Duplex vs RE syndication investment
Riverside, CA · Member since 2015 · 13 posts · 4 votes
Duplex vs RE syndication investment
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesI don't think you should do either at this point.
It sounds like you haven't defined a "deal that works" or looked at enough creative options in California yet.
And, my sense from your post, is that you are looking at a single RE syndication.
What I'd do is the following:
- Analyze/Look at 25+ (100 is world-class) Duplexes, Triplexes, and Quadplexes over Q1.
- Analyze/Attend Pitches for 25+ (100 is also world-class) syndications in Q2.
In six months, you will have done more research than most on these two alternatives, and you will have your answer.
Right now, with how you framed the question, I worry, frankly, that you are susceptible to the sales pitch of this or any syndicator. Every syndicator promises 15-20% IRR or similar. Go view a bunch of pitches and see for yourself. It's a sales pitch to get your money. Some will earn those returns. Others won't. Nothing wrong with the sales pitch. It's just that you should know that it is one, and see a bunch of them before handing over your money.
Your duplex, too could earn an 18% IRR. In fact, if appreciation is just 4-5% per year over the next two years, it almost certainly will.
That's almost certainly what your syndicator is assuming - 4-5% rent growth/ NOI growth per year, levered to the the max, and/or cap rate compression (which is the same as appreciation in your duplex world).
The difference is that your duplex, you can just hold for 30 years on that nice fixed rate mortgage if the market is soft next year. You can manage it yourself if things get tough, or fix things up to save money. Once your money is with the syndicator, it's no longer your control. That's the blessing, and the curse, of investing with syndicators, and why I invest far, far more in properties I own directly than in syndications.
43 Replies
- Real Estate Agent · Member since 2023 · 92 posts · 80 votes2y
If a syndication actually yielded 18% per year. All of us would be in. The reason why we aren't is because well...
- 2yNate MeekerBusiness MemberReal Estate CPA | California · Member since 2020 · 544 posts · 251 votes
@Kareena Sharma - I would rather be in control. If you don't have time though, syndications are great. Just be sure to read ALL of the fine print in the operating agreement. Sometimes the benefits aren't as great as they market.
The CPA Realtor 573 Reviews - Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes2y
syndication... obviously the lesson learned is invest with the right people and in every investment there is risk.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Nate Meeker:
@Kareena Sharma - I would rather be in control. If you don't have time though, syndications are great. Just be sure to read ALL of the fine print in the operating agreement. Sometimes the benefits aren't as great as they market.
True , this is the most important thing ….
nowadays I see so many GP fund collapsing due to interest contraction hence they stopped distribution or issue capital call…. I honestly feeling very bad for LP that invest in such project/fund as making good amount of return is actually easy in residential duplex…. But since there is myth there that syndication is passive well then LoL … btw if you want to invest at syndication that has no correlation to economy try some alt class like litigation finance or life insurance.
- 2yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Kareena Sharma:
Would you rather invest in duplex in CA that breaks even or invest in RE syndication for 2 years that offers you expected 18% annually
Example: Duplex in CA costs around $600k, down payment $120k, rent = mortgage payment+real estate tax + insurance (if interest drops by 1%, then expected cash flow could be $200-$300 per month)
RE syndication is offering 18%, in 2 years, I can expect to make $43,200 without lifting a finger..
The numbers are favoring more towards RE syndication, in the past I have only done rentals never invested in RE syndication. In my analysis, with previous rentals purchased in CA, I have made same amount as RE syndication when I factor in appreciation. However, with current market scenario, I am factoring $0 for appreciation.
I have seven figures invested in both directly owned real estate and passive investments (i.e. syndication/crowdfunding). And I think neither is 100% superior to the other and both have their pros and cons. So that's why I want both in my diversified portfolio.
To answer your question:
1) Personally I wouldn't touch the duplex at breakeven. I could put my money into treasury bills (which are about as risk-free as an investor can do) and get around 5% for year (and completely passive). And then after a year, either re-up (if I like the rates) or put it into something else...and it would likely still end up with a much better return. So if a direct investment can't beat that (to compensate for the extra risk and lots of additional hassles)...then I don't invest.
2) 18% return on a passive investment in the current market would mean taking on a lot more risk then I would ever be comfortable doing. Personally I avoid those deals and look for passive investments that are more conservatively structured (i.e. Low leverage, a sponsor that has lost little to no money in past real estate downturns, high coinvestment, etc.). And that's because one loss on a bad deal can wipe out all my gains on many good deals. So I feel it's better to be boring/conservative.
Good luck!
The Real Estate Crowdfunding Review - Member since 2024 · 7 posts · 1 vote2y
Just another opinion: I won't cede control in anything. The numbers are NEVER the numbers, they are a sales pitch to get your cash into the deal for them to control now and for the next deal. and ...B... why a duplex? and for goodness sakes, why in CA (4 cap?)? please shop deals nationwide with 600K down you are thinking micro small{.} you can get a 2mil value 10-12+plex in the right area {.......}, or a NNN commercial property for 1.8 that returns 5.5 cap with no effort. I put 600k (2.6m) down on 50 units in East OR. Manager gets free rent period, then sold for 3.9 in 4 years. I don't live on IRR or even GRM, I live on T12/IE report, Mortgage terms ....Area reports and instincts which have never failed me.
- Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 938 votes2y
Syndication deals always us the "up to" phrase in describing returns, such as "up to 18%". They could say, "up to 33%." I bought one of them! We almost have our principal back years after the deal was supposed to have been closed. I also bought into 2 hotel deals and lost everything when COVID hit. They were going south before COVID and the shutdown finished them off. I had another that was -85% due to fraud. You would definitely not want to take my advice on which syndications to invest in, but consider the experience as every one of these investments was pitched as the G.O.A.T. investment just like I suspect you are hearing.
The point about ROI claims is 5%, 0% even -100% fits that "up to" definition. They are literally telling you nothing and further disclaim it in the fine print saying as much.
I would keep looking for the direct real estate investment and maybe pass on that duplex. Go to some local RE meetups. You may find better deals there or someone local you can invest with.
- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes2y
We have been seeking more a more passive income stream for the last couple years and are planning to unwind (sell) our portfolio of single family rentals. (and we have one duplex). All of our properties cash flow well and it doesn't make financial sense to sell them but we want a lifestyle change. We are invested in 3 multi family syndications and 2 multi family funds (the fund is nearly the same as a syndication but includes multiple properties.) Three out of three of the syndications stopped distributions "paused" in their terms. 1 of the funds "paused" distributions. (only one fund hasn't interrupted the distributions). Those were all due to the unforeseen and rapid rise in interest rates. So while our syndications are going down in flames (well, more of an engine out) we are currently investing in a new fund and are still convinced this is a viable investing plan.
- Investor · Detroit, MI · Member since 2022 · 9 posts · 2 votes2y
the dilemma: do you want to try to get capital appreciation, or cash flow?
steps to decide:
1-flush out the cash flows & sales proceeds of both scenarios, discount them based on what % of the return is likely to be realized vs "optimistic"
2-find a delta in the cash flow of the risk-adjusted outcomes (pretend these are your most-likely outcomes)
3-determine your time investment on the self-managed opportunity
4-divide line item 2 by line item 3 and compare against how much income per year / hour your time is roughly worth
5-if this figure is less than your desired income, avoid the time commitment investment; and if the figure is more than your income, buy the time commitment if you're wiling to do it. If they're about the same - ask yourself: Do i want to work more hours without paying myself overtime?
If you understand the tax implications of these decisions and are comfortable penning out your hold period scenarios for each, that will give you the best answer. Before you start, make sure you understand your tax benefits in the syndication.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
As someone who is in 8 syndications right now, I can say doing due diligence on the project and the operator is a full time job in itself. I would highly recommend just doing it yourself with a smaller property to start.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes2y
I would not touch a property that doesn't cash flow, unless there is significant value add in order for it to cash flow quickly. The duplex scenario you are hoping to break even and praying for appreciation. If the syndication has a well thought out business plan, with a successful sponsor, using good debt and in a good market, then I would say that is a superior investment.
- Investor · Batavia, IL · Member since 2014 · 102 posts · 81 votes2y
These are apples and oranges- Yes both real estate, but with significant differences.
Some questions?
What's the likelihood that the CA duplex increases in value organically? I assume you will self-manage? Purely buy and hold.
In these uncertain times, why wouldn't you consider a preferred position with the syndicator? Sure, over the last several years, there was an unforeseen interest rate climb that hurt many very good operators, and LPs are upset. The market can move in three directions: up, down, or sideways. Where are rates in the cycle? Of the bad deals out there, I wonder how many deals went bad solely due to interest rates.
What about diversification? How much other real estate do you own as an asset? Syndication provides a window into other markets, different asset classes, and a completely different strategy.
Lastely, whats your time worth? Yes there is a lot of front end due diligence work to invest via syndication but they aren't going to call you in the middle of the night to resolve a leak, tenant issue, fire, or eviction.
Already, good operators are buying broken deals at very smart levels, if their track record proves their worth, leveraging their expertise is what you are investing in.
How about stretching and doing both? Theres no right answer its all about taking action. - Member since 2024 · 7 posts · 1 vote2y
Quote from @John Teachout:
We have been seeking more a more passive income stream for the last couple years and are planning to unwind (sell) our portfolio of single family rentals. (and we have one duplex). All of our properties cash flow well and it doesn't make financial sense to sell them but we want a lifestyle change. We are invested in 3 multi family syndications and 2 multi family funds (the fund is nearly the same as a syndication but includes multiple properties.) Three out of three of the syndications stopped distributions "paused" in their terms. 1 of the funds "paused" distributions. (only one fund hasn't interrupted the distributions). Those were all due to the unforeseen and rapid rise in interest rates. So while our syndications are going down in flames (well, more of an engine out) we are currently investing in a new fund and are still convinced this is a viable investing plan.
- Member since 2024 · 7 posts · 1 vote2y
Many multifamily investors plan to shift to passive income assets as they age (my plan). Consider shifting to retail NNN (fully passive) investments (7-11, Burger King etc.) once you can put large enough down to enjoy the income. Its 1099 so you do nothing, however, you will be realizing lower income. This can be balanced out with the value of the lease (i.e. 5 year bumps) and great depreciation. This should be flipped every 4/5 years for best results until you are at Walmart or CVS level 20+ year investment. I have had many MF and NNN properties over 20 + years and can help if anyone is looking or wants to see the numbers.
- 2yJamie DietzBusiness MemberLender · Pittsburgh, PA · Member since 2015 · 176 posts · 90 votes
Your question outlines the two extremes of cash flow vs appreciation. I personally would look for different options in the middle that have both cash flow and appreciation potential. For example, you can find duplexes in my town (Pittsburgh) that cash flow and appreciate over time. If you want Passive income without giving up total control consider a partnership or private lending.
Next Door Capital515 Reviews - Member since 2020 · 217 posts · 167 votes2yReally need more info, BUT if you had to make a choice, go back a read Scott Trench's comment. Spot on.
Personally, I'd do neither, but if forced to, absolutely the Duplex. I don't do syndications where I don't own them. And by the comments here, they look pretty risky.
If you're buying rental real estate, buy right, below market or with excellent terms (like zero percent interest). By good property, and duplexes are generally NOT good, and do not attract good tenants. The BIGGEST goal in rentals is to attract GOOD tenants, and that almost always means single family homes.
Do more research, learn from others, take some seminars on investing, especially in single family. - 2yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Kareena Sharma:
Would you rather invest in duplex in CA that breaks even or invest in RE syndication for 2 years that offers you expected 18% annually
Example: Duplex in CA costs around $600k, down payment $120k, rent = mortgage payment+real estate tax + insurance (if interest drops by 1%, then expected cash flow could be $200-$300 per month)
RE syndication is offering 18%, in 2 years, I can expect to make $43,200 without lifting a finger..
The numbers are favoring more towards RE syndication, in the past I have only done rentals never invested in RE syndication. In my analysis, with previous rentals purchased in CA, I have made same amount as RE syndication when I factor in appreciation. However, with current market scenario, I am factoring $0 for appreciation.
Every investor has a different risk tolerance, financial situation and set of financial goals. So what's right for one will be terrible for another and vice versa.
I'm a conservative investor so do things very differently than someone with a different mind-set. And personally, I would shoot down both deals.
1) Duplex that's breaking even: Interest rates could drop in value and bail this investment out. Or they could stay the way they are for a lot longer than expected and cause a lot of work and effort for no profit (which is a loss after considering all costs). Or they could go up and cause more profitability issues (especially if this is floating rate). And I prefer investments that have a cushion for things that might go wrong (and this doesn't). So this would be an easy "no way" for me.
2) Syndication: You didn't say what this particular syndication was investing in. And there is a wide spectrum of syndication strategies that span a wide spectrum of risk versus reward. And generally, no sophisticated investor would make a go/no go decision based just on the return (and without knowing enough to closely examine the risk as well). Having said that, 19% in two years is extraordinarily high in today's markets in most asset classes. And higher projected returns usually come with higher risk. So based just on the information presented this would also be a "no" for me.The Real Estate Crowdfunding Review - 2yKonstantin GinzburgPro MemberMember since 2021 · 376 posts · 242 votes
This is more of a personal choice that depends on what your personal goals are and how much effort you want to put into the venture. In addition, it will depend on how much control you are willing to give up for the venture. A syndication will give you a good return on your investment and allow this to occur without you needing to put in any actual work. However in many instances, the total return on investment within a syndication will not be as high as a well managed property that is purchased at the correct price. In addition, you will also not have any control over when you realize the full return on your investment. The syndication will be controlled by a managing partner or votes from all partners. This means they will be the deciding the factor on when/if you sell. That 18% ROI is likely an advertising figure with the assumption of a sale in 2 year. Unless that sale is stated in the contract, this may not occur. A syndication can still be the better option for you, as long as you are aware of these factors going into the deal.
If you prefer a higher rate of return on your investment as well as retaining control over the investment and operations, then purchasing your own property is likely a better option. This is assuming you are willing to put in the work that would be required for this. This work includes not only managing the property after purchase but also putting in the work and time to ensure you find a property where the numbers make sense.
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