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Chris C.
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Syndication vs single family rental

Chris C.
  • Property Manager
  • Oakland, CA
Posted Jun 9 2022, 17:49

If you had a good chunk of money to invest in today's market, would you invest in a multifamily syndication or a single family home?  Would you rather own 100% of a hard asset that requires more work, or a small chunk or a larger property with little to no work?

For simplicity, let's say it's $100,000.  What would you do?

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Taylor L.
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Taylor L.
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Replied Jun 9 2022, 17:59

Syndication. Passive investment, I wouldn't be on the hook for the debt, still get depreciation benefits, and the scale of a larger property means full time employees running it. Plus I just see more opportunity in commercial real estate. 

I am in the middle of selling a former primary residence that would cash flow as a rental, but I can do better than that in my larger multifamilies and take advantage of the capital gains tax exclusion for primary residences.

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Ian Ippolito
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Ian Ippolito
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Replied Jun 10 2022, 05:04
Quote from @Chris C.:

If you had a good chunk of money to invest in today's market, would you invest in a multifamily syndication or a single family home?  Would you rather own 100% of a hard asset that requires more work, or a small chunk or a larger property with little to no work?

For simplicity, let's say it's $100,000.  What would you do?

In my opinion, both have their pros and cons and neither is 100% superior to the other. And I feel the ideal portfolio can benefit from the diversification of both.

Directly owned residential properties are great because they give you maximum control and the ability to tweak them exactly how you want. So for example I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession. That's unusual and it would be very difficult to find a passive investment like that.

Also direct control means you know exactly what's going on. And, for those people who have more time than money, they can put in sweat equity into directly owned real estate. This will increase the return above what can be obtained on a passive investment.

The flipside of having the power to control everything is that can be alot of work (and a full-time job if you are putting in sweat equity). Not everyone wants that or is willing to put up with that. It also requires gaining a level of sophistication and knowledge that not everyone has the time, inclination or ability to do. And someone jumping into this as a complete newbie can expect that they have a decent chance of making some expensive newbie mistakes.

On the other hand, one of the main advantages of passive investments (via syndication/crowdfunding) is that you can hire a manager who has years more experience than you can ever hope to obtain yourself. And once you finish the due diligence, your work is done: it's completely passive. Also, rather than taking a large amount of money and investing into one single directly owned property, you can split it up into much smaller chunks across many different passive investments. This can allow a person to get much better diversification protection across geographies, asset types, strategies, investment subclasses etc. Versus putting all the eggs into one basket.

The downside is that someone has to be comfortable with turning over control to someone else. That means learning how to vet a manager. Not everyone can do that and not everyone feels comfortable turning over control. So it's not a fit for everyone. Also there is a management fee to pay for all of the above. So someone who is looking purely to maximize potential return (and has unlimited time) is unlikely to find this a good fit.

Hope this helps.
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Evan Polaski
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Evan Polaski
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Replied Jun 10 2022, 05:45

@Chris C., as Ian states, there is no 100% pro and con.  Some has to do with personality and/or time available.  Some has to do with risk profile.  And I am sure there are 1,000 other factors that can push one ahead of the other.

In the current market, I am leaning more towards syndication.  While both commercial and single family/small multifamily properties are very expensive compared to historical prices, I see more upside available in syndications right now.  Getting the rent growth across a lot of units, combined with better efficiencies on expenses and tenant risk mitigation, can create larger value, even if cap rates rise.  I don't think the single family market will crash, but I don't see it appreciating greatly over the next decade.  And even if rents grow, there is not a direct correlation to rent level of a single family rental and value, like there is in commercial properties.  

I am still looking at flips, and have one going now, but I am assuming you mean single family rentals.  Clearly I may be mistaken.  And flips are a lot of work, time and being onsite.  While sourcing syndications is also work on the front end, you can do it anywhere you have cell reception and internet access.

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Jon Kelly
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Jon Kelly
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Replied Jun 10 2022, 06:26

@Chris C. what are your goals? To make the highest return possible or to be completely passive? 

If you want something completely passive with a decent ROI, then go for the syndication.

If you want a stronger ROI and the ability to build your track record as a real estate investor AND you are willing to put in the time then go with single family home.

I'm at the point where I'm considering both. I have a portfolio of 58 doors and 13 storage units. I want to continue building my own portfolio. But, I also want to connect with larger syndicators and be a LP in larger (50+ unit) deals. 

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Jim Pfeifer
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Jim Pfeifer
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Replied Jun 10 2022, 06:48

I have done both and as others have said here, the first question is not whether SFR is better than syndication, it's what are your goals? Do you want to be passive or active? From my experience, it is very difficult to be passive if you own a SFR - hiring a property manager does not make you passive. There is still a lot of work to be done - you are the asset manager. I prefer to hire an asset manager through investing in syndications. The returns you receive are the same if not better than if you are an active investor trying to be passive. What I mean by that is, I think you can probably beat the returns of a syndicator if you are a full time real estate investor who is very active in a specific market and you are able to use this knowledge to create a competitive advantage or find a niche others aren't in. If that isn't you, I think you will have a very hard time beating the returns of a quality, professional asset manager.

As I mentioned, I have invested in both SFR and small MF properties as an active investor and I sold them all and am now a full time passive investor in syndications. I am making more money and spending less time now than I ever did as an active investor.

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Brock Mogensen
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Brock Mogensen
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Replied Jun 10 2022, 06:57

It really depends on what your long-term goal is in real estate investing.  Do you want to be active in the deal and be able to make decisions?  Then buy something on your own.  If you want to be 100% passive in the experience, syndications is the way to go.  

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Colton Hahn
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Colton Hahn
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Replied Jun 10 2022, 07:37

Would 100% invest in syndication. I value my personal time highly, and being able to enjoy these summer months with little to no stress from actively managing properties is a huge plus for me. But everyone is different!

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Dan Rowley
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Dan Rowley
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Replied Jun 10 2022, 07:41

@Chris C.

There is no right answer it depends on the individual, but for me currently syndications are more appealing.  The main objective for me is cash flow and TTL $ returns.

I think you have to take what the market gives you.  You can certainly look at buying something yourself, but I have looked and over the prior 1-2 years, there is just not much decent stock available (i don't like C or D class housing generally) that will pencil out to provide cash flow, due to the escalating prices and now it's even worse with higher debt costs. In strong/growing markets you could find decent rentals to buy a few years back, but now that is extremely difficult in the current environment.

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Robert D Dismukes
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Robert D Dismukes
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Replied Jun 10 2022, 15:41

@Chris C.I. The past 6 months , Ive done two syndications. $100,000 would bring you approximately $400 passively per month and roughly $50-60k in depreciation in the form of a K1 . I couldn’t be happier with mine . I am currently looking at joining two more with the same group . I also own 18 doors myself and one more in the pipeline. So I’m on both sides of the fence . Generally I say syndication, but do what works for you . ALWAYS do your on research !

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Joe Archbold
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Joe Archbold
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Replied Jun 11 2022, 06:29

Both a Syndication and an SFR can generate good cash flow. I issue I have with an SFR is your occupancy is either 0 or 100%. I have had too many conversations with investors that got hurt by a bad tenant in their SFR that really set them back.

I actively manage my own real estate made up of 3,4,and 5 unit multifamily units in my market. I also invest in syndications in high-growth markets with experts that can provide a good risk-adjusted return with no active involvement.

Both can be profitable. But for me hands down I would push into a deal with an expert and invest my time in other ways.

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Paul Moore
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Paul Moore
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Replied Aug 19 2022, 08:19

Hi @Chris C.! I am curious about where you landed on this question given all of the advice you got above. 

Think about it this way: smart investors demand a risk premium to invest in riskier assets. This means that they need to get a higher projected ROI when there is more risk involved, and sometimes much higher, if there is a lot of risk.

Money is just tokenized time. Your time is the basic element of your life. Even more than money is. If investors demand a risk premium for more financial risk, then you should demand a risk premium for more time invested as well. 

If you do a SFR you'll likely be spending a significant portion of time and effort and headache, in addition to the financial risks of vacancy, repairs, etc. I think you should demand a a significantly higher return than for a SFR property, or any property you are directly managing. Make sense?

So if for example, you can get a 12% total annual return for a syndication, in my opinion, as someone who has done both SFR and large syndications, I would want to get paid at least twice as much, 24% if I am managing it myself. Honestly, after doing both, I would need much, much more than that, but that's beside the point. Happy investing!

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Jim Pfeifer
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Jim Pfeifer
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Replied Aug 21 2022, 12:15
Quote from @Paul Moore:

Hi @Chris C.! I am curious about where you landed on this question given all of the advice you got above. 

Think about it this way: smart investors demand a risk premium to invest in riskier assets. This means that they need to get a higher projected ROI when there is more risk involved, and sometimes much higher, if there is a lot of risk.

Money is just tokenized time. Your time is the basic element of your life. Even more than money is. If investors demand a risk premium for more financial risk, then you should demand a risk premium for more time invested as well. 

If you do a SFR you'll likely be spending a significant portion of time and effort and headache, in addition to the financial risks of vacancy, repairs, etc. I think you should demand a a significantly higher return than for a SFR property, or any property you are directly managing. Make sense?

So if for example, you can get a 12% total annual return for a syndication, in my opinion, as someone who has done both SFR and large syndications, I would want to get paid at least twice as much, 24% if I am managing it myself. Honestly, after doing both, I would need much, much more than that, but that's beside the point. Happy investing!

 Well said @Paul Moore! I never thought of it that way, but you are completely correct in my view! Even if you could beat syndication returns by going the turnkey and/or SFR route - you will spend SO much more time doing it, that the returns don't justify the time. This perspective really gives some clarity to the common question of syndications vs. turnkey and active investing. Thanks for sharing!

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John Mazzella
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John Mazzella
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Replied Aug 21 2022, 19:02

@Chris C. I would go syndication, while you would own 100% of the single family house you will also have 100% of the headache for an investment that you would likely want to be passive. There is a significant amount more work: find a broker, find a lender, find a realtor, find a property manager and find a contractor. You not only need to find them but trust them and that takes time, all of this work can be done successfully and your return be low. This can be due to turnover and vacancy of the property because it is only 1 unit and 2 months of vacancy can wipe out your annual returns. For all of these reasons and the ease of syndication I would go with syndication. If you want to chat more I am always open to talking real estate.

Best,

John

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Seth Young
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Replied Aug 22 2022, 07:51

There are passive ways to invest into single family homes, check out turnkey real estate investments. I would say the pro's are tax benefits, easier to liquidate, residents paying down your mortgage and appreciation! 

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Ryan Kelly
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Replied Aug 22 2022, 08:00

@Chris C. the answer will be different for each investor. It also depends on the quality of the deal. There will be good and bad syndication deals, along with good and bad SFH deals. It always comes down to the deal and what you are looking for as an investor. I personally want a blend of both in my portfolio.

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Aj Parikh
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Replied Aug 22 2022, 08:13

Invest in Single Family homes in the mid west

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Chris Seveney
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Replied Aug 22 2022, 14:58

@Chris C.

Syndication - with $100k you would end up doing better in the long run I believe in a syndication as the property you acquire will most likely have little appreciation and the time and effort to find an asset, a team to manage it etc. Will at best maybe get you another point or two return which compared to the risk and time - not worth it.

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Brock Mogensen
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Replied Aug 22 2022, 18:27

Depends on what your long-term goal is in REI. If you want to build a passive portfolio, syndication makes more sense. Building a relationship and investing with a solid syndicator can be a great way to build wealth that requires less work then going out and finding your own deals and managing them.

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Billy Daniel
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Replied Aug 22 2022, 18:34

Personally, I would choose the SFH. Mostly because I have complete control and can do whatever I deem necessary whenever I need to do it!

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Allen Wu
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Allen Wu
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Replied Aug 22 2022, 21:34
Quote from @Chris C.:

If you had a good chunk of money to invest in today's market, would you invest in a multifamily syndication or a single family home?  Would you rather own 100% of a hard asset that requires more work, or a small chunk or a larger property with little to no work?

For simplicity, let's say it's $100,000.  What would you do?

Very hard to find cash flowing SFR based on my buy box, then again i only Buy in A and B areas. So for me, I’m looking more into syndications. Already have good amount in private Reit like fund Rise or realty mogul…. Though I still think direct SFR investment is better if you can make it cash flow.