passive buy and hold - syndication or REIT?

Question

Hi all,

New here - been browsing the BP forums and podcasts for a few weeks and went through a couple of books with original plans to buy and hold 1-4 SFH as part of diversifying retirement portfolio. Originally I thought I want to diversify my retirement savings into 1-4 SFH buy and hold rentals. I'm starting to think I want something more passive, and my goal is really to diversify from the stock market.

My question is - are there buy and hold (long-term) options for syndications or REITs (either SFH or MF)? My understanding so far:

1) Syndications - generally 3-5 year holds. While these may offer high returns, individual deals seem higher risk to me and require a fair bit of vetting for the syndicator + individual deals.

2) REITs - publicly traded ones seem to trade at a discount due to liquidity and lose some to overhead, fees, etc. They seem to be very highly correlated with stock index funds. I am not familiar with private REITs and was able to find little info on this.

My ideal investment would be a long-term (10 year +) passive investment, buy and hold with the manager invested in. The investment would understandably have low liquidity and looking for modest returns, albeit higher than a public REIT.

Does this type of RE investment exist? Thanks for reading!

Roni E. · Answer

There are syndications that go 7 to 10 years.  The fund manager or sponsor should be looking at all time at value. As it does not make sense to stay longer in a deal if you could sell early meet investors IRR or exceed them. It is very hard to predict tomorrows value in this current market. Also, if the fund manager/sponsor is able to sell early and meet what they said they could do, they did thier job and in a short time period. Next what they could offer is a 1031 opp. to its investors via a TIC or DST.

Trevor Ewen · Answer

@Adam R.

There are some investors that present offerings in a pure fund model, and would have more of the characteristics you're looking for. Syndications tend to max out at 7 years because the eventual (projected) sale is such a part of the value-add, value-creation. Also, typical RE syndications are attached to a single property. Funds tend to be attached to a portfolio of properties. Things move in and out according to their plans.

Because they have lower transparency, you want to go heavier on your due diligence. Getting to know the fund sponsor and how they do projects is critical.