Episode 160: Learn about how to invest passively in real estate syndications, to get all the benefits of investing in real estate with none of the hassles of being a landlordwith Annie Dickerson of Goodegg Investments.
What is a Real Estate Syndication?
Syndications are group investments. Rather than dealing with the barriers to entry to real estate investing (such as finding brokers, finding properties, etc.), you invest with a group of like-minded individuals and let someone else be the landlord.
Passive investing in a real estate syndication lets you put in the money then sit back and wait for the paycheck. It’s a form of group investing that fits a lot more lifestyles and is a great starting point for aspiring investors.
How to Start Investing in a Real Estate Syndication
With traditional property investing, you put your money down to buy a single-family home. You find a tenant, put them in place, and act as the landlord. After you pay the mortgage and expenses, the rest goes to you as a part of your cash flow.
In a syndication, you pool your money with a group of investors and make a bigger purchase. For example, a multi-family property or apartment building. The syndicator looks for a value-add multi-family investment. In other words, an apartment building that needs some TLC. The property is purchased and renovated, then rented out at a profitable rate. That profit is divided between the investors via monthly cashflow.
On average, a $100,000 investment usually returns at 8% per year.
After five years, the property is put up for sale at a profit. Again, the profits are split between the investors.
What are the Benefits of Investing in a Real Estate Syndication?
The main benefit of a real estate syndication is the high return with minimal legwork. It’s a great way to take the money you have and grow it exponentially.
Furthermore, as a fractional owner of the property, you’re eligible for the tax benefits associated with ownership. These benefits can be even better than a direct real estate investment due to cost segregation.
As a result of cost segregation, you end up getting a monthly income (usually around $650 per month for a $100,000 investment) and still record a loss in taxes. This can be extremely beneficial come tax time.
What are the Risks of Investing in a Real Estate Syndication?
One of the downsides of a real estate syndication is that it’s not for new investors— you should count on having $50,000 saved to take advantage of a real estate syndication. If you don’t have that money, looking into using a self-directed IRA is sometimes an alternative. However, the industry recommendation is practicing frugality and alternative investment options to grow your capital organically.
It’s also important to note that to take part in a real estate syndicate, you need to be an accredited investor. In other words, you have to have a minimum net worth of 1 million dollars, or make $200,000 a year ($300,000 when combined with your spouse) for a minimum of two years prior.
Disclaimer: Kevin and Sean are not professional financial advisors. Do not take any advice they give without first speaking with a professional and performing your own due diligence.This post may include affiliate links.