Real estate syndication is an effective way to raise funds for investments in real estate. It’s a strategy that both individual and institutional investors can use, but it’s essential to understand how each type of investor works with syndication.
When investing in real estate syndication, a critical question is how you will fund your investment. You must be strategic in your finances to maximize the distributions and ROI. Funding your real estate syndication investment has several options. You can choose from three types of funding, depending on your family situation, investing goals, and other factors.
Here, we’ll explore how you can fund your real estate business with debt and equity to get the highest returns possible on your investment.
If you want to invest in real estate quickly and with minimal hassle, consider investing solo with cash. You are responsible for selecting the deal and completing all required documents on time—you are in complete control. You use your savings or other liquid assets to fund the deal as a single investor.
Individual investors have many options when it comes to investing in syndication. For example, you can invest in syndication through crowdfunding platforms or real estate investment trusts (REITs). Or, if you have the capital necessary to make more significant investments, consider investing through a real estate fund.
As a solo investor, you’ll be able to reap the tax benefits of owning real estate without the hassle of managing properties or worrying about bookkeeping. You will receive a K1 each spring with all the information you need for your taxes. When you invest personal money, all the benefits, tax breaks, distributions, and other joys of being a real estate syndication investor are yours.
Let’s say you and your spouse want to invest fifty thousand dollars in a real estate syndication deal. That’s possible if you live in a community property state. That means all marital assets are jointly owned. So, you and your spouse must agree on an investment together, reap the distributions, and enjoy the tax benefits together.
Teaming with family members or friends can also split costs and spread risks. You can also team up with other investors to diversify your portfolio.
If a married couple or long-term partners want to pursue ventures together, they can set up an LLC or corporation. This gets more complicated since two signees are now required, and both of you must agree on an investment deal together. However, it’s still a pretty straightforward process. Both partners must consider asset protection strategies and put legal beneficiary designations in place.
Corporate investors are often looking for lower-risk opportunities that yield attractive returns, and syndications have the potential to meet both goals. The best corporate investors typically come from industries with unique strengths and weaknesses. They may also have access to tax benefits that can help them raise money more quickly than you might otherwise be able to do on your own.
Investing as an Entity
Real estate investing through entities, such as LLCs, is common. It’s simple to set up and requires little paperwork. However, it also can be more complicated than investing using other structures. Before choosing an entity for your real estate investments, speak with a tax professional about which type best suits your situation. You should meet with several professionals to get their opinions on the pros and cons of each structure before choosing one that works best for you.
Investing through an entity, such as a limited liability company or trust, can help protect your assets. To make things easier, consider using a company set up specifically to make investments. Investing through an entity can have several benefits, including asset protection and heirship level. The rules and fees for real estate investments vary depending on the type of entity you’re using. You should also understand how depreciation or loss works and how it applies to the account. If you invest in real estate syndications through a self-directed IRA, you could become liable for UFDI or UBIT taxes.
Leverage is a crucial part of successful real estate syndication.
In real estate, leverage is a key part of successful syndication. Leverage refers to the use of borrowed funds to invest in real estate. Leverage can be both good and bad. It can help you maximize returns and minimize risk, but it can bite you if used sparingly.
You should only consider using leverage as part of your investment strategy if you understand all its implications and have a plan for dealing with these potential problems.
The bottom line is that real estate syndication can be a powerful tool for funding your next real estate deal. Now that we’ve explored the various ways to fund syndication, it’s time to decide which strategy is right for you and your project.
If you have any questions about How to Fund a Real Estate Syndications , you may contact us here: