Real Estate Syndications, Do You Prefer Cash Flow Or Growth, Or Both

For years, real estate syndications were only available to those investors who had already achieved significant amounts of success and had a net worth that allowed them to participate in these syndications. However, the last few years have seen real estate syndicates undergo significant changes that have allowed them to become a more mainstream option. That’s great news for investors who may just be starting out in the world of real estate investing. One of the most appealing aspects of real estate syndication is found in the fact that you can approach your syndication investments in multiple ways. Whether your investment strategy revolves around cash flow, growth, or both, real estate syndication may be a great option for you.

Real Estate Syndication and Cash Flow

The concept of generating cash flow through real estate syndication investing is multilayered. On the surface, every investment is designed to generate cash flow. When you invest in a real estate syndication, you receive a disbursement of the profits generated by the syndicate based on the payment structure and the agreed upon structure of the syndicate. However, there are other ways that real estate syndications can create cash flow for you.

For instance, there are tax advantages associated with being a real estate syndicate investor. Syndication investors have the option of claiming a certain percentage of a property’s depreciation on their federal income tax returns. Obviously, one investor cannot claim the full amount of depreciation, but you can claim a percentage based on the amount that you have invested in the subject property. It’s also worth noting that the Tax Cuts and JOBS Act of 2017 made it legal for businesses (and the syndication that you’ve invested in is considered a business) to accelerate their property’s depreciation timeline so they can take it earlier in the lifespan of the property. Obviously, that form of cash flow only applies if your syndication of choice takes advantage of that rule, but it is out there.

Real Estate Syndication and Growth

One of the most appealing aspects of investing in any business is to grow your overall net worth while you grow your portfolio along with the company you’ve invested in. Under a real estate syndication structure, you’re not necessarily investing directly in a piece of property. Instead, you’re investing in the syndicator (also referred to as the sponsor) and the business structure that he or she has implemented to purchase properties. Before you commit any of your money to a real estate syndicator, it’s crucial that you do your due diligence on their history and their investment strategy. After all, they are using your funds to purchase, manage, improve, and possibly liquidate properties.

However, once you find a syndicator that you want to work with, the opportunity for long-growth as an investor is there. The syndicator that you choose to invest with makes his or her living through real estate investing. That means that you probably don’t have to worry about him or her investing in one property and then ending their career. Working with the same real estate syndicator allows you to grow along with them.

Hypothetically, let’s say that you work with an investor who plans to purchase an apartment complex and then eventually liquidate it when certain conditions are met. As an investor, you will be entitled to a portion of the profits that will be paid out at the times laid out in your syndication agreement. Then, when the property is liquidated, you will also be entitled to a percentage of the profits based on the amount of your initial investment. Depending on your personal investment strategy, you may decide to invest all of your profits into the syndicator’s next project. If so, you’re allowing your money to grow along with the syndication that you’ve chosen as your investment vehicle of choice.

Real estate syndications are a wonderful tool for wealth building, as they provide the opportunity for you to apply your own strategies that are based on your own financial goals. Whether you’re looking to consistently generate cash flow that will go into an account of your choosing, or you want to continue to reinvest and grow your portfolio, real estate syndication is a great option for you.