Should you invest in Rental Properties or Real Estate Syndications?

Should you invest in Rental Properties or Real Estate Syndications?

Investors looking to invest in affordable housing in the Texas Triangle often face the dilemma of choosing between single-family rentals and multifamily syndication. Managing a single-family rental property comes with greater involvement and responsibility, but also offers the potential for greater gains. On the other hand, real estate syndication is a fully passive investment, with all management and execution of the business plan taken care of for investors. While this is a significant advantage, there are other differences between the two options that investors should consider.

Multifamily Real Estate Syndication Benefits

Cash Flow

Real estate syndications offer passive investors the opportunity to receive cash flow without requiring any effort on their part. The anticipated rate of return for each syndication opportunity is calculated through a rigorous due diligence process, and the REEP Equity team provides a conservative estimate of returns that they feel they can deliver on. As an example, if an investor puts in $75,000 with an anticipated rate of return of 10%, they can expect to receive $625 in monthly cash flow.

In addition to the passive income, another benefit of a real estate syndication is the opportunity to scale your portfolio rapidly. Typically, properties are held for five years, with a chance to refinance around the third year. By reinvesting capital from the first opportunity and adding additional investments, investors can see long-term growth benefits. For example, if an investor reinvests their capital from the first opportunity in the fourth year, they can expect to receive $1,250 in monthly cash flow in year four and year five.

Tax Advantages

Investing in multifamily properties can be advantageous in terms of taxes due to the favorable tax laws. In a syndication, the syndicator can utilize accelerated depreciation and bonus depreciation benefits, and then pass these benefits on to the investors through their K-1 statements. By using these tax benefits to offset other forms of income, investors can potentially increase their net income for the year. It is important to note that tax laws can be complex and that consulting with a personal tax consultant is recommended for each individual’s unique situation. REEP does not provide tax or accounting advice.

Single Family Rentals

Investing in single-family rentals in the Texas Triangle is challenging due to the skyrocketing home prices caused by population growth and supply chain shortages. This market presents investors with two options: a fixer-upper or a move-in ready home, both with their drawbacks. While a fixer-upper’s initial purchase price is lower, the rehab budget can be significant, tying up a considerable amount of capital. On the other hand, a move-in ready home’s initial purchase price is higher, requiring a larger down payment.

However, the current increase in move-in ready, single-family home prices is higher than the rise in rental rates. Thus, charging enough rent to cover the mortgage and expenses, including repairs and vacancies, becomes a challenge, making it difficult to predict monthly positive cash flow. As a result, there is an increasing demand for fixer-uppers, especially among those who have the capital and are willing to put in the long hours to renovate a house.

In summary, while a single-family rental property can be an excellent investment opportunity for those who enjoy hands-on investments, it is a difficult path for those seeking a turnkey, easy investment in the current market.

Which is the best choice for you?

Every investment opportunity and every investor has unique needs, goals, and budget constraints, and there is no one-size-fits-all solution. While single-family rental properties have their advantages, they require more time and commitment, making them a less passive form of investment. Real Estate syndications, on the other hand, can offer a more passive investment opportunity.

At REEP Equity, we provide a fully vertical integrated platform to help you achieve your passive real estate investment goals. If you would like to learn more about the value of our vertical integration and how it can benefit your investments, our team is here to help.

As we celebrate our 10-year anniversary of multifamily investing, we invite you to join us and discover why we are so passionate about what we do.