Both turnkey single-family rentals and multifamily syndications are great strategies for the real estate investor who wants to be passive. Both can mitigate the risks of owning real estate long-distance and provide healthy returns without requiring investors to be landlords.
A closer look, however, reveals certain features in which multifamily syndications can be a more passive experience for investors.
One such feature is in the amount of bookkeeping and financial management involved in the real estate investment.
With both turnkey single-family rentals and multifamily syndications you, as a passive investor, should receive periodic financial statements from the Turnkey or Multifamily Operator.
For turnkey, this should be provided monthly and detail the gross Income, Expenses, and Profit-Loss on the property. In multifamily, the financial statements will most likely come on a quarterly basis, and include the Income, Expenses, and Profit-Loss for the entire property.
Reviewing these statements is pretty passive in both cases, as long as you understand how to read them. However, beyond these reports, managing other aspects of the bookkeeping and finances for the property is where major differences can come into play for passive investors.
Mortgage Interest, Taxes, and Insurance
For turnkey single-family rentals, the Property Manager receives the rents from the tenant, pays the operational expenses of managing the property, and provides you with the net income (probably directly deposited into your bank account). However, your bookkeeping responsibilities do not end there.
If you have a mortgage on the property, then the Turnkey Operator most likely does not even know it, much less track the principal and interest payments that you make on a monthly basis. Similarly, they probably do not track the property taxes and insurance premiums, which if there is a mortgage, are typically escrowed by the lender. This means that you will need to separately account for these items in managing the books for the property.
In multifamily syndications, the Property Manager also collects the rents, pays operational expenses, and the Operator provides you with scheduled distributions on your investment. But in this case, all the operational expenses and debt payments on the property, including mortgage interest, property taxes, and insurance are already taken into account before distributions are paid to you.
Therefore, the amount you receive as your monthly or quarterly distribution from the Multifamily Operator is the final amount. There is generally nothing more that you need to account for separately.
Appreciation & Equity
Another factor to consider in financial management is the property’s appreciation and equity. As real investors, appreciation and equity are important when you’re ready to sell the property and exit the investment, or for knowing when you can potentially leverage the equity in the property with a cash-out refinance.
In turnkey single-family rentals, the Operator is not likely to be tracking the appreciation on your property. As such, it will be up to you to monitor this and know when it may be an opportune time to refinance or sell.
In contrast, the plan for how appreciation will be used for a potential exit or refinance is an integral piece of the overall investment strategy in most multifamily syndications. Therefore, consistently tracking the appreciation and equity is a major part of the Operator’s responsibilities.
The final area discussed here is that of depreciation. One of the greatest benefits of investing in real asset are the tax benefits, including depreciation.
While both turnkey single-family and multifamily syndications will provide the tax benefits of depreciation, the Turnkey Operator is not going to calculate the depreciation for you on your single-family rental. That responsibility will fall to you or your accountant.
For multifamily syndications, the Operator will complete the depreciation calculations as part of the annual financials and determining the final profit or loss. As such, depreciation in the property will already be accounted for when you receive your investment statement and end-of-year tax statements from the Multifamily Operator.
Investments in both turnkey single-family rentals and multifamily syndications can be a great strategy for passive investors.
However, when looking at the investor’s bookkeeping and financial management responsibilities, multifamily syndications can be more passive in nature than turnkey single-family rentals.
Which strategy is better really depends on just how passive you truly want to be.
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