Invest Passively in Syndications and Pay Less Tax
Hi, I’m Dan
And I’m Brooke with the High Yield Real Estate Investing Podcast
We talk with plenty of people who are interested in learning more about real estate. It’s why we start this podcast! Usually, these people are already well established in their careers, have some financial stability, and are looking to diversify away from the stock market. Or maybe they’re a high-income earner and Uncle Sam takes a huge chunk of their paycheck. They’ve heard about real estate and want to know more but don’t know where to start. If that describes you then listen up, this episode is for you! Let’s talk about why investing passively in a multifamily syndication would be right for you.
The absolute easiest way to get started in real estate is to buy REITs with your brokerage account. But we don’t recommend that and we even made an episode specifically on REITs. The next easiest and all-around better option is to be a passive investor in a syndication. A syndication is a group of people or business interests that pool their assets together to buy an asset they couldn’t buy individually. This syndication is usually led by an experienced investor. We see this format all the time in real estate. A Syndicator will buy a large multimillion-dollar property with funds from individual investors just like you. The investors then benefit from the higher returns of a larger property than they could buy individually while retaining all the tax benefits as well.
Why would you want to go this route as opposed to buying and owning investment real estate yourself? Well, let’s talk about a few reasons why the passive route may be ideal for you.
1.Passive investing in a syndication is the possibly the most ideal way to invest in real estate. You provide the money and let someone else do all the work while you do whatever you want with your time. Then enjoy getting great returns through cashflow distributions and eventually a big payout when the property refinances or sells. The only work required of you is finding and vetting an operator then reading through the legal and due-diligence documents provided to you. Finding an operator that you like and trust isn’t that hard, but that’s the main task on the passive side. You’re not going to send a large chunk of money to someone you don’t trust are you?
2.Maybe learning to find, buy, and manage property is something you’re not interested in or don’t have time to learn. I hear you. It takes WAY more time and energy to learn how to actively invest in real estate through owning your own properties than it does to hand your money to an experienced operator. Plus, unless you’re a bold superstar, you’re more likely to buy a small property to start on and get your feet wet. A small property will probably generate small returns for you. That money you used to buy the small property could be generating a much higher return in a syndication. This isn’t to discourage you if you want to actively own your own property though. Your goals, situation, and amount of time available are just different than someone who would benefit from the passive route.
3.The stock market can be extremely volatile and you know this. Maybe you’ve seen your retirement, nest egg, or life savings cut in half in a short amount of time. You want to diversify away from the stock market for a more secure financial future. Real estate has some key advantages over the stock market for this very reason. You can get higher returns than the average stock investor, real estate is more stable year-over-year, and there are some excellent tax benefits you can’t get in the stock market. And yes, you can invest in real estate passively or actively with your retirement funds. We’ll do an episode on that soon but for now just google self-directed IRA or 401k. If you have gains in the stock market you want to protect, moving them into a syndication is a great low-risk play for you. Over time you may even decide to make Real Estate your main investment vehicle and leave the stock market a small portion of your overall portfolio.
4.The tax benefits are huge. If you’re a high-income earner and it sickens you at the end of the year to see how much the IRS took out of your paycheck then listen up. What if you could increase your income without increasing your tax burden? A vast majority of real estate investments will generate either zero tax burden or a very minimal one. Most, if not all, of your cash flow distributions you’ll get every year will be sheltered from taxation by depreciation. This is true for those who own their own rental properties or those who invest passively. However, bigger properties can claim a high percentage of depreciation than smaller properties since they can afford to run a cost segregation study. So that’s another win for the large properties that syndications hold. If you start moving your investible cash over towards passive real estate holdings your passive income will increase which will have a very minimal tax burden. Do this over a period of a few years or whole career and you’ve just made yourself financially free and can retire on your terms with a great income. Unfortunately, I do have bad news though. If you’re looking to lower your tax burden from your W2 day job, I can’t help you. There’s very little you can do to decrease your taxes from your day job. But I can help you increase your income without increasing your taxes. Doesn’t that sound nice?
5.With widening wealth gaps and income inequality, more people will be stuck renting for a long time. Many millennials aren’t buying homes and baby boomers are moving out of their big houses and downsizing in retirement. Multifamily real estate has always been an in-demand asset class and will be for a long time to come. It’s easy to see why. No matter what’s going on in the world everyone needs a roof over their head. Apartments did very well during the 2007-2008 recession. While many people lost jobs and homes, the foreclosure rate on investment multifamily real estate was very low. Single Family Home delinquencies were around 4-9% while multifamily delinquencies were around .4%. You can take advantage of that basic human need by investing in a syndication that specializes in apartment complexes. If you want to invest with us, go to our website highyieldre.com and click on the Passive Income Club button.
Thanks for listening. If you want to learn more, go to our website highyieldre.com . There, you’ll find a complete list of previous episodes and transcripts. Don’t forget to subscribe to get updates on our latest episodes. You can also find us through your favorite podcast service or Youtube. You can contact us through our website or by emailing info at highyieldre.com