Why I Prefer Joint Venture to Syndication

Multifamily investing is no doubt a great way to grow wealth—potentially a lot of wealth. But while one of the most popular ways to maximize that investment is through syndicates, those may or may not be the best option for you. It is important to note that syndicates often use marketing to get people to invest their money in their ventures, but then do not allow them to get to a place where they are actually part of the deal or become an operator. I want to share another option to help people get to that point, which is joint venture.

Joint Venture vs. Syndication

Before you decide what investing option suits you best, you need to understand the difference between the two. A syndication is a group of individuals or entities pooling their money to invest. There are a couple of group types in syndication. A syndicate, or sponsor, is in charge of finding, acquiring, and managing real estate, while a limited partner, or LP, buys illiquid securities to help the operation go.

To illustrate, I like to describe syndication as an airplane. More particularly as a jumbo jet. As a limited partner, you buy your ticket at the ticket counter, go through security, get to your gate, check in, go down the walkway, greet the flight attendant, wave to the pilot and copilot, and then you go take your seat, after which you buckle in for the ride. That is what a limited partner does in a syndication. They do not have a voice, they do not have to do anything else or to try and improve anything about the operation. They just pay to be there.

The workers, on the other hand, are paid to be there, and are paid to get the passengers from point A to point B. They are part of the general partnership. General partners receive due compensation for their work by being there, and are important parts to the operation, but with that said, if you are on the limited partner side of the deal, then you are not necessarily maximizing your dollar because you are not participating in the work.

Being a limited partner, of course, works well for a lot of people, and that may be a preferred option for some, but for others who want to be a more active part of the process, joint venture is the better option.

A joint venture is two or more individuals or companies working together for the purpose of carrying out a particular project. As opposed to the jumbo jet, I would classify a joint venture as a fighter jet. From my perspective, this is the coup de grâce—and that’s not just because I wanted to be a fighter pilot when I was a kid. In this situation, everybody is participating, everybody gains experience, everyone has a voice, and there are a bunch of roles for all partners to fill. And in this situation, the deal is only limited by the capacity of the partners making up the deal, so the sky’s the limit.

When it comes down to it, there really is not much of a difference between syndication and joint venture outside of the inclusion of limited partners. In essence, the general partnership in a syndicate is a joint venture. And I don’t think this is a big conversation because it doesn’t sound as attractive as being a limited partner. But from my point of view, if you have the capacity, and if you have other people in your network with the capacity, then you have fewer people that are part of the deal, and therefore, you get to own more of the deal and are able to have more control over your dollar.

The Pros and Cons

As with all types of investments, both of these options have their up and downsides. As a limited partner in a syndication, you will likely work with more experienced investors, have stronger property managers, and non-recourse debt, but you won’t have a vote. It won’t count as experience, if that is what you are looking for, and less deals will be available.

With a joint venture, you’ll have more deals available, be able to get that experience box checked more easily, have voting rights, but on the other hand, you could have property managers with less experience, recourse debt, and more challenges with management. But even with those cons, joint ventures allow for partners to be more involved and figure out what does and doesn’t work. It allows more access for investors who aren’t already wealthy. It expands your network, makes for less full-time competition, and facilitates more deal opportunities.

All said, it isn’t necessarily about which option is better, but rather about how the investor wants to go about their investments, and which course best fits their goals. I believe that for people who do want to be business owners, grow their wealth, and not just be a passive investor, getting involved in joint ventures is the better option by far.

If that sounds intriguing to you and you want to learn more about how you can get involved in multifamily home investing, visit my site to start building your knowledge with my podcasts and learn about my Multifamily Kickstart Program.

Real Estate Investing Report