Top 3 Ways To Fund A Syndication – Which One is Right For You?

It may come as a surprise, but there are three distinct approaches to financing your investment in a real estate syndication. Choosing the best approach for you will depend on various factors, such as your family circumstances, personal financial and investment objectives, how you intend to use the earnings, and other considerations. Because there is no universal solution, it is essential to review the specifics carefully in order to be prepared when the next opportunity arises.

Which of the three financing alternatives is suitable for your investment in a real estate syndication?

I’m so happy you asked!

Individual Investor

The most straightforward and efficient way to fund a real estate syndication investment is by investing individually with cash. This approach involves investing on your own without a partner and utilizing funds from your savings or other liquid assets. As an individual investor, you have complete control over transferring the money from your savings account into the syndication deal.

When investing as an individual, you will receive any distributions from the syndication deal directly into your personal account. Additionally, you will enjoy the tax benefits of owning real estate, and you won’t need to worry about bookkeeping because you will receive a K1 form each Spring with all the necessary information for your taxes. By investing personal funds, you can enjoy all the benefits, tax breaks, and distributions that come with being a real estate syndication investor.

Individual investors should also consider alternative forms of asset protection, such as insurance or a trust. Additionally, it may be necessary to ensure that there is a will in place with a designated beneficiary. The operator team does not collect beneficiary information, so in the event of unexpected circumstances, it is crucial to have a clear statement in your own legal documents. By taking these precautions, you can ensure that your investment is well-protected and that your assets will be distributed according to your wishes.

Joint Investors

If you want to invest in a real estate syndication with a partner or spouse, you can pool your personal funds together to meet the investment requirements. This is a common practice, especially for couples who live in community property states where all marital assets are jointly owned. In these cases, spouses are required to invest together, receive the distributions jointly, and benefit from the tax advantages jointly.

When investing with a partner or spouse, the process becomes slightly more complex since both parties must sign the necessary documents. However, the process is still relatively straightforward. It’s important for both partners to consider asset protection strategies and establish legal beneficiary designations. Depending on state laws, these designations may need to be included in a trust or will, so it’s crucial to set them up ahead of time in case unexpected events occur.

By taking these precautions, you can ensure that your investment is well-protected, and that the assets will be distributed according to your wishes. While investing with a partner or spouse may require a bit more planning and coordination, it can also offer significant benefits. By pooling your resources, you can access larger real estate deals, share the investment risk, and enjoy the rewards together. Whether you’re investing as an individual or with a partner, a real estate syndication can be an excellent way to generate passive income and build wealth over time.

Investing Via Entity

The third way to invest in a real estate syndication is through an entity. This can be done through a retirement account, such as a self-directed IRA or a QRP, or through a trust or an LLC. Depending on your state’s regulations and the advice of your CPA, any one of these options can be used to invest in a real estate syndication through a retirement account or a business established for investing.

When investing through an entity, only one signee is required, making it a straightforward process. However, paperwork needs to be filed, which can make it slightly more complicated. It’s important to consult a tax professional who is familiar with your financial situation and the relevant tax laws to determine which option is most advantageous for you.

Investing through an entity provides a higher level of asset protection and heirship, which is determined by the operating agreement of the LLC, trust, or IRA being used. It’s also essential to check with the provider regarding any rules or fees associated with real estate investments and understand the depreciation or loss benefits applicable to the account. In some cases, such as investing in real estate syndications through a self-directed IRA, you may become liable for UFDI or UBIT taxes, so it’s important to be aware of these potential risks.

Overall, investing through an entity offers several advantages, such as greater asset protection and potential tax benefits, but it’s essential to seek professional guidance and carefully evaluate the different options before making a decision.

So, Which Of The Three Is Best?

Choosing the best funding option for your real estate syndication investment depends on various factors, including when you’ll need the cash flow, how you want the tax benefits applied, and what level of asset protection you’re seeking.

If you want the distributions and tax benefits to be applied to you personally and need cash flow to boost your lifestyle now, then investing your liquid assets either jointly or individually may be the best option for you. For instance, if you’re planning on using the investment distributions to replace some income or fund your child’s future soccer club dues, then investing your liquid assets, either jointly or individually, would be the ideal option.

On the other hand, if you’re interested in building long-term growth and having the distributions bulk up your retirement account, then you may want to explore a QRP, a self-directed IRA, or even an LLC situation. If you’re looking to triple your retirement assets within the next 15 years to live out your dream lifestyle during your elder years, then one of these entity-type options might serve you best.

There are many factors that could affect your choice of funding option, such as whether you’re married with kids, the state you live in, the age of your kids, any significant purchases you’re planning, when you hope to retire, what you plan to do with the distributions, and what heirship designations you require. Therefore, it’s crucial to consider these factors before selecting the funding option that best suits your investing and personal financial goals.

Funding Your Next (or First) Deal

Investing in a real estate syndication usually requires being an accredited investor, but Goodegg Investments has made four of their syndication deals available to sophisticated investors over the past year. This means that investors who don’t meet the strict definition of an accredited investor can still participate in these deals.

To become a member of the Goodegg Investors Club, potential investors can chat with the team about their investing goals, what they’re looking for, and how they envision real estate syndications helping them achieve their desired lifestyle. This conversation helps the Goodegg team determine whether an investor is a good fit for their upcoming deals.

Regardless of whether someone is a sophisticated or accredited investor, Goodegg’s deals tend to fill up quickly, so investors should consider their investment options carefully. Before investing, it’s important to determine whether investing individually, jointly, or through an entity is the best option for them. Once an investor has determined their preferred method of investment, they can work with the Goodegg team to find a syndication deal that aligns with their investment goals.