First investment, syndication or invest on my first house hack?

Question

I'm very new to investing and have never owned a property. My husband and I are working on educating ourselves and saving at least 20% for our down payment. Ultimate goal is to house hack a duplex as our first property then keep investing in small multifamily. We also know some people that we trust that have their own investment company and do syndications on large multifamily properties, minimum 50K to invest with them. My husband and I don't know if we should put our first 50K in the syndication or just find our own property or vice versa.

Thank you in advance.

Scott E. · Answer

My opinion is that investing in a syndication is not a good plan for somebody who has never owned a property.

Syndications are a great way for investors to own parts of big real estate deals passively, but you should have a pretty deep understanding of how to underwrite a deal before you put so much of your hard earned money into somebody else's complex investment.

If you can find a duplex to house hack, that is a perfect first investment. If will expose you to the process of making offers, working with agents, dealing with all of the paperwork, underwriting deals, screening tenants, property management, etc.

Paul Moore · Answer

Hi @Melissa Deacon! My thoughts might differ from some of my friends above.

I would ask what your goal is. I've been an entrepreneur and investor since I left Ford Motor Company 29 years ago. One thing I've learned is the power of focus. The power to create wealth and enjoy life by laser focusing strategically and staying in my lane. I've chased a lot of shiny objects over the years and it usually did not create the wealth or enjoyment I expected. Since then I've learned to say no to a lot of side hustles, and say yes to doing one thing really well. This is what I recommend.

So if your goal is to be a full time, active real estate investor, I recommend you start with a house hack. Or something like that. But if your goal is to focus on a different career, a family, and/or a dozen other things...not full time real estate investing...hands-down I would recommend you start investing in syndications and passive real estate opportunities. Let someone else be the expert and carry the heavy load and take the risk and sign their name on the deck. You are in the right place to get answers. Good luck and happy investing!

Brandon Rush · Answer

Hey Melissa,

As @Nathan G. mentioned, I also believe it is best that you start on your own and go from there. There are many lessons to learn from owning properties yourself. You will learn various aspect of investing such as landlording, property management, taxes, vendor management, systems and so much more. From this experience, you will learn what your strengths, weaknesses, what you enjoy and what you hate. Also, if you ever did decide to invest in a syndication, you will have a better understanding of what you are investing in as you have some general experience.

I took the same route starting out and happy I did. I acquired three properties and then invested in my first syndication. I learned a lot from my three properties and it may it much easier for me to understand what was going on in the fund I was investing in. Also, while investing in those properties, I learned so much about myself I did not know before such as I am not a fan of interfacing with tenants, I am not handy, and I really enjoy using property managers lol.

Good luck on your journey!

Brock Mogensen · Answer

It depends what your long term goals are.

Are you trying to build a passive or active portfolio?

Investing in syndications as an LP is a true form of passive investing.

But if you are looking to be more active in your portfolio, I suggest going the house hack route.

Todd Dexheimer · Answer

I would say half of my investors have never owned a property before (besides their house) and they have no desire to become a landlord. I agree with your points on underwriting and understanding how the investment works, but the number one rule for passive investors is to vet the sponsor and team, then vet the location, then vet the business plan and asset and then vet the underwriting.

Having investors with first hand experience with rental homes or their own business does make it nice, but not a requirement

Ash Hegde · Answer

Agree with Scott. Your goal seems to be to have your own properties so it would be best to get going on that goal with a house hack as planned. Later on in your investing career a passive position with a syndication could be a compliment.

Nathan Gesner · Answer

I think it's best to invest on your own. You may discover a new passion. You may learn it's not for you. Either way, you will eventually learn what a good investment looks like and what kind of return you can expect. then you can decide to continue growing or invest in syndication or some other route.

Ben V. · Answer

There is no greater teacher than experience. You wont get much of that with a syndication. Buy your own home, house hack, do repairs, manage tenets, pay your taxes, ensure escrow is correct, meet agents of all sorts, GET INTO THE GAME! It's fun and you will learn a whole heck of a lot more doing it yourself. After that, the world is your oyster :)

Cheers!

Scott E. · Answer

You make a good point. But investing in a syndication responsibly requires you to have some understanding of how a real estate transaction works, how to underwrite deals, how to run comps, understanding a pro-forma, etc. Buying a duplex won't give you all of the education needed to invest in a syndication, but it will give you some solid, relatable, real-life experience. Referring back to the original post, we're talking about somebody who has never owned a property before.

Todd Dexheimer · Answer

If the ultimate goal is to house hack and invest in small MF, then that is what you should do.

My question is, what are you trying to accomplish? Is it time freedom? Financial freedom? Quitting your job, setting yourself up for financial success? Do you want to do it full time? Do you like your job and want to do this on the side?

Passive investing is great for the busy professional, who has a good income and wants to grow their passive income and set themselves up for financial freedom or someone that wants more time freedom. Active investing is good for someone that wants to create a new job and run a business.

First investment, syndication or invest on my first house hack?

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