One of the most common questions from real estate investors is why don’t I just build out my own real estate portfolio instead of investing with sponsors. The most common answer is scalability - the more real estate you buy and self manage, the more issues you come across. There’s also a cap on how many loans investors qualify for which limits the number of units you can own.

Investing in syndications as a Limited Partner gives you direct ownership without the landlord duties (tenants, trash and termites). Investors can focus on their career, family, hobbies, etc and invest in real estate simultaneously without the time commitment.

Building out your own portfolio is very time consuming - finding a good deal, acquiring and managing an asset. Imagine if you had to renovate the property as well and hire a contractor?! With smaller scale properties (1-4 units), it would not make economic sense to hire a property manager or onsite staff. This means that the investor, by default will need to be very hands on with day to day operations.

It’s quite obvious that real estate is very capital intensive especially in coastal cities such as San Francisco and NYC. Even a respectable $100,000 would not be enough for a down payment. So for those that live in large cities with high salaries but are priced out of the market, syndications are a great option to own real estate while receiving tax benefits.

Another benefit that syndications provide that a rental property does not is bonus depreciation. Cost segregation studies are most effective for commercial multifamily properties since more expensive assets allow for higher depreciation. The ‘paper lost’ will be deducted from other Schedule E income (i.e. rental real estate, royalties, partnerships, S corporations, estates, trusts) which further decrease the overall taxable amount. Of course the amount invested equals the percentage of ownership which will be proportionate to the depreciation amount allowed.