What Kind of investor is best suited for investing in apartment syndication? Why do you prefer or not prefer this over investing by oneself?
Assuming you're referring to investing in multifamily syndications on the GP side. If that's the case: key benefit is that you can take down a property worth (at least) 10x as much, and all the benefits that come along with multifamily (onsite property management, non-recourse debt, and, and, and, and, and... ).
Of course, passive investors (LPs) can invest in a syndication..... passively. If an investor is weighing LP investing in a sydncation vs. buying a small rental property (as an example), it comes down to personal time investment and the intended strategy for the capital. Example: we use property managers on our residential properties and it's still more work than the experience when we've invested as LPs in syndications.
Before even considering syndications versus another type of passive investing, one has to decide whether they can/want to be active or passive investor. This article will further explain it.
The next step (once you're set to be a passive investor), you continue with researching various types of passive investing to determine what works best for you. Here's an example of one of such comparisons of syndications versus something else.
Bottom line, syndication investing is perfect for someone who makes a lot more in a different capacity (successful business owner or highly paid professional), willing to give up the control over investment in exchange for passive income.
I have written on the pros and cons of syndication investing but it hasn't been posted on BP, so I cannot share the link. PM me if you'd like the info.
@Alina Trigub, very informative articles on apartment syndication. Thanks!
@Spencer Hilligoss, very good job explaining the value of syndication and how this may be beneficial to some investors.
@Bryan Mitchell, is all personal preference. There's 2 sides to this coin. The active side and the passive side. On the active side, the person must be willing to get their hands dirty and essentially learn every phase of the business they can. These individuals on the active side, usually have time working for them. These individuals are the ones leading the charge to compile opportunities to individuals who may not have the time.
If time is a hindrance, investing passively in these deals may be the way to go. Leveraging others time that you don't have can be beneficial to both parties. If you don't want to deal with the headaches of running the day to day operations then being passive is the way to go
@Tj Hines, your response was both clear and concise. High income earners looking to invest in real estate makes sense. For those individuals who have the time and the knowledge and enjoy the hands on approach, may be better suited to invest actively.
Now it does not have to be one or the other. There are many active investors, including myself that also invest passively. If you have an IRA, there are rules regulating self-dealing in a deal that you control. Diversification is also a great reason to do both.
@Jeff Greenberg, yes and thanks for adding to the conversation. Self directed IRAs have some very specific rules. I think that you can use these in both an active and passive manner. I do like the options on these.
Apartment Syndication, by its nature, includes a lot of zeros. As a result, there are many attributes necessary to be a successful syndicator:
- Be a team player: You will inevitably need to build a team in the front end and not on-the-fly as you could with, say, flipping or buy and hold.
- Be willing to complement your skill void: Of course, you wouldn't want to be a Value-Leech by asking so many questions from everyone and not providing back. So, a good way is to find a great partner who can complement some skills you are lacking.
- Be a top-level thinker and can also think of the details: The complexities surrounding apartment syndications vary from ensuring you get the best loan product to what cap you want at the exit of a deal
- Be willing and able to responsibly steward other peoples' capital: Undoubtedly, Capital Preservation should be the number 1 goal as a syndicator. Some people are very uncomfortable deploying other peoples' money[OPM] in deals and they may even have sleepless nights.
To conclude, Apartment Syndication requires a list of certain skills, and the above is by no means an exhaustive list.
Whatever the case may be, investors can always start as a passive investor to learn and earn OR align themselves with a syndicator.
My $0.02 🤗
It all comes down to your this:
- How much do you have?
- Do you love your current day job?
- What are your other passions?
- Do you currently invest in real estate and are you active?
- If yes, do you like all that comes with actively managing your portfolio?
- How hands off do you want to be?
There are a few other ones but start with those and define what that is to you. Investing passively frees you up to do what you love all while your capital is working and sweating for you. Hope this helps.
Passivity is the big benefit.
Some people have low opportunity cost. Normal hourly wage job, small town: You mine as well do something better and manage the properties yourself.
Other professionals (lawyers, doctors, engineers, executives) that make a solid living would have to achieve a very large scale before making up for that loss of opportunity. In this case you outsource the work and a syndicator takes their cut. It's still a great deal for you. You get exposure to an asset class and keep your profession humming along.
This is the way I think people should evaluate the question of how to jump into different kinds of investments. Granted, some people have real estate in their bones. For them, the life change may be worth the short-term cost. For me, this is a great investment vehicle, but ultimately a means to an end.
@John Fortes, great questions to ask oneself. It sounds like you have spent some time thinking about this. I think it’s very important to consider all types of real estate. This is not to experiment with but to best understand what fits your interests.
@Trevor Ewen, you’ve clearly articulated some reasons why investing in syndication. I also think Joe Fairless does a great job explaining it. One individual could make more money in their own deal but the risks are higher. https://youtu.be/pKEwozqoe9w
Here's a blog on top 5 reasons to consider passive investing over active for most investors who appreciate real estate but just don't have the time, interest or skills to find / manage actively. Additionally, a hybrid approach is certainly fine and sometimes overlooked. We may want some active positions so we can gain some experiences, have more control with properties close to home. But for a large % of investors, to really diversify into some of the top commercial real estate niches, take advantage of different growth markets around the country and with operators who are totally focused on this as a business, it makes sense to me that syndications and passive positions are excellent opportunities for achieving your goals.
@David Thompson, thank you for sharing. I also like the live in flip. We’re currently doing our first one now. We returned from Europe last year and reoccupied our previous rental. My job requires me to move every two years and luckily we’re able to return to a previous duty station, move in and rehab this house which was a foreclosure back in 2012.
@David Thompson, I like the conclusion: Controlling more of their time, capital and reducing risk to generate passive income and financial freedom to ultimately live life on your terms. As I retire in 2022 from the military, I’ll be making the decision to start a new career at the ripe age of 51 or becoming far more of an active investor of my current portfolio. I’ll admit that if I did “passively” invest in a syndication, I’d be the most active of the investors and everything I could. Who knows how I could benefit from knowledge and connections while semi-passively involved in a syndication.
@Bryan Mitchell , Are you interested in syndication or being an investor in a syndication. I put together syndication deals all the time.
@Alvin Hope Johnson, I'm considering both. If I need participate in a syndication I'd be more involved than most. I would personally invest, but my LLC would. We need no less than 8% NET return of our initial investment and we'd like a piece of the equity as well.
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@Bryan Mitchell, we have a track record of producing upwards of 20% ROI to our investors. Let me know when you're ready and we'll walk you through a deal with appraisals, loan commitments, closing docs, settlement statements, investor K1's and copies of checks to substantiate what I'm saying.
We do good while doing good.