There is one question I get asked several times a week. I’m sure it’s crossed your mind, too. It goes something like this: “Should I buy my own properties or invest in other people’s deals, like syndications?”
Whether you’re just starting your investment journey or are looking to expand your portfolio, it’s a great question…and an important one. It signals that you are thinking about where you should best put your money, time, and energy to build financial freedom and create the life of your dreams.
And, I hate to tell you, with any investment question, there is no easy answer. It requires some consideration, looking at both the pros and cons to weigh against your experience level, your current capital, the time you have to invest, and what aligns best with your financial goals.
So let’s look at each, starting with investing in real estate on your own.
Owning Real Estate
On paper, owning investment property sounds easy. I hold the deed, collect rent, and the sale value increases over time. Simple, right? It sounds easy, but there are many factors that may influence whether or not owning investment property is right for you. Let’s look at some.
1. Control
I call owning your own investment properties “active ownership.” It’s not passive.
The biggest pro is that you call all the shots. You get to decide what to buy, how to manage it, everything about the finances, and when to ultimately sell, refinance, or devise it. Having that much control is incredibly rewarding.
Seeing a property that you’ve personally selected and managed bring in steady income and have its overall value appreciate over time is amazing. It’s more than a number on a bank statement. You can see your financial independence in the foundation, the siding, and in landscaping.
But with that control can come challenges, too. Managing your own property takes a lot of time and energy. It’s like running a business. You’re handling the day-to-day operations. And even if you hire a property manager, you’ll still have to devote time to train them and coach them. And the more doors you have—or the more properties you own—the more time you’ll spend and challenges you’ll face. You’ll need to come up with a business plan. Find tenants. The list goes on and on.
Just last month, one of the first properties I bought created a bunch of work for me. The property management company reached out that a long-standing, excellent tenant requested new countertops and cabinets. They were also up for rental renewal. So, I had to devote time to evaluating the renovation costs, think about raising rent, and whether or not I wanted to do any of it or leave it all as-is. It all came down during a really busy time for me. But as the owner, I had to make the final decision.
If you have the time, owning your investment properties is wonderful. If you don’t, then you might want to think about different forms of real estate investment.
2. Capital Investment
When you buy a property outright, that usually means you’re putting in all the money for the deal. If you’re buying a good-sized property, you’re going to put a significant chunk of your own money into the deal. That could be in the form of a down payment or the whole sale price.
That out-sized amount of cash is not always possible for folks. I know that the public thinks of doctors as extremely wealthy—that we’ve got all this money sitting around. But I think most of us know that’s not really the case. That’s especially true for physicians early in their career. Generally speaking, it’s tough to buy several million-dollar investment properties while also paying off significant student debt.
3. Experience
Owning your own property requires a lot of investment knowledge. You need to be able to do due diligence. You need to be able to either manage the property or know how to put somebody else in charge of managing it. You need to understand financing and how, after all the math is done, you’ll come out of the deal with short-term passive income and long-term appreciation.
That level of commitment and knowledge means that experience, and a lot of it, is often required. So if you already have a lot of real estate investment experience, this might be the roadmap for you. If not, you’ll have to do a lot of research. (We offer a 3-month passive real estate course to fast-track your learning…)
Okay. That covers some major considerations about owning your own property. But what about investing in syndications?
Syndications
Syndications are real estate investment opportunities where investors pool capital to go purchase a property jointly. Sometimes they’re called real estate funds. In these deals, you’ll usually be labeled a “limited partner.”
1. Passive Income
This is a passive form of investing. Someone else is running the deal—usually called a sponsor or the general partner. That sponsor is responsible for finding, financing, purchasing, and managing the properties. Your role as the investor is simply to provide funds.
The only real work you have to do is make a good decision about who you’re going to invest with. After that, it’s completely passive. Depending on the terms of the deal, you’ll earn a return and wait for the monthly checks to come in.
Of course, the drawback to the passivity of syndications is that you don’t have control over the deal. You just provide the money. Any choices are up to the sponsor, including when to sell, refinance, how to utilize tax benefits, or anything else. The business plan is up to somebody else.
But on the other hand, you are investing in the sponsor’s expertise and ability to execute the business plan.
For those that want firm control over their investments, that can create some tension. So be clear about what your goals and needs are when investing.
2. Leverage
The best part about syndications is that you can leverage them—in more ways than one. You can leverage their experience, their capital, their connections, their resources, their time, their energy, and more.
When you leverage a syndication, you gain more experience, knowledge, and even more capital. You can then reinvest those new assets into even more syndications. If done carefully, you can start to compound your money, earning you more and giving you access to high-end properties that you wouldn’t be able to invest in on your own.
Here’s some perspective. With investing in syndications, you could easily invest in over 30 deals. For most doctors, if they were on their own, buying 30 properties outright would be impossible. But because you are investing in other people’s deals, the distributions that come back to you can be put back into new deals. Deals create more deals. And that leads to multiple streams of passive income.
All of a sudden, a busy physician spending most of their time with clinical work can have several streams of passive income coming in without needing to lift a finger. And it can be diversified to hedge against risk—high-end hotels, multi-family apartment buildings, single-family rentals, and so on.
3. Capital Investment
Although the initial investment in syndications is almost always smaller than buying your own investment property, your capital will still be locked up for a defined period of time.
Yes, you will get steady paychecks. But understand that your initial investment will not be unlocked or returned until the syndication’s business plan is complete—when the property sells.
When you own your own property, you can decide when to sell to get your money out of the deal. With syndications, you don’t have the same freedom.
It’s Not One-Size-Fits-All
When I’m asked which is better between owning and syndications, I usually tell people, “Why not both?” That’s what I did for my own investment journey, and the education it provided was invaluable.
After a few years, my financial goals changed. I decided I wanted a greater work/life balance to spend more time with my family. So I scaled back on owning properties and increased my investments in syndications. Property ownership was taking up more of my time and energy than I wanted. That was a lifestyle choice, and it was right for me. What is right for you? What is your ideal life?
But I still invest in both. It diversifies my portfolio and hedges against risk. It keeps me educated on the latest trends in specific markets and types of real estate investing. These are things that are important to me.
And it’s your turn to decide what’s important to you. What’s nice about real estate investing is that it’s flexible. It can be built on what you want, where you’re at in life, and what you’re trying to achieve. You have options. Tailor your approach to meet your goals, time, and capital. It’s not one-size-fits-all. And there is no universal “right answer.”
But here’s some advice. If you’re just starting, take your first step by setting a goal for the next six months. It needs to feel achievable and align with your resources. It could be to continue your education, to get in on a small investment, to find a mentor, to join a real estate community, or something else along these lines.
Get started and connect with like-minded investors. That first actionable step can help set you on the right path and keep you motivated to move forward. At the end of the day, it’s about getting your foot in the door. Don’t let analysis paralysis keep you from taking action.
And if you’re looking for a network of support, we here at Passive Income MD are here for you. Thanks for stopping by today, and we hope you stay inspired on your journey to financial freedom!
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.