Syndication (Passive Investing) vs. Buy & Hold (Active Investing)
Rental Property Investor · Cleveland, OH · Member since 2013 · 85 posts · 146 votes
Syndication (Passive Investing) vs. Buy & Hold (Active Investing)
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@Marko Zlatic for the busy professional who makes plenty of money but looking for passive income, investing in a syndication is going to be the more/almost entirely passive choice. In addition, if you do your homework you can invest with some of the sharpest and most experienced investors alive who eat, breathe, sleep & live RE investing. You can often achieve 8-12% CoC with an IRR of 20% as a passive investor in value add deals. Once you vet the sponsor (arguably the most important) and the deal (secondary) and invest, it's virtually 100% passive after that. FYI, many people also like to invest in NNN commercial RE so include that possibility in your due diligence. It's also a very passive investing vehicle.
@Joel Owens can speak to commercial NNN investing if you have any questions.
13 Replies
@Marko Zlatic for the busy professional who makes plenty of money but looking for passive income, investing in a syndication is going to be the more/almost entirely passive choice. In addition, if you do your homework you can invest with some of the sharpest and most experienced investors alive who eat, breathe, sleep & live RE investing. You can often achieve 8-12% CoC with an IRR of 20% as a passive investor in value add deals. Once you vet the sponsor (arguably the most important) and the deal (secondary) and invest, it's virtually 100% passive after that. FYI, many people also like to invest in NNN commercial RE so include that possibility in your due diligence. It's also a very passive investing vehicle.
@Joel Owens can speak to commercial NNN investing if you have any questions.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes7y
Hi Marko,
I am a commercial principal broker and a NNN syndicator sponsor.
Most investors once their net worth and cash postions go up they exit the residential space (larger multifamily buildings excluded). The main reason is scale and time. Simply the cost to maintain a spread out portfolio of lots of small properties isn't very efficient. When people's net worth goes up they want to lose the headache factor and can take less yield for being more passive.
If a investor is doing a 1031 exchange then typically they have to qualify for a DST or TIC type model. A lot of friends of mine who are also sponsors stay away from the TIC or DST model as the headache is not worth the return or restrictions to them. Where it can make sense is the investment capital available.
If someone is on a 1031 exchange and they have 250,000 and have no more money to put in then that would put them buying directly a 700,000 NNN property. Simply there is nothing good in that price range for areas. In that situation they might be better suited for the DST owning a smaller slice of a larger quality asset.
Now if they have 600k and up to put down then there is usually some quality passive NNN properties in urban core to strong suburban areas for high 1's to 2 plus million in price or more.
Everything is situational.
For syndicated deals you share the return with the sponsor and do not have control like with owning a property directly. There are pluses and minuses to everything. Typically you are not getting higher than 7 to 8% preferred return on syndicated deals and if value add that pref is usually delayed for the first few years while the property is stabilized. On value add the IRR overall over time tends to be stronger. The syndicated deals already stabilized there is not much extra equity there so really just getting the cash flow and after resale costs in so many years might get a little but not much extra.
I don't like those deals as a sponsor because I do not make hardly anything. I like value add where I make a big equity gain on the back end.
I have investors with 1 million to 100 million or so net worth . Some like STNL and some like MTNL at various levels.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes7y
Depends on where we are in the cycle. At this point in the cycle, it's imperative to have hundreds of opportunities flowing through the pipeline. So, some of us prefer passive investing with others who have full time staff dedicated to deal flow. At other points in the cycle, we prefer to buy direct and earn the full value add. We can't dictate market conditions but we can pivot with the market.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes7y
Originally posted by @Marko Zlatic:
I searched the forums and couldn't really find a thread that covered this topic. I am someone who has a lot of plates spinning in the air between YouTube, Podcasting, and working a full time W2. My time is limited, and my upside with YouTube is MUCH higher than any single family rental can give me.
My question is this...
- Do you prefer to invest as a Limited Partner in a syndication? - i.e. - big multifamily / self storage deals
- Do you prefer to actively invest as a Buy & Hold landlord? - i.e. - running your own portfolio of rentals
Just wanted to get some perspective on this. Thanks
YouTube income can go away in a heart beat as witnessed by many people who have been shut down and shadow banned recently. I would continue doing YouTube but I wouldn't count on it for the long term.
Limited time = Syndication, not running your own portfolio of rentals
Sounds like you enjoy multitasking but are not particularly in to details (clogged toilets, broken water heaters, tenant issues). Syndication frees you from all of that.
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes7y
@Marko Zlatic As a syndicator in the apartment syndication space, I can categorically say that, from a busy professional's perspective, Passive Investing beats Active Investing hands down for a couple of reasons:
- If you are doing something you are (it seems like) already passionate about (YouTube), I'd say get better at learning that craft and parlay that capital into a passive play
- Real Estate has been proven to be a steady wealth creator in this country.
For someone who is already busy, passive investing is a no brainer. Syndication is a complex business with a ton of moving parts!
- 7yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Marko, I do both passive investments through syndication/crowdfunding and directly owner/active investments single-family residential homes.
In my opinion neither is superior to the other and each has their strengths and weaknesses. I feel both belong in a diversified portfolio.
The direct real estate/active has the advantage of being able to fully control it and set up the parameters of investing exactly how you want to. For example, if you want to be really conservative and purchase some of your properties with no debt, you’re unlikely to find a passive investment that way, but doing it yourself you can set it up however you want. Also, if you are time rich and money poor, this is a way that you can build sweat equity and increase your net worth faster than passive.
On the other hand it requires a lot of work, a lot of education and knowledge. And if you are new, you are susceptible to making mistakes that could be very expensive.
The advantage of passive investing is that if you do it well, you can hire a sponsor that has years more experience than you can ever hope to acquire. Also, you can put the same amount of money into multiple syndications and end up with a much more diversified portfolio than owning directly. And you can also get into investment classes that generally are too expensive to own directly on your own for many people such as large multi family, office, net lease, etc.
The disadvantage is that you have to be able to vet the sponsor and feel comfortable turning over complete control to them. If you can’t do that, then it’s probably not a fit for you.
The Real Estate Crowdfunding Review - Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes7y
I actually don't consider comparing syndications to 'landlording' apples to apples at all. Sure they both own real property, but one you have no control and no say and no leverage. The top 3 reasons to actively own, making them very different.
Whether to invest in syndications or not should be compared to other passive investment classes like stocks, mutual funds or REITs. That's how I look at it. A diversified portfolio can have all of these, but owning RE is completely different than buying a tiny slice of a syndication for however long and hoping for the best.
If going to be truly idle, consider syndications against tradeable & liquid equity investments. Measure the cost/benefit of the fees and illiquidity and being able to control better your entry and exit prices with limits and stops vs the potential upside and tax benefits of a syndication.
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes7y
While what others prefer may give you some guidance, it is ultimately your choice whether to be active or passive investor.
As @Ian Ippolito you can do both. Also as @Brian G. noted from your description, if you're busy making decent money some place else, keep the momentum going.
Bottom line, it comes down to the following:
1) Do you have desire to be actively involved as a landlord?
2) Do you have the bandwidth to be the landlord? (This isn't couple of hours a week even if you have a property manager in place!)
Only if the answers to both questions is yes, then consider becoming an active investor now.
Here's an additional resource for you to give you additional food for thought: https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv
If you have more questions, feel free to reach out.
Best!
- Real Estate Agent · Salt Lake City, UT · Member since 2014 · 473 posts · 230 votes7y
@Marko Zlatic
A third option for you would be to invest passively as a private/hard money lender. On the private money side, you are looking at returns in the 8-12% range with a point or two up front, and the terms can be much shorter (my investors often lend for 12 mo). That’s one advantage over syndication, where your money is typically invested for 3-5 years.
For hard money, you might be looking at 12-18% interest returns, with some points on top. Terms are even shorter than private money a lot of the time (maybe 6 mo sometimes)
- Rental Property Investor · Weehawken, NJ · Member since 2014 · 1k+ posts · 704 votes7y
You had me at busy professional.
Syndications are definitely the direction you want to go. There are investors that can get better ROI and price discovery outside of syndications, but it's almost entirely exclusive to those that can dedicate to it full-time.
My most hands on property is my worst performing (it's still doing fine, but you get my point). I would actually like the sell that, because everything else is relatively hands off (syndications or more thorough management companies).
If your time is valuable and you have other ways to get the money, partner with smart investors to help you grow it with low effort from your end.
@Account Closed I considered doing some HML with my IRA at one point, the returns can be pretty attractive. The problem I ran into was one of sophistication. The best HMLs in my area have extensive flipping experience and REALLY know how to evaluate flip deals. I do not, I'm a multifamily guy with enough on his plate already. I think going into HML without a solid understanding of evaluating deals is a recipe for lost money. Thoughts on how to get that experience for folks who are interested?
- Rental Property Investor · Berthoud, CO · Member since 2015 · 4 posts · 1 vote7y
@Marko Zlatic if I had unlimited capital my preference would be to solely invest in syndicated deals with the RE portion of my portfolio. I don't mind not having control over the deal as long as I have confidence and trust in the operators and understand the model thouroghly. However, since I have capital constraints like everybody else I am pursuing a strategy that creates capital on the active side that can be converted to LP investments over the next 10 years.
- United States · Member since 2015 · 401 posts · 394 votes7y
@Marko Zlatic as pretty much everyone else has said, it really depends on your situation. Based on the little I know about yours, I would say that syndication has a bit of an advantage since you seem to be focused on (and want to continue to focus on) your YouTube channel/Podcasting.
Throwing in a few SFHs or small MFs certainly won't hurt and will create a more balanced portfolio.
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