Creating a portfolio of Syndications as limited partner only

[Jacob Morris]

This might end up being a long post and hoping for some interesting conversation....... here is the bottom line.... Do you think we can build a strong portfolio with just syndication deals being a limited partner.

So lets get started. My wife and I are both active duty and moving every 3-ish years. We are 30 and 28 years old. No Debt. We are trying to get our hands involved in a little bit of everything to see what we want to focus on once we get back from Korea and in the states. We have done one syndication deal so far. Have an offer accepted on a flip that we are partnering with. Have another offer accepted on a duplex that we are partnering with. Alot of moving parts for us as a new investors. The buy and hold and the syndication have simliar ROI around 16-20% (technically the buy& hold return should be infinate after the BRRRR is complete). The flip has a much higher ROI but more risk. We are also hoping to go back to school when we get back in the states. wife-CRNA school. Me- MHA/MBA program.

Back to the original question: Do you guys think it is possible to create a large amount of wealth from just Syndication deals? My thoughts: Very passive.... I mean very much so as a limit partner investor in a syndication.

Pro/cons of syndications (just my thoughts please comment about yours)

Pro: very passive allowing you to focus on creating more income or other objectives such as going back to school/ fixed rate of return/ equity at time of sale/ % of initial investment back within a few years at refinance. Turn around and reinvest into a new syndication. no liability

Con: not in control of anything that is done with the property. money is tied up for up to 10 years and might get a lower then desired % amount at refinance 2-3 years in. Not able to leverage your money.

Pro/cons of buy and hold residential 1-4 units ( again just out thoughts please talk about yours)

pro: LEVERAGE. more control of how property is ran. potential infinate return on investment if the BRRRR is good enough.

con: value probably would fluctuate more than apartment complexs. turnover hurts NOI more. Liability. repairs hurt NOI more.

so....what are your thoughts about building a decent retirement through syndications?

Know anyone who lives off the income just from syndications? I hope this will turn into a decent conversation. 

[Spencer Gray]

@Jacob Morris I started out by investing as a limited partner in syndications with the the goal of building a diversified portfolio of cash-flowing commercial real estate, primarily large C-B class multifamily assets. Along my journey friends, family and others have joined me and I've had the privilege of deploying over $20MM primarily as LP equity diversified across 8,000 apartment units. We've also invested in other stabilized cash-flowing asset classes (medical office being the next largest asset class). Since then I've been co-sponsoring syndicated deals with partners while performing asset management for my investors.

So to answer your question about is it possible: yes, absolutely. 

However @Greg Dickerson is spot on: you have to have enough capital to invest to replace your income and leave a significant buffer in the event your portfolio doesn't perform as expected. There are faster ways to multiply equity, but they come with more risk.

Here is my biased pro/con list for syndication vs SFR/small multis.

Syndication Pro: Ability to scale and diversify, economies of scale, aligning yourself with professionals to remove the learning curve and reduce risk, almost totally passive (you still have to do your own DD on the sponsor and need to be able to identify what a good deal is and isn't), limited liability (no debt to guarantee, etc), max leverage LTV is usually around 85% via FHA/HUD, more tax advantages via cost segregation (cash-flow is typically tax sheltered for first 7 years).

Syndication Con: No control over operations, upside is shared with sponsor, fees, no control over sale, sponsor and LP's interest may not always be aligned.

SFR/Small Multis/BRRRR Pro: Total control of business and operations, upside is all yours (higher potential return), control of sale/exit, no fess besides third parties, max leverage via FHA is 90-96%,

SFR/Small Multis/BRRRR Con: Not passive and will require significant time commitment, difficult to scale and diversify, occupancy risk is more significant, major repairs have a more significant impact on returns, mercy of the SFH market, harder to force appreciation via increased NOI.

My bottom line and why I chose to do what I did and why I steer individuals and family offices towards syndication: 

Syndication may not have as high of a potential return vs doing it on your own but it is by far the greatest risk adjusted return. If you need control, you like the emotional aspect of owning a few properties yourself and think that being a landlord is going to be a fun thing to do as a part time job, then doing your own deals is what you need to do.

If you are pursuing real estate strictly as a vehicle to provide cash-flow and to multiply equity over time and you buy into the thesis of Multifamily real estate or other asset classes then syndication is the way to go. 

Let me know if I can answer any questions or go into any more detail of my experience with different sponsors, etc.