Should you consider Real Estate Fund vs single Real Estate Syndication?

Should you consider Real Estate Fund vs single Real Estate Syndication?

If you have been around the block and investing your money you probably haveheard already of Mutual Fund, but what about Real Estate Fund?

My Partner and I had an opportunity to connect with a friend we hadn’t seen for years.

He actually had no idea that we started Real Estate Investing. After all, were we not doing okay financially as Tech Guys with high wages as Busy Professionals ?

We told him that at the end of the day, our goal was to use as much capital
from our day jobs as to create multiple passive income streams as well as help others along the way. That is our plan on how we were creating true financial freedom and life on our own terms.

My friend works in a high-paying w-2 job like us, and after hearing about our personal financial goals, he eagerly stated that he was hoping to accomplish the same thing as us.

So, we discussed what his personal investing desires and goals were. He stated the following:

  1. He was interested in investing in real estate but did not want to
    have a headache of being a Landlord.
  2. He was hoping for tax-efficient income.
  3. He wanted to diversify his heavily tilted toward stocks portfolio.
  4. He wanted something to be hands off passive investor
  5. He wasn’t interested in chasing volatile high returns with limited risk
    and capital preservation in mind.

So we discussed various opportunities to utilize real estate investing to achieve those goals. I told him that it seemed to make sense for him to look into real estate syndication and funds in particular. Since, he was an accredited investor and therefore would qualify to invest in these funds.

Cash Flow = Freedom

At the end of the day, we want our money working hard , creating more passive income. We want it to create a revenue stream that we can live on.

Sure, appreciation (the increase in price of an asset) is great, but that typically only matters when the asset is sold later on.

In actuality, We want cash flow to return to my pocket now so we have more choices in life. We can spend the cash, work less, or reinvest it to increase our returns.

We told our friend that when we evaluate real estate funds, We focus on the
cash flow produced by paying special attention to something called “preferred returns.” These are the expected annual cash returns that are distributed first to investors before the Sponsor participates in any of the profits.

We look at projections for how the fund expects to produce that cash flow and how successful they’ve been in the past. We told him to remember above all else that if you have steady cash flow, you have flexibility and freedom.

In fact, that is the first thing we look at when evaluating a deal, how much cash flow will be paid out and when will 1 st distribution take place?

Tax Efficiency = Its how much keep not How

much you make what matters

Death and Taxes, can’t escape neither? Can you? Well apparently,, you can,
there are ways around it. Many people get involved in Real Estate for a specific reason that Real Estate Investing provides amazing tax benefits.

My friend had a very valid concern when it came to taxes. As we all know, it’s not only what you make but what you keep that’s important. He works in a high paying job but stated that he pays a lot in taxes, because of his w-2 job. He wanted an investment that kept more money in his pocket.

Personally, when we look at an investment, We also want to know if my returns are going to be tax-efficient in any way.

Just as if you were purchasing a rental property on your own, when a fund
purchases an investment, they have the opportunity to take advantage of
something known as depreciation and cost segregation which decrease the
amount of taxes that need to be paid.

We look for funds that are mindful of tax efficient strategies like these and that these benefits are passed along to investors.

The bottom line is that a 7% return, if it’s tax-free, can be better than an 10% return with tax consequences. It’s important to look at what the strategy of the fund is and not just look at a simple number.

Taxes make a huge difference, and knowing how to take advantage of certain incentives and tax breaks can result in significantly better cash flow.

Additional Diversification

Our friend was also looking for some added portfolio diversification, and that’s actually one of the major reasons we invest specifically in real estate funds as well.

When it comes to stocks, we all know that diversification is important. That’s why many invest in diversified in active or index funds. It helps smooth out returns as risk is spread across many assets.

The same can be said for real estate funds. For example, a syndication
investment is often focused on a single building. So when you invest in it,
everything rides or dies with that one property. Don’t get me wrong–when I find a good syndication deal, I jump all over it and still do.

However, there is some comfort knowing that investing in real estate funds
provides instant diversification, kind of like a mutual fund of syndications.

This diversification is created by owning multiple assets in multiple parts of the country since weather, economic, and political factors can be highly localized.

Funds also create diversification when it comes to market timing because they make purchases over time and at different periods in the market cycle.

It’s always nice to know that your risk is somewhat mitigated by this

So far I have invested into multiple funds that have had a minimum of 3 assets in each of them, some of them were refinanced and I received partial capital back. Up to date, I continue to hold them and receive passive income streams on a quarterly basis.

Passive Investing rocks

We told our friend it’s extremely important to know how to vet these funds
before investing in them, because once you do, you can consider your funds locked up for quite a while. Just how long depends on the nature of the fund, so that’s certainly something to consider.

When it comes to the vetting process, you have to identify the operators of the fund, their track record, and their goals. You need to know the type of assets they’re going to pursue, in which markets they’re investing in, and how they’re mitigating risk. This last factor is even more important now, considering we’ve been in a boom real estate cycle for quite a while and people are fearing some sort of upcoming recession.

The upfront time commitment to vetting these investments should be taken
seriously, but once it’s done, the rest of the process is extremely passive.

Ultimately, real estate funds are very passive. You invest and you wait for
checks on a quarterly or semi-annual basis. That’s about it.

Luckily for you, we do all the checking and vetting on your behalf. After we feel confident that we would personally invest our own money into this Real Estate Fund only then we would proceed by presenting such an opportunity to you and other investors.


Returns across funds can vary greatly depending on the goals and strategy of the funds. You can find funds with returns anticipated above 20% or more, but often that comes with much higher risk in this market.

For a portion of our portfolio, we prefer slightly lower returns, we value the
steady cash flow above all.

It only takes a simple calculation to figure out what my expected monthly and yearly cash flow will be.

For example, if the fund states that they expect 8% cash returns on a yearly
basis, if you invest 100,000, that 8% amounts to $8,000 a year or $666
monthly. So by knowing how much passive cash flow you need, you can figure out how much you need to invest to accomplish your goals

Also, don’t forget that if the returns are for the most part tax-free, that makes a significant difference in how much passive income you need to create.

Is Investing in the Fund right choice?

After discussing all of this with our friend, he naturally wanted to know where he should invest. We are not Financial Advisors and were hesitant to give him any straight advice. We told him that we are evaluating new opportunities all the time and in the process of starting our own fund with Partners in the near future.

Again, we are looking for an investment that we expect to produce steady cash flow indefinitely. This fund would be open with a limited period of time and we would notify him and other investors of an investing period which typically lasts 30-60 days. That way he can evaluate his options and get all questions answered. The goal here is to buy and hold the assets and keep them for the long term. That’s something we strive and appreciate because that means that we’re able to keep it very tax-efficient.

Usually, taxes are due when properties are sold. So, we are planning to hold
properties or using 1031 exchanges to prevent a tax trigger, then that’s a huge plus for me as the investor.

Of course, our Team will be taking advantage of tax-efficient real estate
strategies like depreciation and cost segregation and pass those benefits along to our investors.

At the end of the day, our goal and new goal of our friend is to have assets that produce steady passive income, so that you can live beautiful life on our own terms.

More about the author: Alex Kholodenko

Alex is a Managing Partner at Wealthy Mind Investments.