Should I Invest in Rental Properties or Real Estate Syndications? – How to Find the Best Fit

by | Jul 14, 2022 | Investing Advice, Syndication Basics | 0 comments

If you’re a medic, then you know how intense the past few years have been; as an Emergency Room Doctor, I appreciate that the demands on medical professionals’ time are neverending. So I wanted to figure out how to generate additional income without adding to my workload.

Over the last few years, I have spent considerable time attending real estate conferences and educating myself about how to continue my medical practice while also generating passive income from real estate.

I stumbled into house-hacking via my first home in 2013 by renting out part of my primary residence to offset the costs of homeownership. It worked so well that I read up on how I could take my real estate investments to the next level, and I was inspired to explore other opportunities that would help me build income without expending effort.

The problem with owning and managing rental property is that it can be a time suck, and when you’ve got a high-pressure day job, there’s no way you want to add more stress to your life. As a landlord, you have to deal with many pressures — from finding properties to renovating and maintaining them. But your responsibilities don’t end there; you have to deal with selecting the right tenants, ensuring they have a positive experience, then repeating the process over again when they move on.

Once I discovered real estate syndications and researched precisely how they could create income without adding pressure to my life, I was hooked.

Now, I’ve become even more passionate about sharing my knowledge helping medical professionals achieve financial independence and still have the time to enjoy life. I’m committed to educating healthcare workers at all levels and in all specialties on finding the right investment for their circumstances. 


Investing in Residential Rentals Can Be Time Consuming

Investing in smaller multifamily rentals indeed has a few advantages over single-family homes — namely, the demand on your time and energy. In addition, even if one tenant moves out in a multifamily rental, the tenants in the other units are still there to help cover the mortgage and associated expenses. It’s also much easier to manage one property with multiple tenants than 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 running a small business, which can be challenging if you’re working a demanding full-time job in healthcare.


How Passive Real Estate Investments Can Work for You

On the flip side, there are entirely passive investments in commercial real estate. These are professionally managed and operated assets, 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 Commitment

Have you heard the phrase “set it and forget it”? For example, 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.


2. Diversifying to Scale Your Business

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 quickly 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.


3. Significant Tax Advantages

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 CPA on your personal situation.)


4. How Far Does Liability Extend?

When you invest passively through real estate syndications, your liability is limited to your investment amount. If you were to invest $50,000, your most considerable 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.


5. Changing Lives for the Better

You make a difference in two to four families’ lives with residential investments, which is lovely. 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 positively impacts the community and environment. And that’s something you just can’t gain from stocks and mutual funds.


Finding the Right Investment Opportunity

Trying to determine whether active real estate investment — by becoming a landlord — or passive real estate investment through syndication is the right fit for you can be challenging. The best advice I can give is to decide according to your long-term goals and the time you have available to manage your investments. 

You might want to dip a toe into real estate investment by managing one or more small rentals, and that’s an excellent option for understanding how day-to-day operations function. However, personally owning rental properties is not a prerequisite to commercial real estate syndications.

My motivation for opting for a more passive form of real estate investing really centered on my family and my passion for giving back to the medical community. I wanted to have the free time to spend precious moments at the beach or in the mountains with my wife and two girls AND to continue to educate colleagues on how to make their vision of financial independence a reality. 

Whether you’d rather be a passive or an active investor,  investing in real estate is a great way to diversify your portfolio, mitigate financial risk, and improve lives.


Submit a Comment

Your email address will not be published. Required fields are marked *