Every week, I’m asked the same question: “Should I buy my own commercial real estate properties or invest in syndications?”
Whether you’re a seasoned investor or new to real estate, this question is crucial for determining how to best allocate your money, time, and energy to build wealth and financial freedom.
While the answer isn’t straightforward, analyzing the benefits and challenges of each strategy can help you determine what aligns with your financial goals, lifestyle, and resources. Let’s explore the three main paths: direct ownership, syndications, and the standout option—investment grade NNN (Triple Net Lease) properties with credit tenants.
Owning Real Estate
On paper, direct ownership of commercial real estate sounds straightforward: you own the property, collect rents, and (ideally) benefit from appreciation. In practice, though, direct ownership can be complex and demanding.
1. Control and Active Management
Owning your own real estate means you’re in full control of every decision—what to buy, how to manage it, and when to sell or refinance. This level of autonomy can be incredibly rewarding, especially when you see your efforts turn into steady cash flow and property appreciation.
However, the flip side is that owning real estate is rarely passive. Managing properties, even with the help of property managers, is akin to running a business. Issues like tenant turnover, maintenance requests, and renovations can quickly consume your time and energy.
For example, I recently dealt with a tenant in one of my multifamily properties who requested upgrades to stay through a lease renewal. Navigating the cost of renovations versus potential rent increases took significant time—time I didn’t necessarily have to spare.
For those seeking to own properties, this active involvement is often underestimated. While the control is appealing, the demands can conflict with other professional or personal priorities.
2. Capital Intensity
Owning commercial properties outright often requires a large capital commitment. Between down payments, closing costs, and reserves for operating expenses, you could be tying up significant liquidity.
Additionally, if you want to diversify your portfolio, the capital needed to acquire multiple properties can be prohibitive. For many investors—especially those starting out or juggling other financial responsibilities—this becomes a barrier to entry.
3. The Expertise Required
Direct ownership requires a steep learning curve. You must understand market trends, financing options, property management, and long-term investment strategies. Even experienced investors can misstep, particularly in niche asset classes like retail, industrial, or multifamily.
NNN Investment Grade Credit Tenant Properties: The Best Passive Option
If you’re looking for a less active ownership model, NNN properties with investment grade tenants are an ideal option.
What Are NNN Properties?
NNN (Triple Net Lease) properties shift nearly all operational responsibilities—property taxes, insurance, and maintenance—to the tenant. This makes them one of the most passive ways to own real estate.
When paired with investment grade credit tenants (companies with strong credit ratings like Walgreens, FedEx, or McDonald’s), NNN properties become a stable, low-risk investment. These leases often span 10–20 years, ensuring predictable cash flow with minimal effort on the owner’s part.
Why NNN Properties Stand Out
- Truly Passive Income: Unlike other asset classes, NNN properties require little to no active management. With tenants responsible for property expenses, you’re left with steady, predictable rent checks.
- Stability and Low Risk: Investment grade tenants provide a level of reliability that’s hard to match. Even during economic downturns, these tenants are less likely to default, ensuring stable cash flow.
- Scalability: Because these properties require minimal oversight, you can scale your portfolio more easily than with multifamily or other CRE assets.
Challenges of NNN Properties
While NNN investments are attractive, they often require substantial upfront capital. High-quality assets in desirable locations with credit tenants command premium prices. However, they are worth it for investors seeking passive income with minimal headaches.
Syndications: A Flexible and Scalable Option
Syndications allow investors to pool their capital to collectively purchase and manage larger properties. As a limited partner (LP) in a syndication, your role is purely financial, while the sponsor or general partner (GP) handles operations.
1. Passive Investment
Syndications are an excellent choice for investors who lack the time or expertise to actively manage properties. You simply vet the sponsor, invest, and collect returns.
The drawback? You relinquish control over decisions like when to sell, refinance, or reposition the property.
2. Leverage Expertise
By investing in syndications, you leverage the sponsor’s market knowledge, financing capabilities, and management skills. This opens the door to properties you might never afford or manage on your own, such as high-end multifamily, industrial facilities, or even niche sectors like data centers.
3. Diversification
One of the biggest advantages of syndications is diversification. Instead of sinking all your capital into one property, you can spread it across multiple deals, asset classes, and markets.
Challenges of Syndications
The tradeoff is that your capital is tied up for the duration of the investment. Most syndications run 5–7 years, during which you won’t have access to your principal. Additionally, you need to vet sponsors carefully to avoid underperformance or mismanagement.
Direct Ownership vs. Syndications vs. NNN: Which Is Best?
If you’re seeking the most passive form of CRE ownership, NNN properties with investment grade tenants are hard to beat. They offer stable, predictable income with minimal effort.
For investors looking to diversify or access larger deals, syndications offer a flexible and scalable approach. Meanwhile, direct ownership provides maximum control but requires time, expertise, and substantial capital.
My Advice
Consider blending these strategies to diversify your portfolio:
- NNN Properties for passive income and stability.
- Syndications for scalability and access to larger, diversified investments.
- Direct Ownership if you’re hands-on and want to build expertise or wealth through property appreciation.
Getting Started
No matter where you start, the key is to align your investments with your goals, risk tolerance, and available capital. Set clear objectives and take action—whether that’s researching NNN properties, connecting with syndication sponsors, or purchasing your first investment.
Remember, there’s no one-size-fits-all answer, but the flexibility of CRE allows you to craft a strategy that’s right for you. Investment grade options like NNN credit tenant properties or syndicated funds provide exceptional opportunities to build wealth while balancing lifestyle and financial goals.
For more insights, explore our platform for the latest on investment grade real estate opportunities tailored to passive income investors
