Real estate investing used to require hefty costs and, as such, was mostly restricted to wealthy individuals. However, those days are long gone, as the realty sector has opened investment opportunities to people who may not have millions to spare.
Real estate syndication is one of the easiest ways investors can grow their income without spending too much money. By pooling resources together, small investors can access profitable commercial properties of their choice without being exposed to significant risks.
However, as with other investment types, investors like you should conduct due diligence before parting with your hard-earned cash. According to https://www.moschettilaw.com, it pays to consult with a real estate syndication lawyer to ensure smooth transactions and maximize the benefits.
But first, let's understand how it works.
What Is Real Estate Syndication?
In essence, this real estate investment scheme works similarly to crowdfunding. The model has two major players: the sponsor or syndicator and a group of passive investors. The syndicator does the heavy work by looking for properties, determining several investors, managing investor relations, and ensuring that the transactions are legal and profitable.
Investors don't have to do anything but wait and see their money grow. Because sponsors are in charge of doing the work, they're entitled to a particular portion of the income. The amount is typically pre-set, with most syndicators earning anywhere from 5% to 20% of the total proceeds.
5 Benefits Of Investing In Real Estate Syndication
It can be frazzling for newbies to invest in real estate, especially as it often involves significant amounts of cash. If you're hesitant to take risks and would rather trust an expert to point you in the right direction, real estate syndication will work best for you.
Below are the most compelling reasons that this investment model is gaining traction:
1. Facilitates Access to Significant Investment Opportunities
Real estate investment requires a stakeholder to prepare several million dollars, especially for large rental and commercial properties. Condominiums, hotels, resorts, and shopping malls are the most common earning assets located in the heart of a city. Its location and income potential dramatically increase its value.
While an attractive opportunity, these properties often carry a hefty price tag, discouraging small investors from buying them through other means. Thanks to real estate syndication, investors with limited funds don't need to seek loans or financing boosts to diversify their portfolios. By gaining access to big-ticket investments, small capitalists can also gain an opportunity for steady income in the future.
2. Offers Substantial Tax Savings
Stakeholders participating in this realty investment framework benefit from reduced property costs or depreciation over time. At the same time, higher maintenance and repair costs are considered in tax calculations and used to offset a portion of an investor's income. In most cases, you may not have to pay anything to avail yourself of this opportunity despite earning from it.
It also reduces the capital gains tax imposed on passive investors. For example, shareholders eyeing commercial assets in Malaysia will be happy to discover that real property gains tax in the country is pegged at 5% for companies that choose to dispose of their property after six years.
3. Minimizes Investors' Risk Exposure
Following a limited liability company (LLC) as a business model, real estate syndication investors are entitled to the benefits afforded to LLC members. In this setup, the sponsor or syndicator acts as the general partner, while capitalists are considered limited partners.
Besides treating syndication earnings as personal income, LLC members are shielded from individual liability against lawsuits and debts in cases where the syndication incurs them. This business model also keeps an operating agreement where the other terms and conditions governing each investor's and the sponsor's rights are laid out.
4. Enables Portfolio Diversification
Investors are often recommended not to put all their eggs in one basket to ensure steady cash flow and revenues. Ideally, capitalists must inject their spare cash into non-related assets, such as bonds and commodities, alongside real estate syndication.
Doing this cushions investors from the damaging effects of a stock market crash. Diversifying an investment portfolio helps reduce investment risks without restricting an investor's income potential. With other forms of real estate investments requiring considerable cash, it can be challenging for prospects to acquire other assets for profit.
5. Functions As a Hedge Against Inflation
Real estate investments are often resilient against external factors, most notably inflation. Whereas other investment types will cause investors to lose monetary value, real estate property assets often increase in value over time. This phenomenon is often amplified during an inflationary cycle, where rent and buying prices of residential and commercial assets also go up. The uptrend in costs of tangible assets is expected to continue as the demand persists.
Investing via real estate syndication is an attractive option for small and rookie investors because it doesn't require sizeable capital. As such, shareholders have better chances of diversifying their portfolios and minimizing risk exposure. Moreover, this business model allows investors to earn a passive yet potentially substantial income over time.
Despite reduced risks, an investor must still perform due diligence by researching the property in question and checking the syndicator's background. An actual meeting with the latter is a wise move to convey your questions and concerns before committing as a limited partner.