Real estate syndication Vs S&P 500 index fund

[Sanjay Bhagat]

I have a dilemma. This is my first post in Bigger pockets.

S&P 500 index fund has given a historical AAR (Average Annual Return) of 10 % in the last 60 years and 14.5% AAR in the last 15 years as of today. The AAR does NOT include dividends. With margin trading of 20-25% of initial investment, when stocks market collapses with dollar cost averaging as a strategy  , leverage of the initial investment in stocks, the AAR can be more.comparable to most syndication (compared to 20% down payment in real estate).

I have been following BP forums for the last 4-5 months and have spent almost 4-500 hours. Most syndicate offer 20%. I have never invested in syndication.

I understand diversification in different asset class (precious metals, real estate stocks etc). But if AAR is important and someone is starting out. why syndication is better than real estate for the next 10 years? My risk appetite is 80%. I do understant the team risk, market risk and deal risk in syndication as Scott in his podcast said.

Thank you for your insights

Sanjay

[Henry Clark]

Both of your invest strategies above I don’t consider as RE investment.  An investment forum would be better for this post.

With that said let’s look at these two but also let’s look at Risk adjusted.  Find your own figures.

A.  S&P 500 is at a PE ratio of 30.  Price to earnings.  An example. A $300 investment would make $10 earnings per year.  Before personal taxes.  That’s roughly a 3% return.  
No investor would make that investment even before adjusting for risk.  Most commercial investors are looking for a 6 to 10% cap rate return.  

Take the top 5 stocks in the S&P out of the equation and see what the P/E ratio is.  A lot worse.  

But hey, money is pouring into the US stock market from all over the world. Smart people they have to be right.   .    
    
B.  RE syndications.  You said you have been reading several hundred hours of BP posts.  By now you have read all of the Syndication failure issues.  You should have boiled them down to the following lack of proper due diligence.

 1.  Short term debt used in longer term investment time frame.  They got caught short with the recent rate increases.  Investors already learned this lesson about 15 years ago with housing.
 There is a rule.  Intelligent people learn from other people’s mistakes. Smart people learn from their own mistakes.   Dumb people keep making the same mistake.  This was a very simple due diligence item that was missed by many people. 

2.  Bankrupt brand names, Broadway shows, crypto investments.  These investors didn’t risk adjust these syndication investments.  

These investors were looking for Passive income, but they didn’t realize they had to fill the role as an Investment banker and they didn’t have the skill set or systems to do that.   Are you an Investment banker? 

If you're looking for an REI strategy state your financial objectives, resources and time frame and ask for suggestions.