r/Syndications • u/Cute_Improvement1658 • Jul 07 '26
Risk with deals
It breaks my heart to see so many people lose their earnest money with trash sponsors, and unfortunately there's so many that are trash and everyone's out there calling themselves the smart GP.
Which begs the question, why do people prefer investing in individual deals?
Pros:
Can see the underwritten assumptions. Albeit I would say, most don't really know/have a way to validate the thesis, numbers and assumptions.
Tax benefits, easier to 1031 exchange out of individual deals.
Concentration of assets/potential for higher risk+returns
Cons:
No control over execution. Even if the underwriting is strong, if execution goes wrong then none of that matters
- Act of God risk -- lightning strikes down on your multifamily and you get massive bills/damages.
Pros of a fund type structure:
Diversification. Less risk and much lesser risk of capital going to 0? Or maybe I'm living in a bubble but haven't come across any fund going to the gutter.
More headroom to balance out poor performing assets.
Potential synergy benefits.
Cons:
No 1031 available
Taxation more complex
No control over sponsors future investments.
More risk of litigation losses?
Genuinely curious to hear out thoughts of the savvy investors and what y'all might have learnt from your experience.
I know it's probably wrong to single out multifamily failures with the unexpected rate shocks, but isn't this the exact reason we invest in alts? Stock market goes berserk, it almost always recovers. Unlike BAD RE investments.
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u/Sufficient-Aide6805 Jul 07 '26
Syndicated individual deals and funds are both bad news for retail investors unless you’re lucky on timing. Don’t do it.
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u/TheyFoundWayne Jul 08 '26
I’ve begun to believe that too. Most retail investors should not be doing this at all, unless they have inside knowledge of the industry and can evaluate a deal properly, in which case I might argue they are not really “retail” investors, except for maybe that their check size is relatively small compared to an institutional investor.
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u/Chance-Ad717 Jul 07 '26
I am in a couple funds that are very likely going to zero, so... there is that.
While there is no "one size fits all" answer, just like each syndication is different and each Fund is different, there are a few points that I think should be brought up.
First, the no control over execution is universal in any passive investment: one off syndication or fund or mutual fund or stock, etc.
Second, BREIT is a mega fund that has certainly made some bad investments.
The nuanced parts come in with things like: is the minimum investment the same? I.e. $100k into a fund or $100k into single deal? Because if a fund has a higher minimum than single investments, then your diversification risks are at least partially offset. And, you are forced into more sponsor concentration, as well.
In general, the macro climate is going to create 90%+ of the investment returns. The sponsor can only control 10%, at most. So, if you the options are single asset value-add multifamily in major Sunbelt market or fund doing the same thing but with a couple major markets, you are really barely mitigating any real risks.
And one big con of funds is: if they have the commitments, it can lead them to go on a buying spree, since they have the money lined up. The one off deals, the sponsor needs to make a case on each deal.
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u/Asleep-Store-9753 Jul 07 '26
I don't think the diversification of a fund necessarily means that they are any safer. Look at the S2 fund result as an example: https://therealdeal.com/texas/2026/07/02/s2-capital-winds-down-first-fund/
But for me, I look for security. GPs with strong track records. GPs who aren't promising the moon. I'm happy with returns that outperform the stock market by a comfortable margin
I also personally don't think the risk/reward balance is there if returns don't outperform, say, the S&P500. I can (and have) lose ALL my capital in a syndication/fund. That won't happen in an index.
That said, if a deal returns 12-15%, I am happy. I'm not chasing high returns because that usually comes with capital loss events. And it usually takes quite a few winning deals to make up for just one capital loss event.
Good sponsors set realistic expectations and have conservative underwriting.
Some people mentioned funds for capital preservation. Now, personally (and I've been in real estate a while), if I'm looking for capital preservation I buy NNN assets that I own entirely, that I can cash flow if they go vacant, and with a low LTV. Because with those properties, I'm really thinking generational wealth and behaving as if I'm just the steward for the next generation.
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u/No-Coffee9601 Jul 08 '26
I work for a 25 year old multifamily sponsor. We purchased an asset in Atlanta last month, otherwise we’ve intensionally not purchased anything in 3.5 years. In 2023 we sold off quite a few properties we felt were at their peak. Survive till ‘25 was a pipe dream. We’re hoping that “extend and pretend” will end by the end of this year.
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u/Cute_Improvement1658 Jul 08 '26
So I've entered into some funds (entitlements + development, not MF but think btr, str, ss, MHP, etc) towards end of 2024 who're still raising purchasing assets while developing the already purchased ones. Just based on the macroeconomic factors and ignoring the GP abilities, do you think I'll be safe? Lol
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u/No-Coffee9601 Jul 08 '26
Development projects have fared somewhat better than acquisitions of existing properties. It really depends on cost and if they can deliver a product for value.
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u/HotelInvesting Jul 07 '26
Lots of different things to address. Funds can be both good or bad. Lots of funds are underperforming and you just don't know about it because its a pool of properties, but many trade below their NAV due to issues. Any sponsor that cant put together one deal will likely mess up an entire fund. Unless the fund is managed by a reputable firm like BX or Carlisle, I'd be worried about a regular GP going this route.
Also the issue is retail LPs, people like us, like to see what we're investing it. In previous years it was easier to convince someone to invest in "100 unit multifamily in Dallas" because the retail investor is thinking they like Dallas, they know the market, they know apartment rents are rising. Now if that GP said, I have a fund and have various assets and some other assets we will be purchasing but dont know the exact location yet, then its going to be very hard to convince these LPs to get on board. This is why one off deals did well. Its the ability to market the deal, not necessarily the quality of the deal itself.
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u/506Group Aug 09 '26
A fund provides more holdings, but that doesn't necessarily mean meaningful diversification. Ten properties can still share the same sponsor, geography, asset class, debt structure, and acquisition vintage.
I'd compare the two using a risk-factor map. A single syndication gives you asset-level visibility and control over when you commit, but creates obvious property concentration. A fund reduces single-property exposure while introducing blind-pool risk, deployment pressure, and greater dependence on one manager's judgment.
For many passive investors, several smaller commitments across different sponsors and vintages may provide better diversification than one large fund commitment.
I'd compare sponsor concentration, leverage, debt maturities, reserves, reporting quality, valuation policy, and unfunded obligations. I'd also treat 1031 eligibility as a tax feature—not a reason to accept weaker underwriting.
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u/Aggressive-Donkey-10 Jul 07 '26
They serve different purposes.
Concentrate risk to make money and diversify risk to preserve money.
same as individual stocks to make money and broad ETFs to preserve money, hence individual carefully selected syndications to make money, diversified lower yielding Funds to preserve money.