August 11, 2021

Real Estate Syndications vs. Investing Solo: An Analysis

Written by: HUDSONPOINT Team
Real Estate

Investing in real estate is one of the most popular forms of investing across the world. Even those who have no financial background or limited understanding of money know very well the value of physical land and buildings. It’s most people’s dream to one day own their own home, with 63% of Americans owning their own piece of real estate. However, with that figure declining as rising values pricing many out of the market, is it really the best way to leverage your capital?


Traditional real estate investing is a huge capital commitment – for most people paying back a mortgage will be their most significant single expense. It’s also not as liquid as stocks or bonds, making it harder to access and more difficult to exit when   required. Nonetheless, real estate has led to the accumulation of great wealth globally, and it plays a significant role in the economy. It’s instead a matter of finding new ways to take part in the investment class, with one option being real estate syndications.


Real Estate investing

Why invest in real estate?

There are many reasons real estate is such a popular asset class. There are many types of real estate to suit different investment appetites, from residential houses to office apartments and industrial warehouses. Each asset generates a mix of rental income, value appreciation over time, and profits, should the property be a productive business. Real estate, therefore, offers passive income, a reliable stream of cash flow, diversification from the rest of a portfolio, and even a place to call home.


Real estate is also highly debt-friendly, with banks and other financiers willing to lend large amounts of money against a physical property asset. This may mean additional tax advantages as well as greater leverage to upside appreciation. Property also tends to maintain its value better than many other asset classes. When times get tough, people and businesses still need space to live and put a roof over their heads. While it’s not the perfect investment, and there are downsides, a quality piece of real estate is one of the most reliable and solid assets you can own throughout the economic cycle.


Better yet, there are now more accessible ways to invest in real estate other than purchasing an investment solo. Crowdfunding is a unique passive option that allows interested investors to contribute a percentage of the total investment prospect or project. Active investors often group up and pool their funds to invest in larger-scale properties, increasing their access to available deals. Investors can also passively access hundreds of mutual funds and listed real estate investment trusts (REITs) on the public markets, making investing in real estate more accessible than ever before.



Why you should consider investing in a real estate syndication

A real estate syndication is a form of crowdfunding. A group of investors contribute capital into a larger pool of funding that is used to purchase a larger property than they wouldn’t be able to individually. Interestingly, this used to only be possible for high-net-worth individuals and institutions with significant financial backing. However, since 2012 and the introduction of the JOBS Act, retail investors are also able to participate.


The concept itself is simple – instead of an institutional investor purchasing a multi-million dollar industrial factory, tens, or even hundreds, of smaller everyday investors can put their money together to own a small part of the property each. Investors still have exposure to property without many of the risks that come with owning a property solo. The main benefits of real estate syndications may include:


  • Access to larger opportunities. As a retail investor, you may have the means to invest in your own apartment or home. What you won’t have is the scale to invest in unit blocks or large-scale commercial real estate – syndications give you this opportunity.
  • Diversification and more choice. Since syndications are able to invest in larger (or multiple) properties, there is usually less tenant risk. If you own a single property, the risk of losing the sole tenant is a significant concern. Multi-tenanted investments are less likely to experience a complete drop in income or the issues of a bad tenant.
  • Leverage and lower cost of debt. The syndication will have substantial capital backing from potentially hundreds of investors. Banks are often willing to lend at competitive rates secured by stable and reliable properties. There are also tax benefits that may exist from borrowing in this capacity, depending on your individual circumstances.

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Why a solo investment may make more sense

Real estate syndications are not for everyone, and it depends on the individual deal. According to experienced ‘syndicators,’ there is evidence to suggest that 40 percent of people who do a syndication never do another. However, this usually is a result of stress, liabilities, and the prospect of random lawsuits or other issues with the syndication that are out of their control. Of course, these concerns arise primarily due to the quality of the syndication, and they are also a risk when investing solo.


Another similar reason why a solo property investment might make more sense is that you are in complete control. While relying on a professional may be a good idea, your money is in their hands, and there is an element of control lost in the process. Also, many syndications have strict limits on when you can withdraw your investment; it may take many years for the project to come to fruition. There are financial risks involved, and even with the best LLC setup, a bad real estate investment is a bad real estate investment.


When can real estate constitute a “bad” investment? Repairs can be one tremendous cost, especially if you invest in a property with structural damage or wiring problems. Insurance can help mitigate certain threats, but it is also expensive. If your investment doesn’t appreciate in value, it can ultimately eat into your bottom line. Taxes can have a similar detrimental effect, especially if you live in a state or city with high property taxes. And, like the housing crash of 2007-2008 taught us, market forces can severely reduce the price of an otherwise perfectly fine property.



Real estate syndications offer unique opportunities

There is no perfect investment, yet it would be hard to find a better option than a trusted, quality syndication when it comes to real estate.


HUDSONPOINT Capital provides retail investors with exclusive real estate details that have been vetted for quality. We offer access to mature assets that provide an excellent starting point for investors looking to start their property portfolio, as well as high-growth real estate deals with the potential for market-beating returns.


If you’re interested in adding Real Estate to your portfolio, please schedule a call to learn more about what we have available right now.


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Please note that any investment involves risk including loss of principal. Some risks of investing directly or indirectly in real estate include declining real estate values, changing economic conditions and increasing interest rates.

This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice.

Securities offered through National Securities Corporation Member FINRA/SIPC



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