Buy a Building or Invest in Real Estate with a Group? Key Distinctions All Investors Should Know

Individual investors have more opportunities to participate in real estate investment than ever before.

These expanded opportunities have come about as a result of investors increasingly recognizing the benefits of investing in real estate—most notably, portfolio diversification, greater control over the asset, and access to a significantly more stable and generally less risky investment category than stocks or bonds.

Two of the most popular ways for individuals to invest in real estate are buying a building individually or investing in real estate with a group, often called investing in a syndication. Syndicated group investments are sourced and structured by a professional real estate investment manager, often called a “sponsor,” who arranges the purchase and financing of the property, manages the day-to-day operations of the investment and is in charge of maximizing the return for investors in the deal.

For the purposes of this article, we will be discussing direct investments individually and investing in a syndication with a group of investors and a professional real estate investment manager.

There are several key differences between how purchasing a building independently and investing with a group works. Understanding these differences can help people decide which type of real estate investment is likely to bring them closer to their wealth-preservation and growth goals.

Here are some of the key distinctions between buying a building and investing in real estate with a group.

Investing Alone vs. Investing in a Syndication

1. Access to a professional third-party manager

An investor who buys a building as an individual is tasked with handling all asset management responsibilities on their own. This means sourcing the property, executing proper due diligence to ensure it is a sound investment, placing a bid, negotiating on price, and deciding when to buy or sell that property. This can be a daunting and time-consuming process, especially for those new to real estate investment.

Conversely, investing in real estate in a group affords buyers access to a third-party manager whose job is to shoulder all these responsibilities and to guide investor capital toward profitable real estate investments that match with their risk profile. This takes a considerable amount of the burden of real estate investment and ownership away from the individual buyer and puts it in the hands of an experienced professional who is accountable for these investment decisions.

Related: Here’s Why You Should Partner with a Co-Investing Manager

Direct investment platforms that provide access to a menu of third-party real estate investment managers give investors a distinct advantage over buying a building individually when it comes to maximizing ROI.

2. Ability to scale up investments

Buying a building individually limits both the number of properties available for purchase and the investor’s ability to manage investments.

Not all buildings that are up for sale are advertised as such or available to individual buyers. Often, sellers rely on specific sales channels or groups to bid on their properties because they can count on these entities to yield qualified buyers with the ability to source the debt and equity required for these purchases so as to ensure that deals will close.

Also, for the reasons mentioned earlier, there are only so many properties an individual investor can manage independently—and manage well.

Syndicated investing, on the other hand, provides investors with the ability to scale up their investment reach by leveraging other managers’ expertise in both acquiring and managing real estate.

Increasing investment scale gives investors the opportunity for greater wealth creation, which can accelerate progress toward their overall investment goals.

3. Property management options

Every commercial building requires property management to properly maintain the building and tend to the needs of its tenants. Individual building owners can either handle property management on their own or hire a property manager to do it for them. Since managing a building may be a 24-hour job that can be quite labor intensive, many choose the latter option.

Building buyers who opt to use a third-party manager are faced with challenges that are quite different than those who invest in real estate in a group with a qualified investment manager. Initially, they must hire the right manager or company for their particular property, which requires significant due diligence and research.

They must also have some understanding of what property management entails and what can be expected of a building manager and have a system in place to ensure the manager is meeting those expectations. In the end, the ultimate responsibility of property management falls on the building owner.

Related: Due Diligence: What Every Asset Requires Prior to Purchase

When investing in real estate in a group, the issue of property and asset management is very different. Group-purchased assets are typically overseen by an asset or investment manager who is vested in the financial success of the property and either manages the property or hires and oversees a property manager or management company.

Investing with a group often provides the investor with the benefit of being removed from day-to-day property management tasks and responsibilities.

Good property and asset management is intrinsically tied to success in real estate investments. The ability to share or reassign this responsibility is one of the many benefits of investing in a group.

Buying a building and investing in real estate in a group are two vastly different experiences. Understanding the key distinctions between the two types of investment can help investors find the right strategy for wealth creation and preservation in what has been a stable and robust sector of the investment landscape.

What other questions do you have about buying a building and/or investing in real estate with a group?

Let’s talk in the comment section below.