Apartment Syndications vs Single Family Rentals – Which do you prefer?

If you were to Google this question or ask it here in the BP forums, you would find numerous articles and a wide variety of opinions on which is the better investment option: Single Family Rental or Apartment Syndications?

The answer? It depends.

It depends on your goals and what you are looking for. There are advantages and disadvantages to both, which we’ll discuss today.

I’ve defined 4 key criteria you’ll want to consider before choosing an investment that works for you.

First, let’s define what Single Family Rentals (SFR) and Apartment Syndications are. For the purpose of this article, SFR’s are a single-family house or condo. Just one unit, that’s it.

are when numerous investors pull their money together and invest as a group, allowing them to buy something bigger than they could on their own.

So let’s dig into which may be a better investment for you:

Risk

In my opinion, it’s far less risky to invest into an apartment syndication than it is a SFR for a couple reasons.

1) In apartment syndications, you are limited to the amount of money you put in. If the deal goes south, you can only lose the amount of money you put in. The bank cannot come after your personal assets.

If the deal goes south while owning a SFR, those are recourse loans and the bank is coming after your personal assets until they are made whole.

2) Vacancy risk – If I invest in a 200-unit apartment building and 10 people move out, I’m still 95% occupied. If I invest in SFR and someone moves out, I’m 100% vacant and therefore coming out of pocket to cover the mortgage.

3) Profit Risk – in SFR, you get 100% of the profits, but also 100% of the losses. An unforeseen maintenance issue can wipe out months of profits, possibly even costing you more money out of pocket.

Liquidity

This is where SFR’s win hands down. It is much easier to sell a SFR than it is to liquidate from a syndication. You only get your money back on an apartment syndication when the deal sells, which we typically forecast at 5 years.

If for any reason you think you’ll need your money in the near future, you shouldn’t buy any real estate, but certainly not invest in an apartment syndication.

Profitability

This one could go either way as I know many people that bought SFR’s in the right place at the right time and saw phenomenal returns based solely on the market appreciating around them. But is that repeatable? Maybe it is, I don’t have a crystal ball. But let me explain why I favor syndications here.

1) Cash flow from day one that is predictable and stable. We buy assets that have cash flow from day one. We don’t have to do anything to them, and they cash flow. Now we do improve them to increase that cash flow and ultimately our returns, but we don’t have too.

2) The is proven in MF, whereas in SFR you’re going to be limited to what houses are selling for around you. It doesn’t matter if you have granite, beautiful wood floors, and gold toilets. If the rest of the neighbors don’t then you won’t get much added value out of that. Again, this could work out in your favor if you’re able to time the market, but can you?

Time Commitment

When investing is SFR’s, it’s a much more active investing process. You need to allocate time to finding a good deal, coordinate the financing, perform due diligence, and try to find a good property manager who cares about the property and your investment as much as you do. Even with a third party property manager, you’re going to be a lot more hands on than you would if you invested in syndications.

When passively investing in a real estate syndication, you need to spend some time on the front end , the market, and the deal. However, once you’ve invested, you’re completely hands off from that point on. You don’t need to find the deal, perform due diligence, or coordinate the financing. All that is done for you. You simply decide if the deal is a good fit for your investing goals and if so, jump in.

So what’s your opinion? Which would you prefer?

You can certainly make a lot of money in both, but I believe you have less downside risk in apartment syndications, have a proven value formula in how to make money, and can be completely hands off if you want. These are just a few reasons I am selling all my personal real estate holdings and investing in syndications.