Five Reasons Real Estate Syndications Out-Perform Rental Properties

You’ve probably heard that investing in real estate is one of the few sources of passive income that will generate true wealth.

I can attest to this being true. Since my wife and I started investing in real estate in 2012, we’ve been involved with deals ranging from actively investing in single-family fix and flip units to passively investing in assisted living, self-storage, flex office, retail and 350+ unit multifamily properties.

The advice most investors don’t tell you is the importance of choosing the right type of real estate investment. Pick the wrong strategy and you’ll end up even more burnt out than you are now in the corporate world.

Many people equate real estate investing with owning rental properties, but with those properties come landlord duties!

Even single-family units require time for repairs and dealing with tenants, toilets, trash and sometimes even termites! 

As a rental property owner, you’ll spend time finding the property, funding the deal, renovating the property, interviewing tenants, and even performing regular and unscheduled maintenance. 

The cycle starts over again with each new tenant and doesn’t stop until you sell the property. 

Even Multi-Family Rentals Create More Work

Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each. 

But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair, costs are still in your court. You’re running a small business, which can be challenging while working a full-time job.

You didn’t get into real estate to create more work for yourself. Instead, you invested in the desire to make more time for your family, friends, and legacy. 

The Case for Passive Real Estate Investments

On the flip side, there are entirely passive investments in commercial real estate. These are professionally managed and operated investments, so you don’t have to deal with any of the three scary T’s  – Tenants, Toilets, and Termites. 

According to Forbes, once investors start understanding the power of passive real estate syndications, many find it’s the ideal solution for their investing goals. 

These syndications involve less work and more options than rental properties. 

I’ve been involved with these group investments all across the US, and have become passionate about teaching the value and impact on using real estate syndications.

Here are five reasons syndications outperform rental units for investors looking for a strong ROI (Return On Investment) in both financial and time freedom. 

1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a real estate syndication, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the properties.

You won’t be fixing toilets, screening tenants, or handling maintenance. Instead, the sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.

2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets. 

Investing with experienced deal sponsors can allow you to diversify into various markets and asset classes. At the same time, rest assured, the professionals are taking care of business, allowing you to quickly and easily scale your portfolio while mitigating risk.

Real estate syndications allow you to invest across the country, across different properties, with minimal effort. 

3. Did You Say Tax Benefits?

Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. Allowing you to write off most of the quarterly payouts, meaning you get tax-free passive income throughout the holding period. Score!

You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property. (Always check with your CPA on your situation.)

You’ll also cut down on tax paperwork throughout the year since you won’t be dealing with all of the paperwork of multiple rentals. 

4. Limited Liability

When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $100,000, your most significant risk would be losing that $100,000. 

You wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk.

When you invest in rental properties, you have the constant risk of losing the property through fire or natural disasters and losing out on all the updates you have done to the property. 

5. Positive Impact

With personal investments, you make a difference in two to four families’ lives, which is terrific. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.

Each syndication creates a cleaner, safer, and friendlier place for people to live and impacts the community and the environment in a positive light, which is something you just can’t gain from stocks and mutual funds.

Investing in Real Estate Syndications is Investing in the Future

To decide, you’ll need to very clearly identify the lifestyle and personal freedom you want to create over the next 5-10 years. If you’re the handyman type and love being directly involved, you’ll probably enjoy managing rentals. There are plenty of people who retire from corporate life to own and manage rental properties and generate wealth through real estate that way. 

On the other hand, your vision might include spending more time with your family, taking that vacation you keep delaying, following a career that you’re passionate about, starting a new business or contributing back to society in a way that fulfills you. If that’s the case, investing in real estate syndications might be your best bet.

Real estate syndications offer diversification, built-in risk mitigation, and the opportunity to create a positive impact – for your family and for every person living in and around your investment property. They don’t require you to live locally and limit your liability more than small rentals. 

Before you make any serious money moves, let’s talk about the future financial picture and lifestyle you’re trying to create.