Three Ways to Invest In An Apartment Syndication
How To Invest In A Real Estate Syndication
Real estate syndications come in various forms, allowing you to invest in different types of properties, like mobile home parks, self-storage units, apartment buildings, and shopping centers. These investments offer benefits such as passive income, stable cash flow, tax advantages, and diversification. Real estate is also a great way to protect against inflation and add variety to your investment portfolio.
As a passive investor, you don’t have to worry about managing the daily operations of the property—that’s handled by the sponsor team. This lets you save time and focus on other projects while still building wealth through real estate.
Understanding the Drawbacks
Despite the advantages, real estate syndications have some downsides. They are often illiquid, meaning it’s hard to access your money until the project is complete. Keeping a large amount of money tied up for several years might not suit everyone’s financial goals.
Most syndications require a minimum investment, usually around $50,000. It’s also crucial to work with a reputable syndication sponsor. Choosing someone inexperienced can significantly increase your risk.
Although it might seem appealing to invest with friends or family, it’s important that the sponsor has substantial experience in real estate syndications.
To avoid issues, make sure you have an emergency fund or other liquid investments before putting money into a real estate syndication. If you have other sources of funds, the lack of liquidity in real estate syndications becomes less of a problem.
Funding Your Real Estate Syndication Investment
When considering how to fund your investment, remember that the typical minimum investment is around $50,000. Since you likely don’t have this amount lying around, planning how to handle distributions for tax benefits and financial gains is essential.
Here are three main ways to fund your real estate syndication investment:
Individual Investor Investing personally is the simplest option. You use your own saved money or liquid assets, sign the necessary documents, and transfer the funds from your account. You’ll receive distributions directly and benefit from real estate’s tax advantages. Keep in mind, you should consider asset protection through insurance or a trust, as the sponsor team doesn’t handle beneficiary information.
LLC or Trust Using an LLC to invest can protect your personal assets. Typically, in legal disputes, only the assets owned by the LLC are at risk. For example, if your LLC owns two rental properties, only those properties are at risk if sued. Setting up an LLC can also help keep your business and personal finances separate, making it easier to manage rental income and expenses.
Retirement Accounts Certain retirement accounts, like Self-Directed IRAs and Self-Directed (or Solo) 401(k)s, can be used for real estate investments. These accounts are often managed by custodians who handle the paperwork and fund transfers for you. Ensure you pick a custodian who can act quickly, as many real estate syndications fill up fast. Also, review the rules for your retirement account carefully, as distributions usually need to go back into the account and cannot be used for short-term cash flow.
Conclusion
For investors who prefer not to manage properties themselves but still want the benefits of real estate, passive investing in a multifamily syndication is a great option. It provides income and tax advantages without the daily management hassle.
When deciding how to invest in a real estate syndication, consider factors like your location, family situation, upcoming expenses, retirement plans, and how you plan to use distributions. The best choice depends on your cash needs and how you want to handle tax benefits.
If you have questions or need help, schedule a call today or fill out our investor form to get in touch.
