Regardless of your real estate investing background, syndications require specific knowledge that sets them apart from other types of deals you’ve likely been involved in or exposed to.
Your grandpa owned a few properties? Cool.
Your dad used to flip homes for profit? Cool too.
Now you’re interested in approaching real estate a little differently? Awesome.
So, it’s natural to wonder about the returns, minimum investment requirements, taxes and more when it comes to real estate syndications.
Today, we will discuss these four technical specifics:
● What are the returns like in a real estate syndication?
● What’s the minimum amount I can invest?
● Can retirement funds be used to invest in syndications?
● What about taxes? We love details too and commend you for digging into the not-so-surface elements of this type of investment.
#1 – Returns
Real estate syndication offers passive investors the opportunity to earn cash flow and profit split returns. Cash flow returns are checks or direct deposits from the time the deal closes until the asset is sold, while profit split returns involve investors splitting the profit from the sale according to the contract structure. For example, if an investor invests $100K, they can expect 8-10% in cash flow returns, which is approximately $8K per year or $667 per month. When the asset is sold, investors can expect up to 40-60% returns on their initial capital investment, resulting in a return of $100K plus $50K in profit. However, these estimated returns can vary based on market conditions, location, and deal structure, and it is not guaranteed that the investor would double their money.
#2 – Minimum Investment Amount
The minimum threshold for passive investing in real estate syndication is $50K. Those interested should have liquid funds, be aware of potential losses, and be prepared for potential loss. The money will be illiquid during the hold time, so financial arrangements should be made to avoid long access to the invested funds.
#3 – Retirement Funds (Yay or Nay)
Retirement funds can be used to invest passively in real estate syndications. To do so, one must roll their existing account into a self-directed IRA account, which can be facilitated by many self-directed IRA companies. Once the funds are in the IRA, investors can choose their investment options. They must coordinate with their custodian, provide legal documents for the syndication, and send funds on their behalf. However, all returns must go directly back into the self-directed IRA account, never into personal accounts.
#4 – Tax Benefits
Investing in real estate syndications allows passive investors to be part-owners in the underlying asset, receiving tax benefits such as accelerated depreciation through cost segregation. Rental property can depreciate over time, and commercial real estate syndications often require a cost segregation study to determine eligible assets. This allows front-loading depreciation into the first few years of ownership, making it ideal for a 5-year deal. This tax advantage is one of the largest benefits of investing in real estate syndications.
Confidence in the Technical Details
After understanding the technical aspects of passive investing in real estate syndication, you can confidently approach your search for a deal. Retirement funds can be used, with a minimum investment of $50K, and there are potential tax benefits and returns. While there are risks, having a clearer picture of your next steps is essential. If you were considering investing with retirement funds, seek help in rolling funds into a self-directed IRA. If you’re unsure about your liquid cash, know the minimums and the potential to double your money in just a few years. With less technical questions, you’re closer to becoming a confident passive real estate syndication investor.