When investing into anything, you need to know all the possible options you have for getting the best return on your investment. So I’m going to show you all the different avenues you can take for investing in multifamily syndications. Now, all of these options will be an overview, and if anyone would like to learn more, please feel free to contact us by clicking on the “Home” Tab and shooting us any questions you may have!
CASH – BANK OR LIQUID
The easiest way to invest in real estate syndications is with cold, hard cash. Of the possible sources of capital, it is the most liquid. Which means it is readily available and can be quickly wired to the syndicator you are working with. Of course, I know not everyone has access to capital like this, so if this isn’t for you then there are four other options for you!
STOCKS & BONDS
Another source of capital for real estate syndications is stocks and bonds. You can sell a portion of your mutual funds or ETFs for cash and put that money in a multifamily deal.
Of course, you will have to call your broker and have a conversation about why you want to sell. And while I don’t recommend pulling ALL of the money from your current investments in stock and bonds, it makes a ton of sense to use a portion of it to add multifamily to your portfolio.
I truly believe there is no better, investment in the world than multifamily syndications. Nothing else affords you the cash flow, above-average returns AND the extraordinary tax benefits of real estate syndications. Or as I like to say the I.D.E.A.L. investment! Income, Depreciation, Equity, Appreciation, & Leverage!
LINES OF CREDIT
Yet another way to access funds involves opening a line of credit. If you have equity in your home, for example, you can get a loan at a relatively low interest rate and use that money to invest in real estate syndications.
Please do be careful, though. It’s important that you invest in a multifamily deal with a fairly high return in order to bridge the gap between your line of credit and your investment return.
If you have a retirement account, you can use a portion of that money to invest in real estate syndications too! Here’s how it works:
1. Open an account with a self-directed IRA custodian.
2. Write a letter to the administrator of your existing account, asking them to move a certain amount of money to the new self-directed IRA.
3. When you’re ready to invest in a real estate syndication, instruct the custodian of your self-directed IRA to wire the money to the appropriate closing attorney.
4. Congratulations, your self-directed IRA now holds a share in the LLC of that particular real estate syndication!
Although, there are some limitations that come with investing through a self-directed IRA. The law requires you receive no direct or indirect benefit from the investment. In other words, you can’t touch the money until legal retirement age of 59 ½, and cash flow distribution checks must be deposited directly to the IRA.
The one problem with investing through a self-directed IRA? There’s a good chance you will get taxed on the money you earn from a real estate syndication. Alternative? Well, there’s this little thing called the Qualified Retirement Plan or QRP. And it just so happens to be exempt from the Unrelated Business Income Tax (UBIT) IRA investors are subject to when an asset sells. Full disclosure, it does cost more to set up a QRP trust up front, but it has benefits beyond avoiding the UBIT tax:
You don’t need a custodian to sign your paperwork. You do that yourself!
You can borrow up to $50K from the trust without penalty.
So, What’s Best?
If you have access to several different sources of capital, cash is best, simply because it’s the easiest to deploy.
Multifamily deals move fast, and once an opportunity is announced, syndicators take investors on a first come, first served basis.
If you have cash, you can get into a deal quickly and wire the money right away.
Investors using a self-directed IRA are at a slight disadvantage because it does take a few days to complete the paperwork and get your custodian to wire the money.
So, what are the different sources of capital you might use to invest in real estate syndications?
2. Stocks & Bonds
3. Lines of Credit
4. Self-Directed IRA