I have encountered numerous people who feel owning rental property themselves has been a big hassle. Their plan is to sell off their real estate and convert it to “Passive” Syndications. Almost always when I hear why they made this choice, their reasoning was incorrect and contains many wrong assumptions. When deciding to make a change using wrong assumptions, the outcome doesn’t turn out as expected.
Recently I read an article from a popular social media financial writer discussing this very move. The writer made it sound like this real estate transfer was the greatest thing they ever did. There were so many mistaken assumptions in the article that it moved me to discuss the topic. I will not identify the article in question because there are so many others just like it. I’m hoping I can help other real estate investors ovoid the same mistake.
The premise of this decision is that owning the property oneself is a big hassle and investing in a syndication is no hassle at all. Both of these assumptions are incorrect. Additionally, the hassle from owning investment real estate is almost entirely self-imposed. If the hassle is self-imposed, then the hassle can be removed without selling the property. This is the best of both worlds. No Hassle and higher passive profits.
I own 55 rental units spread out over four multi-family apartment complexes, as well as two commercial buildings. My hassle factor is close to zero. Following are some of the statements made by the author against owning real estate in favor of syndications along with my rebuttal.
Don’t want to deal with property issues
Hiring a property manager is key to eliminating property issues. But the method of dealing with property managers is the number one mistake unhappy real estate investors make. We hire a property manager to take care of all the day to day issues in the management of residential or commercial real estate. Then we interject ourselves into the picture anyway. If we are paying them to do a job, then get out of the way and let them do their job! Don’t hire someone to remove a hassle in life and analyze every decision they make, which doesn’t eliminate the hassle. This is like hiring a house cleaner to remove keeping the house clean from your plate but then cleaning the house before the house cleaner arrives each week because you don’t want them to see your mess. You hired them to take care of the mess, let them!
In this case the owner in question has a property manager, yet the main reason for selling was to get rid of annoying and inconvenient tasks. They no longer wish to deal with rent increases, tenants, tax authorities and so on. They complained about fighting with the manager about charges, working to get the management company to do things their way, and needing to check every expense each month. Those are exactly the things they hired the property manager to do. So why is the owner also still doing these tasks? This is the epitome of self-imposed hassle.
Interestingly, investing in a syndication does not remove the property manager or any of these other mentioned issues from the picture. The syndicator will hire a property manager, the syndicators certainly are not fixing the toilets themselves, so the expense of a property manager is not eliminated by switching to a syndication. But changing to a syndication makes it impossible to meddle in the affairs of the property manager. So why not stop meddling instead of selling? Stop interfering with the property manager!
When I first moved from managing my properties to having a property management company do it, I went through some growing pains. They didn’t do everything the same way I did, and I felt compelled to teach them the “right” way to do it. It did take me a little while to let go of the process and let them do it their way. My way is not the only good option. They already have a well-oiled machine in place, and it will be a big hassle for them if they have to treat my properties different than all the other properties they manage. Just get out of their way.
Initially I was getting calls from the manager for things I didn’t want to hear about. All I did to get rid of the calls was raise the dollar amount of the things they needed permission to do. I had to learn to let go of those decisions and allow them to do what I hired them to do. My life got way better after I finally let go of all the management decisions.
You don’t need to sell your property and buy a syndication to get rid of these decisions. Just get out of the managers way. Walk away and let them take care of everything, except spending the profit each month. That is exactly what you expect to happen with the syndication, so just let it happen with your property and retain ownership. Same hassle level, more profit for you.
Syndications are ZERO Hassle
Investing in syndications is not more passive than owning the property yourself; the tasks to be done simply change. The owner in the article hired a mentor to learn how to find, vet and choose a syndication, which “will reduce the startup time from years to months.” That sounds like a hassle to me.
If it were as simple as writing a check to the syndicator and collecting the money, then there would not be courses on how to invest in syndications. There is a lot more work to picking each syndication investment than people let on. Letting the property management company do their job and not micromanaging them would have been a lot less work than going through the process of selling the property and vetting each syndication for years to come.
The way most syndicators make their money is not by providing long term passive income, which is what the owner is seeking. They make their money by creating appreciation, then selling the property. That means in a few years the syndication will sell, so the syndicator can line their pockets, then they send the investors some profits. Once the investor receives their share from the sale, the investor must start all over again searching for a new syndication to invest in. Having to find a new syndication every few years is not zero hassle long term passive income.
In this case, the rental owner is trading current passive income that should last for the rest of their life, for a syndication investment that will last 3-4 years. How many times throughout their life will this owner be required to find and vet another syndication? Keeping the real estate already owned is a lot less hassle.
My investment in the 55 residential rental units that I already own is money that I will never need to reinvest for the rest of my life. I am very thankful I don’t have to find a new syndication every few months as each deal goes “full circle.”
Finding new syndications every time an old one was sold was not taken into account by the owner who made the switch and then stated “Now I can sit back and let the money roll in.” This owner also stated that now it is “zero hassle,” which will not be true.
Why am I doing this to myself?
The author stated that owning the real estate was a good investment with a good income and when talking about the hassle stated, “why am I doing this to myself?”
Yes, it was already a good investment and already owned.
Yes, the hassle being experienced was self-imposed.
Yes, the hassle could be eliminated while continuing the ownership.
Do yourself a favor if you already own investment rental real estate and are feeling like it is a hassle; get out of the way. Turn it over to a property management company, pay them to take on the hassle, and you will reap the reward. Treat your own property as if it was a syndication.
If you are not willing to pay the money for a property manager, don’t mistakenly think you will avoid that cost by investing in a syndication. They pay for a manager too. You will then share the profit with the syndicator.
There is also a way for you to be the manager with almost no hassle if you automate everything like I did when I managed my rental properties as a full-time surgeon.
If you need help automating your rentals, check out my course The Doctors Course to Automating Your Real Estate Investments. Don’t give up a big portion of the profits to a syndicator. My book, The Doctors Guide to Real Estate Investing for Busy Professionals will also help you remove the hassle factor.
Either way, hiring a property manager or automating your rentals, real estate investing should never be a hassle. There is a reason the IRS classifies rental real estate a passive investment. It’s time to make your rental real estate investment passive and hassle free.
