Duplex vs RE syndication investment

[Kareena Sharma]

Would you rather invest in duplex in CA that breaks even or invest in RE syndication for 2 years that offers you expected 18% annually

Example: Duplex in CA costs around $600k, down payment $120k, rent = mortgage payment+real estate tax + insurance (if interest drops by 1%, then expected cash flow could be $200-$300 per month) 

RE syndication is offering 18%, in 2 years, I can expect to make $43,200 without lifting a finger..

The numbers are favoring more towards RE syndication, in the past I have only done rentals never invested in RE syndication. In my analysis, with previous rentals purchased in CA, I have made same amount as RE syndication when I factor in appreciation. However, with current market scenario, I am factoring $0 for appreciation. 

[Scott Trench]

I don't think you should do either at this point. 

It sounds like you haven't defined a "deal that works" or looked at enough creative options in California yet. 

And, my sense from your post, is that you are looking at a single RE syndication. 

What I'd do is the following: 

- Analyze/Look at 25+ (100 is world-class) Duplexes, Triplexes, and Quadplexes over Q1. 

- Analyze/Attend Pitches for 25+ (100 is also world-class) syndications in Q2. 

In six months, you will have done more research than most on these two alternatives, and you will have your answer. 

Right now, with how you framed the question, I worry, frankly, that you are susceptible to the sales pitch of this or any syndicator. Every syndicator promises 15-20% IRR or similar. Go view a bunch of pitches and see for yourself. It's a sales pitch to get your money. Some will earn those returns. Others won't. Nothing wrong with the sales pitch. It's just that you should know that it is one, and see a bunch of them before handing over your money.

Your duplex, too could earn an 18% IRR. In fact, if appreciation is just 4-5% per year over the next two years, it almost certainly will.

That's almost certainly what your syndicator is assuming - 4-5% rent growth/ NOI growth per year, levered to the the max, and/or cap rate compression (which is the same as appreciation in your duplex world).

 The difference is that your duplex, you can just hold for 30 years on that nice fixed rate mortgage if the market is soft next year. You can manage it yourself if things get tough, or fix things up to save money. Once your money is with the syndicator, it's no longer your control. That's the blessing, and the curse, of investing with syndicators, and why I invest far, far more in properties I own directly than in syndications.