Private ownership or syndication? (Noob question)

[Ethan Carbonaro]

Hey all! I'm trying to learn about real estate and have a pretty basic question:

What are the differences in returns of privately owning a home and renting vs. investing the money in a real estate syndication. Are these even directly comparable?

Let's suppose I have $50k. I know the time horizons are quite a bit different and the strategies can vary wildly, but generally what changes if I owned houses for 30 years vs. invested in syndications for 30 years (in the normal 3-7 year increments, rinsing and repeating)? Is there a big difference in what I could expect in the end?

Again, I'm really knew to this and just want to get my head thinking right. Sorry if these are really bad questions/too general :)

Thanks for any help!

[Peter Albanese]

There are a lot of variables involved with your question, so I'll try to compare and contrast the two investment options. These are really two separate animals. 

#1 PASSIVE. If you can find a good deal on a single family home rental (SFR), you may get higher returns and you are 100% in control of your investment, but you will also have more hands-on work. If you pay a property management company to do all the leasing and work for you, it will probably be about the same return on investment. Sweat equity can increase some of your returns if you're willing to put in the time.

#2 VACANCIES. There is an advantage to a syndication, because you'd be investing in something with multiple units and so vacancies are less impactful on the bottom line. If you rent a single family home, you only have one unit to take the loss for the vacancy. As a side note, you will eventually want to get more single family homes, so your total investment isn't riding on one property and vacancies in one home can be spread across all of your properties. By the way, you shouldn't be vacant for more than 5% of the year, basically 1-2 weeks in between tenants. 

#3 DEAL ACCESS. Syndications have access to larger and sometimes better deals because everyone is pooling their money together, so they may be able purchase more desirable/expensive properties that a single owner may not be able to afford themselves alone. Typically when buying a single family home, you are competing against home buyers, there's less of a market for people able to afford to purchase a 48 unit apartment complex. 

#4 LIQUIDITY. With a single family home, you can sell that on the open market at any time, with or without a tenant. With a syndication, there is typically a minimum amount of time you must be invested and so there would be less liquidity to cash out your $50K, if you were to need access to your capital. 

#5 SUMMARY. I think this all comes down to how active or passive you wish to be with your investment. If you want a hands off approach, I would look at a syndication. If you're not afraid to get involved with the business, you could choose to do single family homes.