Instead of purchasing a condo, home, or rental property on your own, you pool your money with many other investors. We all invest together in a large commercial real estate asset. For example, we may purchase a multifamily apartment building with 400 units or an industrial warehouse.
You may have heard of real estate crowdfunding, which is the same idea as passively investing in a real estate syndication. It gives you the benefits of real estate ownership (cash flow, appreciation, and tax benefits) without requiring the time commitments or active landlord headaches needed to find, research, analyze, negotiate, finance, rehab, and manage the investment yourself.
How Real Estate Syndications Work
General and Limited Partners
A real estate syndication consists of General Partners who do all the work and a group of passive investors who are Limited Partners. When the Wealthy Mind Investments team identifies a lucrative commercial real estate opportunity by working together with our General Partners, we create a private placement offering to qualified accredited investors.
Purchase Larger Assets as a Group
A syndicated group of investors can purchase much larger investment assets than a single investor or a partnership. Bigger properties have several advantages, including economies of scale, where costs come down through efficiency, and more predictable cash flow.
Passive Investors Can Diversify
Syndications let passive investors diversify their investments in different assets and markets across the country. Even better, commercial real estate provides a hedge against inflation and diversification from the volatility of Wall Street.
Cash Flow Distributions and Attractive Returns
You as a passive investor receive regular cash flow distributions, the potential for attractive 20% annual returns, and appreciation profits when the asset is sold – usually in three to five years.
Eligible Investors for Real Estate Syndications
To qualify as an accredited investor, you must meet one of the following criteria:
Tax Benefits of Investing in a Real Estate Syndication
There aren’t many investments that can compete with the tax advantages offered by real estate. You get the same tax benefits as an active investor as a passive investor because the tax benefits are passed through to you in real estate syndication.
This is a huge deal because even though you’re not actively involved in renovations or maintenance, you still get full tax benefits. As a passive investor in a real estate syndication, you invest in an entity (typically an LLC ) that owns the asset. That entity is disregarded in the eyes of the IRS as a “pass-through entity”.
As a Limited Partner, you receive a schedule K-1 each year that shows your income and losses for the syndication. Depending on the type of asset, scope of improvements, and mortgage debt, the bonus depreciation and cost segregation can be up to 80 – 130% in year one.
These on-paper losses mean that you may be able to claim a significant reduction in your taxes against your other real estate income while collecting consistent cash flow
Note: This is different than investing in REITs. With a REIT, you are investing in a company, not directly in the underlying real estate. As a result, you don’t get the same tax benefits.
The most common tax benefits from investing in real estate include:
Writing off expenses related to the asset (repairs, utilities, management, and mortgage interest)
Writing off the value of the property over time (Cost Segration and Bonus Depreciation)
As a passive investor with Wealthy Mind Investments, you can take advantage of all the tax benefits that come with investing in real estate without doing or worrying about anything. You don’t even have to keep any receipts! You get K-1 every year which you can hand over to your CPA, and your work is done.
We recommend you consult with your tax advisor or CPA.