Five Reasons Real Estate Syndications Are A Better Investment than Rental Properties

by | Jun 11, 2022 | Investing Advice | 0 comments

Many investors have dreams of building a real estate empire, only to discover what rental property owners already know.

Rental properties require a lot of time, energy, and effort. 

If you’re investing actively in residential real estate, you’re involved in every aspect of the deal. You’re finding the properties, gathering funds, renovating, interviewing tenants, and sometimes performing maintenance.

Your dreams of passive income quickly become a second job. 

In the first years of our medical careers, we quickly realized we didn’t have time to be landlords. We realized our vision of creating financial freedom would have to come from some other form of investing. Luckily, we discovered investing passively in multi-family real estate syndications. 

If you’re wondering about the best real estate investment options for you, read on to discover five reasons why real estate syndications may be a better choice than rental properties.

 

Why Investing in Single-Family and Small Multifamily Rentals Can Be a Lot of Work

Rental properties come with a lot of management expectations for the owner.

Single-family homes only come with one tenant, but making sure the property stays occupied can be difficult. 

Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each. 

But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still in your court. You’re basically running a small business, which can be challenging if you’re working a full-time job.

 

The Case for Passive Real Estate Investments

On the flip side, there are fully passive investments in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any of the three scary T’s  – Tenants, Toilets, and Termites. Oh my!

According to Forbes, once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here’s why:

 

1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the property.

You won’t be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.

Your passive investments should be that–passive. Commercial real estate syndication investments offer the opportunity to invest completely passively.

 

2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets. 

By investing with experienced deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.

Because you’re not doing the day-to-day work, you don’t have the worry that diversifying will bring you more stress than benefits. Your investments can be more robust with a team handling the deals on your behalf.

 

3.  Tax Benefits

Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period. Score!

You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property. Always check with your own CPA on your personal situation.

 

4. Limited Liability

When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $50,000, your biggest risk would be losing that $50,000. You wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk.

Although you do have risk involved, strong real estate syndications will have risk mitigation practices in place that work to preserve your capital. 

 

5. Positive Impact

With personal investments, you make a difference in two to four families’ lives, which is wonderful. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.

Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively. And that’s something you just can’t gain from stocks and mutual funds.

You’ll also be able to spend more time investing in your job, your health, and your family while creating more wealth. 

 

Real Estate Syndications May be the Best Fit for You

If you’re considering real estate investments as a way to create more control over your life and finances while you advance in your medical career, real estate syndications could be a great fit for you.

Investing in real estate is a powerful way to diversify your portfolio and mitigate risk. If you decide to move forward with real estate syndications, Ascent Equity can help you learn more about the process and work with you to discover the right deals for your lifestyle and goals.

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