Turnkey vs Syndication

[Lydia Bar]

Hi everyone.  I am new to real estate investing and I have been reading books and following the bigger pockets posts.   I am looking to do my 1st real estate investment.  Currently live in New Jersey so  I will be doing OOS.  I have been looking into turnkey companies and specifically looking at Columbus/Cleveland  However I also  learned recently about real estate syndications, and I am trying to decide between turnkey versus syndication.  I understand that with  Turnkey it is not completely hands off,  while with syndications it is hands off and  majority of the work is up front with vetting the sponsor and etc. 

Does it make sense to start with syndications? or would you first prefer to own your properties and then maybe do syndication as a way of diversifications? Can you actually build wealth and equity the same way with syndications that you would with owning your properties?  do syndications offer tax benefit  like the benefits of owning your property? 

My 2nd question is in regard to Columbus/Cleveland itself.  from my research it is a good investment there for cash flow.  what about appreciation? does BP Community feel that properties there will appreciate more in the future?

Also would be happy to hear recommendations about specific Turnkey companies  in  Columbus

Thanks in advance!

[Evan Polaski]

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

[Tushar P.]

Originally posted by @Evan Polaski:

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

I understand that you can avoid taxes for rentals by holding forever, doing 1031x and dying, but how do you avoid the depreciation recapture for syndications? Or do you keep investing in syndications in order to offset the gains from the exiting ones, and you plan to maintain that until you die?

[Chris Levarek]

@Lydia Bar I would suggest do your research on both. Good to ask a forum but everyone will have mixed opinions based on personal experiences or motivations. Start with the end in mind and your long term goals. If you've invested before, create your likes and dislikes. 

Read up on some available turnkey operators and their offered programs. What do you like or dislike? What aligns with your long term goals?

Review Syndication offerings and operators. What do you like or dislike? What aligns with your long term goals? 

Select the one that best appears to meet your needs. Invest and learn. Review post-investment and after the investment closes. Modify and improve your strategy. Repeat for success!

[Brandon Sturgill]

@Jay Hinrichs Good points, per usual.

I operate from transparency as rule 1...full disclosure and then we can talk caveat emptor...after the facts are on the table. There is no cure for stupidity...unfortunately...and ROI on paper brings out the stupid. This is an industry built on misrepresentation and that's what I'm fighting on a daily basis.

[Jay Hinrichs]

Originally posted by @Brandon Sturgill:

@Jay Hinrichs Good points, per usual.

I operate from transparency as rule 1...full disclosure and then we can talk caveat emptor...after the facts are on the table. There is no cure for stupidity...unfortunately...and ROI on paper brings out the stupid. This is an industry built on misrepresentation and that's what I'm fighting on a daily basis.

I go back to my original statement.. I dont think these investors are stupid.. I mean I was born and raised in Silicon Valley and have worked in LA  Portlandia  Seattle for 40 years now..  These investors by and large that can pay cash or get loans in your market are the opposite they are very bright well educated  and they make Damn good money. I did a presentation at Google a few years back starting wage for a 22 year old is close to 200k a year with full bene's you show me who makes that working for a big company in your market ???  I bet they are far and few between..  So Stupid is not it..  Like I will reiterate its their own criteria's that move them into buying in OHIO in the first place forget about area etc. 

Plus its cost of entry when you have a median price home in Palo Alto were I lived.. Google  684 Encina Grande Palo Alto  that was my house LOL  and you will see the value proposition's  in the mid west  the real estate is a fraction of the price so they don't perceive the same risks you do.  That Palo Alto home i owned would probably not sell for more than 250k in your market in a real good area and in a rental area probably around 100k..  

Anyone who has followed me on BP has heard me say this many times.

there are good investments in every market. For me I am a firm believer in buying at the Median price point of a given MSA so if your Median is say 150 k in Columbus then I would recommend buying at that price point or higher if its 200k same thing.  here in Portland our Median is 500k plus but we dont have the vast value difference you do in the mid west when you go from a neighborhood you describe with the bullets etc to a nice neighborhood. Granted there are difference but they simply are not as pronounced. 

So you call it misrepresentation I call it greed and pier pressure from BP and other sites that say your not a savvy investor if you cant get 10% plus COC on a rental..

[Jay Hinrichs]

Originally posted by @Tushar P.:

Originally posted by @Evan Polaski:

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

I understand that you can avoid taxes for rentals by holding forever, doing 1031x and dying, but how do you avoid the depreciation recapture for syndications? Or do you keep investing in syndications in order to offset the gains from the exiting ones, and you plan to maintain that until you die?

this is a good point  I need to research that a little more myself.  

[Nathan Williams]

I'm not a fan of using turnkey providers as obviously they are in the business of making as much profit for themselves as possible which would cut into your potential profits.  With a little more legwork you would earn more by buying well maintained owner occupied homes and finding your own trustworthy property manager along with an investor friendly realtor.  

[James Wise]

Originally posted by @Jay Hinrichs:

Originally posted by @Brandon Sturgill:

@Jay Hinrichs Good points, per usual.

I operate from transparency as rule 1...full disclosure and then we can talk caveat emptor...after the facts are on the table. There is no cure for stupidity...unfortunately...and ROI on paper brings out the stupid. This is an industry built on misrepresentation and that's what I'm fighting on a daily basis.

I go back to my original statement.. I dont think these investors are stupid.. I mean I was born and raised in Silicon Valley and have worked in LA  Portlandia  Seattle for 40 years now..  These investors by and large that can pay cash or get loans in your market are the opposite they are very bright well educated  and they make Damn good money. I did a presentation at Google a few years back starting wage for a 22 year old is close to 200k a year with full bene's you show me who makes that working for a big company in your market ???  I bet they are far and few between..  So Stupid is not it..  Like I will reiterate its their own criteria's that move them into buying in OHIO in the first place forget about area etc. 

Plus its cost of entry when you have a median price home in Palo Alto were I lived.. Google  684 Encina Grande Palo Alto  that was my house LOL  and you will see the value proposition's  in the mid west  the real estate is a fraction of the price so they don't perceive the same risks you do.  That Palo Alto home i owned would probably not sell for more than 250k in your market in a real good area and in a rental area probably around 100k..  

Anyone who has followed me on BP has heard me say this many times.

there are good investments in every market. For me I am a firm believer in buying at the Median price point of a given MSA so if your Median is say 150 k in Columbus then I would recommend buying at that price point or higher if its 200k same thing.  here in Portland our Median is 500k plus but we dont have the vast value difference you do in the mid west when you go from a neighborhood you describe with the bullets etc to a nice neighborhood. Granted there are difference but they simply are not as pronounced. 

So you call it misrepresentation I call it greed and pier pressure from BP and other sites that say your not a savvy investor if you cant get 10% plus COC on a rental..

Interesting back and fourth gents. Couple thoughts on your discussion from my perspective.

1. Agree with Brandon on presenting transparency first and foremost. I've always prided myself on presenting the reality of property ownership in low income areas to people. Heck, my most popular show is based around filming the worst stuff tenants have ever done to investors. However, I think you Brandon you are going to struggle in your sales career if you project your personal goals and opinion too much. You seem very focused on trying to convince buyers to buy what you want them to buy, not what they came to Ohio to buy in the first place. As Jay said, folks are smart and they came to Ohio for a reason. A better approach for you would be to take the stance of "ok this is what you want to buy. Here are the pros and cons to this based on my experience as a professional in this area. If that works for you we move forward. If not, then I think you should buy this and this is why." At least that's what I've always done in my business and $200 Million in closed sales later, I've got to say it's gone well.

In all honestly I think all the Columbus guys on these forums are doing themselves a disservice. You guys are trying to put round pegs in square holes. The reality is the Columbus guys are in all the Cleveland forums talking about how much better Columbus is than Cleveland. You don't see Cleveland dudes doing the same in Columbus forums. Why is that? Out of State folks are traveling 1,000's of miles to invest in places like Columbus. It's too similar to their home markets. They can get that at home. It's not what they come to Ohio for. They come to Ohio for cheap properties, Columbus doesn't fit the bill. Heck there are various areas in Northeast Ohio with similar population trends to Columbus. I've spoken in a few threads about the big ole' house I'm building for my family on 30 acres outside of Cleveland. Population trends in that area have been shooting up for 20+ years. Don't see anyone in the Cleveland area pitching that area here though, it's just not what people are coming to Ohio to invest in.

_

2. I've never heard of rent to retirement before. I don't know anything about the area in Columbus Brandon described, but after seeing this thread I popped on their website to see what they have in Cleveland. There were 2 properties, both priced pretty high compared to what I would anticipate them actually selling for in an arm's length transaction. Both priced over $100k when similar stuff trades for $70k-$80k right now. Does that make them a shady company? No, I don't necessarily think so. I don't know any property owner in the world who isn't trying to sell the houses they own for the most they can get. This is the nature of buying from a house flipper. In addition, when you've got a company stretching across multiple markets, they may not even really be aware of how the current comps are looking. This is why I advise all buyers to get home inspections and appraisals prior to closing the deal. At the end of the day seller wants same thing as buyer, to maximize the money in their pocket. Why don't we consider buyers who want to buy under comps shady but sellers who want to sell above comps shady? Are they not both running a business with the intent to maximize profit? Lastly, based on the Rent to Retirement guy's response to Brandon his buyer got an appraisal on that Columbus house mentioned earlier and it did appraise, so perhaps that area isn't all that doom and gloom after all.

[Jay Hinrichs]

Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:

Originally posted by @Brandon Sturgill:

@Jay Hinrichs Good points, per usual.

I operate from transparency as rule 1...full disclosure and then we can talk caveat emptor...after the facts are on the table. There is no cure for stupidity...unfortunately...and ROI on paper brings out the stupid. This is an industry built on misrepresentation and that's what I'm fighting on a daily basis.

I go back to my original statement.. I dont think these investors are stupid.. I mean I was born and raised in Silicon Valley and have worked in LA  Portlandia  Seattle for 40 years now..  These investors by and large that can pay cash or get loans in your market are the opposite they are very bright well educated  and they make Damn good money. I did a presentation at Google a few years back starting wage for a 22 year old is close to 200k a year with full bene's you show me who makes that working for a big company in your market ???  I bet they are far and few between..  So Stupid is not it..  Like I will reiterate its their own criteria's that move them into buying in OHIO in the first place forget about area etc. 

Plus its cost of entry when you have a median price home in Palo Alto were I lived.. Google  684 Encina Grande Palo Alto  that was my house LOL  and you will see the value proposition's  in the mid west  the real estate is a fraction of the price so they don't perceive the same risks you do.  That Palo Alto home i owned would probably not sell for more than 250k in your market in a real good area and in a rental area probably around 100k..  

Anyone who has followed me on BP has heard me say this many times.

there are good investments in every market. For me I am a firm believer in buying at the Median price point of a given MSA so if your Median is say 150 k in Columbus then I would recommend buying at that price point or higher if its 200k same thing.  here in Portland our Median is 500k plus but we dont have the vast value difference you do in the mid west when you go from a neighborhood you describe with the bullets etc to a nice neighborhood. Granted there are difference but they simply are not as pronounced. 

So you call it misrepresentation I call it greed and pier pressure from BP and other sites that say your not a savvy investor if you cant get 10% plus COC on a rental..

Interesting back and fourth gents. Couple thoughts on your discussion from my perspective.

1. Agree with Brandon on presenting transparency first and foremost. I've always prided myself on presenting the reality of property ownership in low income areas to people. Heck, my most popular show is based around filming the worst stuff tenants have ever done to investors. However, I think you Brandon you are going to struggle in your sales career if you project your personal goals and opinion too much. You seem very focused on trying to convince buyers to buy what you want them to buy, not what they came to Ohio to buy in the first place. As Jay said, folks are smart and they came to Ohio for a reason. A better approach for you would be to take the stance of "ok this is what you want to buy. Here are the pros and cons to this based on my experience as a professional in this area. If that works for you we move forward. If not, then I think you should buy this and this is why." At least that's what I've always done in my business and $200 Million in closed sales later, I've got to say it's gone well.

In all honestly I think all the Columbus guys on these forums are doing themselves a disservice. You guys are trying to put round pegs in square holes. The reality is the Columbus guys are in all the Cleveland forums talking about how much better Columbus is than Cleveland. You don't see Cleveland dudes doing the same in Columbus forums. Why is that? Out of State folks are traveling 1,000's of miles to invest in places like Columbus. It's too similar to their home markets. They can get that at home. It's not what they come to Ohio for. They come to Ohio for cheap properties, Columbus doesn't fit the bill. Heck there are various areas in Northeast Ohio with similar population trends to Columbus. I've spoken in a few threads about the big ole' house I'm building for my family on 30 acres outside of Cleveland. Population trends in that area have been shooting up for 20+ years. Don't see anyone in the Cleveland area pitching that area here though, it's just not what people are coming to Ohio to invest in.

_

2. I've never heard of rent to retirement before. I don't know anything about the area in Columbus Brandon described, but after seeing this thread I popped on their website to see what they have in Cleveland. There were 2 properties, both priced pretty high compared to what I would anticipate them actually selling for in an arm's length transaction. Both priced over $100k when similar stuff trades for $70k-$80k right now. Does that make them a shady company? No, I don't necessarily think so. I don't know any property owner in the world who isn't trying to sell the houses they own for the most they can get. This is the nature of buying from a house flipper. In addition, when you've got a company stretching across multiple markets, they may not even really be aware of how the current comps are looking. This is why I advise all buyers to get home inspections and appraisals prior to closing the deal. At the end of the day seller wants same thing as buyer, to maximize the money in their pocket. Why don't we consider buyers who want to buy under comps shady but sellers who want to sell above comps shady? Are they not both running a business with the intent to maximize profit? Lastly, based on the Rent to Retirement guy's response to Brandon his buyer got an appraisal on that Columbus house mentioned earlier and it did appraise, so perhaps that area isn't all that doom and gloom after all.

Jim your like Fox News fair and balanced..  its one thing to be a company like Morris who through him and his team just flat defrauded investors. We are in an ascending market and have been for years now. My work with many out of state brokerages who specialize in turn key type homes one constant I know is that 80 to 90% of the investors do get loans and therefor there are 3P appraisals to validate values.

Its always easy or hard to look at market comps that will have a wide variety of price points we all deal with it..  bombed out house on market and close to a flipper for 25k same house / well age sq ft closed after full gut rehab for 100k.. same block.. what's the true value ? 

I learned this value discrepancy first hand when i started my out of state Hard Money lending company in Detroit in 2002.. my clients were picking up houses for 40k  and they were selling them turn key to out of state  ( mainly CA investors) for 120 to 140k and I had a hard time with values..  There was a local appraiser that the take out lender used and he wrote a very good synopsis of why the values were the higher dollars even though houses on the same block were 1/3rd the cost.  Now of course we all know what happened in Detroit starting in 2006 those 140k homes fell like stones down to 5 to 40k .. right back whence they came now they have taken 15 years but they are trading now based on cash flow and pretty much like everywhere else the 1% rule and if not for out of country or area investors those houses would still be worth next to nothing..

I would be interested to see the Median price point in Columbus compared to Cleveland  Cincinnati Dayton  Akron  Toledo to get an over all feel for the each MSA.. 

Lastly sales comps these days from 3 to 6 months are no good half the time.. I just look at what I did with the 30 houses I built in Oregon last year.. My Longmire floor plan originally was going to go out the door at 525k by the time we got CO it was 550k and by 7 months later i was selling same house for 580 to 590k and next phase of 60 of these will be 625k and up.. we have a comp of the exact same house ( not my development) that just closed for 650k last week.. I mean that's what's happening right now  .. supply chain lumber.  prices they are going up.

now that makes this mid west sub 100k deals pretty attractive IF you can collect rent and houses don't get too beat to crap..  they are still being sold for FAR under replacement value.  Smart investors know this.. they cant create these doors it would cost them double even if the lot was free. thats why you see virtually NO new construction in these areas. Its economically unfeasible 

[Tushar P.]

Originally posted by @Jay Hinrichs:

Originally posted by @Tushar P.:

Originally posted by @Evan Polaski:

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

I understand that you can avoid taxes for rentals by holding forever, doing 1031x and dying, but how do you avoid the depreciation recapture for syndications? Or do you keep investing in syndications in order to offset the gains from the exiting ones, and you plan to maintain that until you die?

this is a good point  I need to research that a little more myself. 

@Michael Plaks
Any idea on if the depreciation recapture for syndications can ever be avoided? Continuing to invest in new syndications just to offset the gains from the one exiting seems like an unsustainable strategy - it will require the person to die if they decided not to continue to invest in any new syndication (or unable to find a good deal to invest in). Or if they don’t think dying is worth avoiding taxes, then they will simply need to pay more taxes than saved (because they used depreciation to offset long term capital gains, and depreciation recapture rate is higher than long term capital gains rate)

I guess institutional CPA firms must have done some studies/research on this and published some papers already? Or perhaps they used interns to model the impact of depreciation recapture on syndications, and strategies to minimize/avoid the impact of depreciation recapture on taxes (without dying)?

[Michael Plaks]

Originally posted by @Tushar P.:

Originally posted by @Jay Hinrichs:

this is a good point  I need to research that a little more myself. 

@Michael Plaks
Any idea on if the depreciation recapture for syndications can ever be avoided? Continuing to invest in new syndications just to offset the gains from the one exiting seems like an unsustainable strategy - it will require the person to die if they decided not to continue to invest in any new syndication (or unable to find a good deal to invest in). 

Thanks for tagging me, however this is a wrong thread for such discussion. Mainly because tax benefits should not factor into choosing investment strategies, in my long-held opinion. Choose your strategy first, and then work on minimizing taxes.

That said, I disagree with @Evan Polaski: when compared apples-to-apples, i.e. without any other factors muddying the comparison, for passive investors syndications are less advantageous tax-wise than direct ownership. Two main reasons for that:

1. capital gain taxes, including depreciation recapture, cannot be avoided at sale with a 1031 exchange
2. current losses are usually trapped by high income, and you cannot qualify as a RE professionals from syndications

Cost segregation is a temporary deduction in the case of syndications. It is reversed when the syndication sells the property. See this old thread, too: https://www.biggerpockets.com/...

[Tushar P.]

@Michael Plaks I completely agree that investment strategy (maximizing income) should be the primary priority. The most common example of investing just to save taxes is the 1031x - I’ve heard people often overpay for the new property (they need to make a deal within a tight timeline) just so that they are able to defer taxes.

[Jim Pfeifer]

@Lydia Bar

I have invested in both turnkey properties and syndications.  I sold all of my turnkey properties and put the money into syndications and now I am a 100% passive investor as my full time job. 

There are many reasons why syndications are better - for me. Turnkey certainly works for some people too. I was investing in Columbus, Dayton, Memphis and Indianapolis with my tyrnkey SFH's. These were not passive investments. I went through multiple property managers in each market and managing the manager was a huge hassle. Changing property managers is very difficult, costly and time consuming, and in my experience didn't make much of a difference. I did find one great property manager in Columbus and those are the only properties I did not sell.

Syndications have tax benefits as many have said and they aren't that different from SFH's. I did cost segregation on my SFH's and got the similar tax deferral as the syndications. There is depreciation recapture on the back end for both, but with syndications I do a "Lazy 1031" which is much simpler and more effective than a regular 1031. The "Lazy 1031" is just reinvesting in a new syndication when your previous investment goes full cycle. The new depreciation will effectively offset the recapture from the syndication that you sold. You can do the same thing with active real estate. I did the Lazy 1031 when I sold my SFH and MF properties and deferred the capital gains.

You do NOT need to accredited to get syndication deals.  You will not have the same selection of sponsors and investments as accredited investors, but there are plenty of sponsors who accept non-accredited and it doesn't mean they are lower quality operators.  I am accredited, yet a few of my top sponsors accept non-accredited investors as well.

Having done both turnkeys and syndications, I am confident that syndications are the best option for me.  It allows me to have a full-time asset manager take responsibility for the asset and the property manager.  It is completely passive for me after I have selected the sponsor, the market and the deal.  The returns are not much different from "passive" turnkey investments - though if you are a true active investor, you can probably beat syndication returns generally but you will likely also be hyper focused on a particular asset class and market so you will not have my diversification.

For most people, who have a W2 job and are not full time investors, syndications are a really great way to get into real estate and to start generating multiple, tax free streams of income.  

[Brandon Sturgill]

@James Wise good points...thanks for the perspective. Everything about this business is a learning curve, and going back through the years of my posts you will certainly find attacks on Cleveland...in hindsight I regret taking the low road there...after a year away from BP I have a renewed perspective on this stuff and to be honest, I have grown to be a true fan of Ohio real estate in general...it's about bringing everyone up a level and promoting our state in general, not outright local market promotion at the expense of another market or market professional....hopefully the younger Columbus guys will take this same approach as they learn.

btw- fresh off a Cuyahoga Valley trip and back to Ohio City for the 5th time, lol. Great trip. 

[Brandon Sturgill]

Originally posted by @Zach Lemaster:

@Brandon Sturgill

I've decided not to comment on some of the negative posts you have made since there really isn't a point.  I did see that some of them have been removed which we appreciate.  I will comment on this now to add some insight for you and the community as a whole.  I don't know what prompted you to post multiple times negatively about our company as I've never spoken to you, and you have not invested with us.  I do understand that we are competitors in the industry, but this does seem like a personal attack as you did not bring up any other TK company other than my own on your posts.  We are not active in the Columbus market so you don't need to be concerned with us as a competitor against you.  In fact, we are always looking for top brokers in markets to refer clients to that we do not have inventory in.

I would first like to point out that my company has been in the industry for many years, and has a very positive reputation.  Which is difficult to do in the turnkey space.  If people were not having a good experience investing with us they would be quick to talk about it in these forums, and it would be quite public.  We are not seeing that.  By doing a quick search in the forums one can easily see that we have hundreds of positive reviews that we've worked very hard to achieve.  We always do right by our clients, and that is evident.  I have over 120 positive reviews on my BP account that I am very proud of.  I've worked extremely hard to earn their trust over years of working with them.  Real estate has many obstacles to overcome, and ensuring our clients have a team to support them as they scale their portfolio is of the utmost importance to me!  

To be specific on this particular property you posted, this was sold over a year ago.  I'm not sure where you are finding this listing.  A high scale rehab was done on this property.  The property appraised for the asking price showing that there were viable comps to support the value of $120,000.  Zillow has this property estimated at $139,800 right now.  This property has performed quite well for the investor that purchased it, and the investor has since come back to buy many other rentals with us successfully scaling his rental portfolio.  I do agree with you that this is not B property, and would fall better into a C class.  Your feedback is noted about that, and I will revisit our algorithm on how that was determined.

In general it should be noted that the majority of what we sell is actually brand new construction in A class locations.  This is quite different from the typical TK model of rehabbing C class assets.  To be very specific, we build heavily in SW FL where investors can purchase a brand new 4/2 in an outstanding area with high rental demand for $275k.  Most appraisals we see are in the $310k to $340k range providing the investor with significant equity!  Two weeks ago we saw our highest appraisal for one of these at $375k.  The address for this was 3118 NW 18th Terrace, Cape Coral, FL 33993.  This was even on pre-construction appraisal.  We initially projected rents to be in the $1,850 range, and are now seeing actual rents on completed projects come in around $2,100 to $2,200 outperforming our initial projections!  All of these investors are in an excellent position with cash flow & equity while having the benefits of a newly built home in an upscale area.  My point in providing these details is to show the types of opportunities we typically offer to our clients.  We also try to have a diversity of different investments available to clients based on their own investment criteria & goals.  

Since this thread is about the difference in TK vs syndication (and not meant to focus on RTR) it is important to note that we also offer syndications so we knowledge in both these spaces.  There are most definitely pros and cons of each strategy.  I will be happy to dive into that, but I need to at least set the record straight with the RTR discussion first since this seems to be the direction the post went.

In closing, I encourage everyone to do their own due diligence on any person or company you may consider working with.  The BP forums are a great place to start, and to network with like minded individuals.

@Brandon Sturgill, I'm happy to have a conversation with you if you would like to clear the air on any topics.  As I hope you can see we are well known in the forums and general public with a very positive reputation that we all have worked extremely hard to maintain.  We respect you as a professional in the industry, and we all like to work towards the common goal of helping others to reach their investing goals.  All tides rise together through this community as we educate each other & assist one another on becoming better investors.  We wish everyone the absolute best of success investing & taking action!

 Well said, Zach

[Paul Moore]

Hi @Lydia Bar. I agree with @Jim Pfeifer. Turnkeys can be a mixed bag and it seems there’s more that can go wrong. Almost everyone I speak to who has done turkey have stories of problems and hassles they did not anticipate.

Syndications can have problems, too. Lots of them. But it seems that the hands off nature and the returns make it a clear winner.  

Your best way to increase your success with syndications is to thoroughly vet the sponsor. That’s why I recommend Brian Burke‘s great book, The Hands-Off Investor.  I also recommend you check out Left Field Investors.  these are both great resources to help you evaluate the best operators. Happy investing!

[Chris Clothier]

@Lydia Bar,

You started a nice, little, sticky thread here with lots or comments and you are actually very lucky.  There are a lot of threads on here daily that seem to ask the same questions and they don't al get answers and comments like this one and are often missed by some of the better commentators.  Let me give you my perspective on the question itself and then I'll share what I have done.

Your question is perfect, but super hard to answer because it is like asking "which is better - fruits or vegetables"?  The words turnkey and syndication are both high level and while they are defined, there are variations of each.  Like bananas and grapes or squash and green beans, they are fruits and vegetables but with different qualities, benefits and drawbacks.  It takes getting more defined before you can really understand what it best for you.  Both may be good for all kinds of investors but two syndications or two different turnkey companies may be both right and wrong at the same time depending on the investor.

Above there was some discussion about Rent to Retirement and REI Nation. While both are called Turnkey companies, we both operate differently. Not better or worse, just different. And different investors will see value in each company and some will see value in both. RTR has a great reputation here on BP and you don't hear a lot of negative if any at all about them. So, it is not a question of is Turnkey good or the right option, but a question of is this company and what they offer the right option for me. The same goes for syndications. While all are similar, most syndications operate differently from qualifications, distributions and even to what assets they are investing. They can be different from how you dissolve your investment and when you can dissolve your investment. There are lots of nuances and the difference is in the details both when buying a property marketed as Turnkey and when investing in a syndication. I think it is very difficult to say which is better. The answer will be different for everyone.

I, of course, own a turnkey company.  I know first-hand what a good experience that meets an investors expectations perfectly should look like.  It is difficult to do every time.  The same holds true with a syndication.  A good syndicator knows he or she is going to say no a lot.  They are going to need to turn away investors in order to be laser focused on those whose expectations will be met perfectly by the performance and results of their project.  Someone mentioned @Brian Burke on here earlier and I can tell you that he would be a fantastic resource and the first to tell you that syndications are like fruit.  Everything called a syndication will be similar, but in detail they will all be different.

I personally have invested in syndications twice and I own a sizable passive portfolio.  I prefer the Turnkey route in all things now including any money I have in the markets.  My expertise and time are spent better elsewhere.  As for the syndications, I will most likely not go that route again in the future.  I prefer holding hard assets and I enjoy the benefit of using even small amounts of leverage to amplify my results.  Those two preferences are not easily met with a syndication.  I found myself disappointed when one of the projects ended and I now had to start all over with my next investment even if I had made a strong return.  It just didn't meet my needs and expectations.  Again, it was a positive experience, but not one that I was going to go into again.   

[Lydia Bar]

Thank you very much everyone for your input and responses. All the information you guys provided will be very helpful for me to eventually make my decision on which route to start with

@Paul Moore and @Chris Clothier I just want to mention that I read Brian Burke's book The hands-off investor. It's such a great, informative, well written book about real estate syndications. As a matter of fact, this book was what opened my eyes to syndications and made me feel comfortable  that if I put the time and effort into it, I will be able to analyze a deal well. 

[Tony Kim]

Originally posted by @Tushar P.:

Originally posted by @Evan Polaski:

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

I understand that you can avoid taxes for rentals by holding forever, doing 1031x and dying, but how do you avoid the depreciation recapture for syndications? Or do you keep investing in syndications in order to offset the gains from the exiting ones, and you plan to maintain that until you die?

Well, that would only work until the accelerated deprecation benefit gets phased out. It's not going to last forever.... something syndicators will rarely tell you about. 

I've never been a fan of advocating one or the other. Most successful investors understand there is benefit to multiple avenues of investing. However, since this thread is about which is better.... I will say that for long-term wealth building, I believe direct ownership has a slight advantage.  And within direct ownership, I think TK is an excellent solution for many folks as long as they adhere to a few basic things.  Also doing due diligence on them is a lot more straightforward and easier to understand. It's very easy for new, eager investors to entrust their money to the wrong syndicator because they have no idea how to vet them or perform basic due diligence....nor do they really understand the risk profile of the investment in which they are getting into. The spectrum of risk/reward when it comes to syndications is very extensive...and one has to truly understand what they're getting into before sending off their hard-earned money.

With that said, I can't think of a bigger nightmare than owning a huge portfolio of run-down TK's that you'd like to offload at retirement. So I think it goes without saying that TK's that operate in crappy or cheap areas of high cash flow are to be avoided. A more sensible way to go would be to start with lower cash-flow but aim for TK's in nicer areas that have good long-term prospects. I've looked into TK's in the past...REI Nation's properties definitely fit this profile....not familiar with the other two providers mentioned here but I'm sure they also have those types of properties also.

[Tushar P.]

Originally posted by @Tony Kim:

Originally posted by @Tushar P.:

Originally posted by @Evan Polaski:

@Tushar P., for me personally, syndications come at a scale that cost segregation studies and the ability to take advantage of bonus depreciation, creates a more advantageous tax situation.  My rentals, thankfully cash flow pretty well, but not dramatically better than my syndications, and the expense of performing a cost segregation on a single family negates the value for me.

I understand that you can avoid taxes for rentals by holding forever, doing 1031x and dying, but how do you avoid the depreciation recapture for syndications? Or do you keep investing in syndications in order to offset the gains from the exiting ones, and you plan to maintain that until you die?

Well, that would only work until the accelerated deprecation benefit gets phased out. It's not going to last forever.... something syndicators will rarely tell you about. 

I've never been a fan of advocating one or the other. Most successful investors understand there is benefit to multiple avenues of investing. However, since this thread is about which is better.... I will say that for long-term wealth building, I believe direct ownership has a slight advantage.  And within direct ownership, I think TK is an excellent solution for many folks as long as they adhere to a few basic things.  Also doing due diligence on them is a lot more straightforward and easier to understand. It's very easy for new, eager investors to entrust their money to the wrong syndicator because they have no idea how to vet them or perform basic due diligence....nor do they really understand the risk profile of the investment in which they are getting into. The spectrum of risk/reward when it comes to syndications is very extensive...and one has to truly understand what they're getting into before sending off their hard-earned money.

With that said, I can't think of a bigger nightmare than owning a huge portfolio of run-down TK's that you'd like to offload at retirement. So I think it goes without saying that TK's that operate in crappy or cheap areas of high cash flow are to be avoided. A more sensible way to go would be to start with lower cash-flow but aim for TK's in nicer areas that have good long-term prospects. I've looked into TK's in the past...REI Nation's properties definitely fit this profile....not familiar with the other two providers mentioned here but I'm sure they also have those types of properties also.

Yeah I see the tax benefits of real estate blown out of proportion for marketing purposes. I’m sure there is no shortage of sucker investors. Uncle Sam is definitely not giving anything for free 😏

As for turnkeys, I think the time/drama is simply not worth it for me (apparently it gets marketed to suckers as “passive” investments). If it had the potential for outsized gains then I may have thought of enduring the pain that comes with it. Not that syndications offer anything extraordinary when it comes to returns. Overall the real estate investments are a diversification and capital preservation strategy for me. So I see it as a low risk low return investment. Though for sucker investors, it is definitely a high risk low return endeavor.