Are you thinking of investing in a real estate syndication? If so, you might be surprised to find that there are at least three ways to fund your real estate syndication investment.
Which one is right for you? It depends on your family situation, your investing and personal financial goals, what you plan on doing with the distributions, and more.
There’s not a one-size-fits-all answer, and you’ll want to weed through the details here so you can make the corresponding moves before our next deal opens up.
So, which of the three funding options is right for your real estate syndication investment?
We’re so glad you asked!
The quickest and easiest way is to invest individually with cash. This means going in on your own (no partner) with capital you had in savings or other liquid assets. You’d be the sole signee and completely in control of simply transferring the money from your savings into the deal.
Individual investors receive any distributions from the syndication deal directly into their personal accounts and reap the tax benefits of owning real estate.
No need for bookkeeping either because you’ll receive a K-1 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 directly yours!
Individual investors should consider alternative forms of asset protection like insurance or a trust, and may need to ensure there’s a will in place with a designated beneficiary.
The operator team doesn’t collect beneficiary information, so in the case that something unexpected occurs, you want to have that clearly stated in your own legal documents.
Suppose you wanted to team up with a partner or a spouse, pool together the fifty-thousand of personal money, and invest in a real estate syndication deal together? Yep! It happens all the time!
In fact, many people live in community property states, which ensures all marital assets are jointly owned. So, spouses are required to invest together, reap the distributions, and enjoy the tax benefits jointly.
This gets slightly more complicated since now two signees are required, but it’s still a pretty easy process. Again, however, it’s important that both partners consider asset protection strategies and put legal beneficiary designations in place.
Whether this is state-determined or if it can be designated in a trust or will, it should be set up by the spouses or partners ahead of time, just in case.
Investing Via Entity
The third way you might choose to invest is through an entity. This can be inside of a retirement account like a self-directed IRA or a QRP, it can be through a trust, or it can be via LLC.
Depending on your state’s rules and the advice of your CPA, any one of these could be an option to invest in a real estate syndication through a retirement account or a business intentionally set up for investing.
This typically requires one signee, so it’s simple, but it also requires the filing of some paperwork, which makes it slightly more complicated. You always want to check with a tax professional familiar with your financial situation and the applicable tax laws to see which choice might be most beneficial to you.
When investing through an entity, your level of asset protection and heirship is based on the Operating Agreement of the LLC, Trust, or IRA you’re using.
You also want to check with the provider about any rules or fees pertaining to real estate investments and understand the benefits of depreciation or loss as applicable to the account. There is a chance if you’re investing in real estate syndications through a self-directed IRA, for example, that you could become liable for UFDI or UBIT taxes.
So, Which Of The Three Is Best?
Ultimately the question of which one is best depends upon when you’ll need the cashflow, how you’d like the tax benefits to be applied, and what level of asset protection you’re seeking.
If you’re interested in the distributions and tax benefits being applied to you personally and want cashflow to boost your lifestyle now, then an individual or joint investment may be the way to go.
Are you planning on the investment distributions replacing some income or funding little Joey’s future soccer club dues? Maybe investing your liquid assets, either jointly or individually would be best.
If you’re more interested in building long-term growth and having the distributions bulk up your retirement account, then you may want to explore a QRP, a self-directed IRA, or even an LLC situation.
Are you intent on tripling your retirement assets within the next 15 years so you can live out your dream lifestyle during those elder years? Then one of these entity-type options might serve you best.
Many factors might affect your choice, like if you’re married with kids, which state you live in, how old your kids are, if you have any large purchases on the horizon, when you’re hoping to retire, what you plan to do with the distributions, and what heirship designations you require.
Funding Your Next (or First) Deal
To invest in a real estate syndication, typically you have to be an accredited investor. However, over the past year, four of our fourteen syndication deals have been available to sophisticated investors.
In other words, you don’t have to be a big shot to get into this stuff! All you have to do is join the Goodegg Investor Club and have a little chat with us about your investing goals, what you’re looking for, and how you see real estate syndications moving you toward the lifestyle you’ve been dreaming of. Then, and only then can we share our upcoming deals with you!
Whether you’re a sophisticated or an accredited investor, our deals tend to fill up fast, so take some time to really think about whether you’d be best to invest individually, jointly, or through an entity, first.
Once that legwork is done and you have your capital “in hand,” we can help you find a real estate syndication deal that best aligns with your investing goals.