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Small syndicate vs buying rental properties

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  • Small syndicate vs buying rental properties

    My goals are to greatly increase my real estate portion of my portfolio. I have 15-20 years until retirement. I'd like to have 10mm in real estate by then.

    Thus far, I have only invested in small syndicates with consistent 15% returns which equate to ~ 2x return at the time of property sale. Thus, super easy, passive investment with checks coming in the mail.

    The small syndicates are run by people whom I personally know. I'm. Or going with big name organizations, broker sold reits, etc.

    I, instead, want to purchase properties. I am hoping with leveraged investments and with a good team, my returns can be equal or higher but help fund my retirement and then pass on from my estate.

    I'm purely looking for opinions on the financial pros/cons of such syndicates vs buying property. I fully understand the negatives of clogged toilets in the middle of the night, vacancies, stress, time away from medicine/life, etc.


  • #2
    Sounds like you understand the differences quite well. With a syndicate (or a fund or a bunch of crowdfunded properties) you lose control, pay extra fees, eliminate hassle, and get diversification. Doing it yourself, you gain control, avoid fees, add hassle, and lose diversification. I think it is likely you can lower your tax bill as well.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011


    • #3
      I have done both, and for me personally handling the partnership is almost as big a pain as dealing with management issues of the building. Partners can be difficult, but without them it is hard to buy big enough properties to afford professional property management. I would never go back to buying single family homes or small buildings that require me to personally get involved with property management. Just my opinion, others seem to enjoy that side of real estate.

      $10M in real estate is a great goal, and is achievable but will take time and cash. I don't count REIT's as a direct real estate investment, just my opinion also, due to broad market correlation. This topic has been discussed ad nauseum on this site. Also, don't underestimate taxation on reversion, and don't kid yourself that syndicates are going to do 1031 exchanges. It's possible to do so, but it usually doesn't work out.

      Real estate is great when it's working great. But, it carries risk like everything else. Most of the people I know try to keep it to 20- 30% of their portfolio.






      • #4
        If your time is limited, you'll be starting at ground zero by building a team to manage rental property. Though, it will give you more control as others have mentioned. You can start off with one as a small deal and see how it works out. It will help to diversify your portfolio if you decide to pursue it. Success will depend on your ability to hire the right people who can get the job done. Poor management is probably one of the top reasons why some real estate investors get out of buying rental property. If you can overcome this hurdle and buy right, it may be worth pursuing. Good luck!


        • #5
          As WCI pointed out, the taxation and depreciation can vary greatly on the way the dollars are invested and rolled over with each property.  Those are equally important in real estate as the investment location, management, and type of leases.

          I presume that you're a very high income earning family with 15 years and $10M goal.   We're currently split 50/50 on RE/equities and own the properties straight up with good cash flows and depreciation to boot.  Planned eventually to 1031 exchange one into a nice beach house nearby right at retirement and flip the other to a nicer investment to continue depreciation.  Eventually recapture on the non-owner occ is going to be a bear---eventually!


          • #6
            Getting to $10M in 15 years requires significant ongoing contributions. Even if you manage a pretty good after tax and cost return such as 12%, that's still going to require annual contributions of $268K a year, and that doesn't count any money you invest in anything besides real estate. That sort of thing requires a pretty healthy income. Even if you already had $200K invested, get 15% returns, and have 20 years, it's still $65K a year, which is a big ask for the typical physician unless he's putting 100% of his portfolio into real estate.

            Helping those who wear the white coat get a fair shake on Wall Street since 2011