Syndication v active investments

[Tyler Hampton]

I hear a lot about syndication and putting money to work passively with good sponsors of a large deal. Is it totally passive? I am very interested in owning my own real estate and having the equity in the home, but it is much more active and is certainly risky. Why would I do syndication over active management of my own properties? I assume you can make better return doing your own properties, but it seems like if you can put the same money to work for 8-12% returns without lifting a finger, that would be a better investment anyway. Do you also get equity in the property when you put money in? Not sure how it all works exactly and would appreciate any feedback on which option would be best or any personal experience doing both. Thanks so much!

[John Corey]

The theory is you can make more money by running your own deals. Direct investing.

For a number of people, they lose more money with their own deals. They make mistakes, get emotional, buy or sell at the wrong time or price.

You can make more money running a business than you can owning the shares. That said, if you do not have the time, the skill, the temperament to be a business owner, the risk premium will not happen and you can easily be less well off.

If you look at Warren Buffett, from an early point in his career, he decided that he was not good at running a business compared to buying shares in a business. Even when he buys the whole company, he is very focused on buying a good management team so he can avoid being hands on.

Investing direct or through others is a decision. There is no perfect answer. You do have to go all in if you are going to be the direct owner. As much as you can outsource activities, there are many decisions which will either enhance or destroy the returns.