Single Family Rentals vs. Multifamily Syndication
When it comes to real estate investing, most people tend to go down two different paths - single family rentals (SFR) or multifamily (MF) syndications. Now while both of these fall under the real estate category, they are very different strategies. In this blog, we are going to break down the differences.
Vacancy Risk
If you own a SFR this essentially means you have 1 unit. If your 1 tenant decides to move out you are now 100% vacant. This is not ideal when you have to pay your monthly mortgage, taxes, and insurance. While you wait to get another tenant into your property, these payments are coming out of your pocket.
Now let’s say you decide to invest in a 100-unit apartment syndication. In that property, the same thing happens - 1 tenant decides to move out. This means you are only 1% vacant. We can still afford to pay the mortgage, taxes, insurance, and operating expenses AND the property is still putting money into your pocket, as opposed to taking it away.
Time Commitment
When you are looking for a SFR, it usually requires a significant time commitment. Most likely, you’re working with a real estate agent who will send you deals that match your criteria but it is on you to crunch the numbers, tour the properties, and put in offers. In a competitive market, this could take several months before you take down a deal. Once you find a deal, you then have to manage the deal for as long as you own it.
When you invest in a syndication, it’s all passive to you. You are essentially hiring a sponsorship team to do all the leg work associated with real estate investing while you just enjoy the mailbox money and tax benefits. We do all the heavy lifting for you so you don’t have to stress about finding deals and managing tenants.
Value Creation
If you have ever sold a house, either as a personal residence or an investment, you are familiar with how to decide how much you should ask for it. The real estate agent that you’re working with will usually run a Comparable Market Analysis in order to evaluate what other similar properties are selling for in the area. This dictates what your property is worth. This means it doesn’t matter if you increased the rent in a SFR, it will still only be worth as much as the surrounding properties.
The value of commercial properties is much different and very much mathematical in nature. Commercial properties are valued based on their Net Operating Income (NOI) and so can be better controlled and predicted. This means that if we can find ways to run the property more efficiently by increasing the NOI, the property becomes more valuable than when we bought it. This is an advantage to investing in real estate syndications that can help hedge against risks in market fluctuation because you’re able to predict what you could sell the property for in a worst-case scenario market.
Conclusion
Though both technically real estate, investing in SFR and syndications are very different. Neither is wrong or right, it just depends on an investor's preferences, risk tolerances, and financial goals.