Is an apartment syndication investment strategy scalable?

[Scott Blackwill]

My investment is just beginning and I'm evaluating against two strategies: SFR vs syndication investing. While cashflow early on from SFR seems minimal the goal is ultimately to build long term wealth. One of the key components I like from SFR is debt/mortgage paydown which allows for leverage later on down the road, or if i chose, to just fully cashflow a paid off home. Whereas I don't see that component in syndication. Syndication seems to be more an input = output/cashflow. While returns can be reinvested there is no asset paydown with syndication so it seems to miss on that key component that would create a scalable strategy. Can someone correct me or convince me that apartment syndication investing can be scalable and ultimately lead to wealth and/or eventually replace my W-2? Thank you in advance for any responses!

Scott

[Michael Ealy]

Originally posted by @Steven Segal:

It depends on experience and lifestyle goals. SFHs are more management intensive. You have to manage the manager. You also will have to fire managers and find new ones. You need to make sure you are saving up reserves for big ticket items throughout. 

For syndication, you are at the mercy of the GPs. You need to make sure they are good and experienced. There are many out there who are newer. If I had to guess, I would say there are many that were saved by the market. This is most likely not a sustainable model at this point. Make sure you do your own due diligence. Ask for current numbers on the property; don't trust their "Year 1" numbers. 

Additionally, with SFH, you are competing with REITs in a lot of good markets. They are paying smaller interest rates than you will be. They are okay with 5-6 CAP purchases in markets like PHX, Charlotte, ATL, ect... Their management cost is also lower than yours in most instances. At the smaller multi-fam syndication, you aren't competing with them (in some markets, you won't be competing with REITs on SFHs as well - or different types of SFH as REITs have a pretty strict buy box).

Another additionally, you are limited to a certain number of mortgages generally. After that, you need to use an alternative source which will be in the 5% range depending on the company. CoreVest is the most competitive I have seen. With multi-fam, you don't have this issue. Syndication allows you to take advantage of leverage as well. 

 Your answer Steven makes a lot of sense. I wonder why no one voted for this - must have been overlooked by the posts that came after. So I did vote for your post and probably will vote several times if I can :)

I totally agree with you Steven about the need to vet the GP in a syndication. A lot of syndicators nowadays have not gone through the Great Recession of 2008-09 and they are pitching a lot of MARGINAL deals. You are right in saying Steven that most of these syndicators are "being saved" by the market but when the market turns south and cap rates start to increase, a lot of investors in syndications will get BURNED big time!

There are very few syndicators who actually THRIVED during the Great Recession of 2008-09. I am one of them.