Should You Invest in a Real Estate Syndication or Buy Your Own Property?

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The question of whether you should invest in your own property or a real estate syndication is contentious. Syndicators will tell you one thing, while individual investors will tell you something else. As you’ll read later, my thought process on this topic is even going to venture a bit into psychology. Nevertheless, I think you’ll find that the answer to this question is far more simple than you think.

Before diving into this post I want to dissect the question in front of us. To make things simple, let’s assume that there are only 1 of 2 ways to invest in real estate. Option 1 is buying an investment property with your own money. That entails you paying for the down payment, closing costs, renovations, and more. Option 2 is one in which you invest in a real estate syndication and allow professionals to manage your money and provide you updates on how your investment is going. This option is similar to investing in stocks and reading a company’s earnings reports, but instead of investing in a public company, you invest in a private one. The nuances of each option are not entirely important for the purposes of this post, the point is that we clearly understand our options within the parameters of this question.

I’ll be breaking this post down into two obvious sections. In the first section, I will talk about investing in an investment property on your own. The second section will talk about investing in a real estate syndication. The goal of this post isn’t to say that one option is definitively better than the other, but rather to highlight the risks and rewards of both options. With JP Acquisitions being a multifamily syndication firm, you may think that my answer is biased and this article may read that way. All I can hope is that this article allows you to make a better decision. Let’s jump into this post!

Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.

Investing in Your Own Property

There are several factors to weigh and consider before investing in your property. Firstly, let’s assume that you have the money to buy your own investment property. Whether that property is a 4 flat, strip mall, etc. isn’t exactly important. These are the questions that you should ask yourself before investing:

Do I know how to analyze a property conservatively?
Will investing in my own property provide me with the best returns as they pertain to my risk profile?
Do I have the time to take care of my property?
Do I want to be a landlord and take care of issues?
Do I want to become an expert in real estate and make it my livelihood?

If any of the answers to these questions is “no,” you’ll want to think hard about buying an investment property. Looking at questions 1 and 2, if you don’t know how to analyze a property then you can’t realistically consider if the investment makes sense for you in the first place. You shouldn’t even invest in a syndication if you can’t analyze a deal because then you lack the understanding of the risk/reward. If you know how to analyze a property, then you likely are at least somewhat financially savvy and can think about the range of investment options you have. Questions 3 and 4 go hand in hand because you need time to manage your property. That means being a good landlord and taking care of repairs, working with contractors (as needed), paying the bills, etc. If you aren’t prepared for that or don’t want to do it, then buying your own property isn’t the smartest idea. Finally, the last question may have surprised you and deserves to be talked about in detail.

Successful entrepreneur Alex Hormozi said the following in a tweet in 2023, “It’s arrogant to think you can do multiple things at once and beat someone who does one thing with all their effort. Pick one thing. Go all in. Then you become the one who’s hard to beat.” What you must remember at the end of the day is that the best returns are made by focusing on one thing and doing it over and over again so your effort compounds into incredible wealth. Oftentimes people find owning a property outright alluring partly because of the money they think can be made. In reality, they divide their attention between a job or business and managing their properties. As such, they fail to solely focus on the one thing that could make them more money if they just put in the additional time. More so, ego plays a big part in buying a personal investment property. It’s people’s ego that tells them they need to own a property outright, when in reality they could usually make more money by allowing professionals to do the investing for them. Whether most people realize it or not, they love having bragging rights and the pride that comes with owning something. Pride and ego are what get in the way of good judgment.

Investing in a Syndication

There is a fairly similar set of questions you should ask yourself before investing in a syndication as there is when deciding to purchase an investment property. Let’s assume that you have the minimum investment that most syndications require, $50,000. The following are the set of questions you should ask yourself before allowing a syndicator to manage your money:

Do I know how to analyze a property conservatively?
Will investing in a syndication provide me the returns that match my risk profile?
Can I trust a real estate professional (i.e., syndicator) to manage my money and will I sleep just fine knowing they are controlling the project?
Am I better equipped to operate and manage a property than a syndicator?

If the answer to any of these questions is “no”, then you have the choices of either not investing in real estate or educating yourself and getting comfortable with the syndication and investment analysis process. As stated earlier, question 1 is very important because if you can’t scrutinize the financials of a project and make future assumptions as to how that property will perform in the future (i.e., underwriting a deal), then you can’t comprehend real estate. The first rule of investing is knowing what you’re getting yourself into, don’t be blind with your money. Question 2 is simple, assuming you answered “yes” to the first question. If you know how to ‘run the numbers’ so to speak, you’ll know if a project matches what you’re looking for. Question 3 is asking if you have trust issues as it relates to money. Answering “no” to that question doesn’t mean there is something wrong with you, it just means you’re not comfortable with trusting others with your money. You can either (1) get comfortable trusting others or (2) not invest. The answer to the last question is usually “no” for most people and yet many people go on to buy an investment property. Well, if you can’t operate and manage a property better than someone else, why wouldn’t you allow them to manage your money assuming you trust them and they have a track record? Unless you happen to want to be a real estate expert and open your own business, investing is best left to the professionals. I already spoke about pride and ego in the last section and it applies here yet again. Thinking clearly and logically about what you want is what will lead you to the best choice.

Conclusion

I’d like to think that after you’ve read this far that the decision between buying an investment property or investing in a syndication is clear. At the very least, your judgment has improved and equipped you with the thought process to make the right choice as it relates to your situation. Of course life isn’t so simple and there are a multitude of other things to consider. What cannot be stressed enough is to think rationally as opposed to emotionally to avoid being in a situation you don’t want to be in.

If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, messaging us on LinkedIn, or signing up for our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!

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About the Author

Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.

Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.

0 thoughts on “Should You Invest in a Real Estate Syndication or Buy Your Own Property?”

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December 16, 2024 at 8:34 pm

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