3 Options For Funding Your Real Estate Syndication Investment – Which Will You Choose?

The question of how and where to obtain the funds necessary to finance your investment option arises when you learn more about real estate syndications and make your investment selection. The idea of passive income sounds great, but in order for the payments to help you in the way you anticipate, your personal finances must be intelligently set up. The usual starting point for investments is $50,000. There has to be a tiny bit of forethought and strategy since that’s probably a little more than you can dig up from in between your couch cushions.


You’re A Courageous Individual Investor

Solo cash investing is a quick and easy way to invest in real estate syndication deals, using your savings or other liquid assets as capital. As a sole signee, you can select the deal, sign and complete documents, and wire the money into the deal. You will receive distributions directly into your personal account and enjoy the tax benefits of owning real estate. No bookkeeping is needed, as you receive a K1 each Spring with tax information. As an individual investor, consider alternative forms of asset protection like insurance or trust, and ensure a will with a designated beneficiary. The operator team doesn’t collect beneficiary information, so it’s crucial to have this information clearly stated in your own legal documents in case of unexpected events.


You’re Part Of A Powerhouse Team

In community property states, marital assets are jointly owned, requiring spouses to invest together. This process is simpler with two signees and an investment deal agreement. However, partners must consider asset protection strategies and put legal beneficiary designations in place. This can be state-determined or set up in a trust or will, just in case. Both partners should set up beneficiary designations ahead of time to ensure a smooth and efficient investment process.


You’re Ecstatic To Invest As An Entity

Investing through an entity can be done through a retirement account, trust, or LLC. These options can be used to invest in real estate syndications with retirement funds or to harness the protections of a business intentionally set up for investing. However, these options require one signee and paperwork, making them more complicated. It is essential to consult a tax professional familiar with your financial situation and applicable tax laws to determine the most beneficial choice. Distributions and benefits from the investment apply to the entity, ensuring deposits go back into your retirement or business accounts. It is crucial to keep funds separate to avoid unexpected taxes or fees from accidental withdrawals. The level of asset protection and heirship depends on the Operating Agreement of the LLC, Trust, or IRA used. It is important to check with your account provider about any rules or fees related to real estate investments and understand the benefits of depreciation or loss. Additionally, investing in real estate syndications through a self-directed IRA may result in potential liability for UFDI or UBIT taxes.


So, Which Funding Option Should You Choose?

The best option for you depends on your needs, tax benefits, and asset protection. If you want cash flow and tax benefits to boost your lifestyle, an individual or joint investment may be the best. If you plan to replace income or fund future expenses, investing from personal assets may be the best. For long-term growth and distributions, consider a QRP, self-directed IRA, or LLC. If you plan to triple your retirement assets within 15 years, entity-type options might be best. Factors such as marital status, state, children’s age, large purchases, retirement date, distribution plans, and heirship designations can also influence your choice.


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