lot of key parties won't take you seriously. Not to say you can't do it, but they've got a lot of Syndicators with a long track record lining up for their services, so they're less likely to work with the guy with zero experience.

@Theo Hicks , thanks for the list!  The time commitment for being an active investor concerns me somewhat, as I do have a family and a day job, so I'd definitely need a property management company to help out with an apartment.  As for syndication, I definitely would not want to start off as a syndicator myself, as no one would take me seriously.  However, I wasn't sure if I should start off with being an active investor or start by participating as an passive investor in a syndication deal.

Right now, I tend to lean towards buying my first apartment on my own, and then looking into participating in a syndication deal later as a passive investor.

Hi, @Michael Bishop .  I'm definitely not trying to syndicate deals on my own right now.  Wouldn't even know where to start!  At this time, I was just trying to see whether it made more sense to start by buying my own apartments, or start by investing in a syndication deal.

I already have some RE experience, but with SFRs only, so apartments are an entirely different animal as you know.  However, my goal is to scale up as soon as possible, which is why I'm looking at apartments.

@Tim Gathers I don't think there's a right or wrong answer generally but sure to be an option that's better for you.

Active investing or the 8-12 unit purchase is much more time consuming and possibly more risk than investing with an experienced syndicator. The upside is greater and you'll have quite a lot more control but it's all on you.

I'd say it really depends on what your time is worth. The purchase will require quite a bit more time and energy, the passive investment with a syndicator will could be a slightly lower return but much less time and effort.

@Tim Gathers sup buddy! Great meeting you this past weekend! Feel free to call me any time and I'd be happy to help you navigate the process. It's a lot to digest so as everyone has mentioned in one form or another, begin passively and learn the ropes. Most if not all syndicators will be happy to teach, review, discuss the process at every step and level. Look forward to hearing from you soon. Be well and God bless!

Updated over 2 years ago

@Tim Gathers It's a lot to digest so as everyone has mentioned in one form or another, begin passively and learn the ropes. Most if not all syndicators will be happy to teach, review, discuss the process at every step and level. Look forward to hearing from you soon. Be well and God bless!

Updated over 2 years ago

My apologies Tim! From the phone app I mistook you for someone else.

@Tim Gathers , Jordan pretty much hit the nail on the head. It really all depends on what your time is worth to you, how risk averse you are, and what your end goal is.

Starting with smaller MF and scaling will certainly be more time intensive and expose you to more risk, but my two cents is that it's your best bet if your end goal is to one day syndicate deals yourself. You gain experience and knowledge through hands on management that you won't quite get by investing passively. Not to mention the credibility piece.

However, if you're not 100% on wanting to syndicate yourself in the future, investing passively is a great way to access larger deals/scale all while leveraging the expertise of proven Sponsors and saving a LOT of your time.

It's definitely a big/tough decision, so best of luck! And keep us updated on what path you decide to take.

@Tim Gathers It sounds like for you it comes down to be a numbers game. 

Your X amount of time spent learning/taking action translatable into Y return in Z years - calculate it for active versus passive and see which option suits your goals best.

Good luck!