Iron Point Capital

What is Multifamily Real Estate Syndication & and is it the right vehicle for you?

WHAT IS MULTIFAMILY SYNDICATION:

Real estate syndication is when a group of investors pool together — or "syndicate" — their equity in order to acquire properties much bigger than they could afford (or manage) on their own

A Sponsor, or “Syndicator,” is the firm pooling investors together. The Sponsor conducts in-depth market research, provides underwriting and due diligence reports, arranges financing and manages the closing.

IS IT RIGHT FOR ME:

Sponsors work to deliver the benefits of real estate ownership, such as monthly income and equity growth through appreciation, while investors avoid the drawbacks of hands-on maintenance and management.

Anyone contemplating a move from the stock market — or out of self-managed property — into a real estate syndication may be hesitant based on limited knowledge about this unfamiliar investment process. But with a little education, an investor can review Sponsors and offerings that open doors to accessing new wealth-building avenues.

What is Multifamily Syndication & is it right for me? Click here to learn more!

Tax Benefits of Multifamily:

1- DEPRECIATION

Depreciation is an income tax deduction. In short, while real estate values generally appreciate, the physical components don’t. (Roofs, appliances, electrical, etc) The IRS understands and accounts for this by offering an income deduction for owning depreciating assets.

For example, let’s say we buy a commercial property for $10,000,000 and the tax assessor’s estimate the land value is $3,000,000. The land value doesn’t benefit from depreciation but the physical property value will get depreciated over 27.5 years, resulting in a tax loss of $254,545. ($7,000,000 / 27.5 = $254,545)

This means that regardless of the amount of dollars received from cash flow during the hold period, the annual taxable gain will usually be net negative or very close to it! The result, positive cash flow each quarter while still claiming a loss at the end of the year.

In basic terms: Make more and keep more!!

2- COST SEGREGATION

Multifamily investors also get the added benefit of being able to accelerate that depreciation through a cost segregation study. In short, we can hire an engineer to come analyze all of the components of the property separately and have them create a custom depreciation schedule.

The result being the ability to depreciate up to 90% of the building’s value over 7 years.

3- BONUS DEPRECIATION

The Bad News: When you sell the property for a gain at the end of the hold period there will be a tax based on the long-term capital gains rates, as well as a tax for depreciation recapture.

The Good News: The new tax reform bill allows us to depreciate the entire value of a building in Year 1, this is called “Bonus Depreciation.”

This means is we get to carry our passive losses forward until we sell the property and use those passive losses to offset our capital gains!!

WHY WE LOVE REAL ESTATE OVER ANY OTHER INVESTMENT OUT THERE!!

Real Estate Offers Long-Term Returns vs. One Time Payouts:

When you calculate the value of a traditional asset, say a stock or bond, you’re looking at a one-time cash payout. With real estate, you can buy rental properties with positive cash flow and you never have to sell them if you don’t want to. Keep the cash flowing!

Real Estate Cash Flow Creates Immediate Income:

Stocks pay dividends, but few provide over 4% and that’s barely above inflation. It’s true that a stock could rise in value, increasing the value of your investment, but that money is not realized until you sell the stock. Many real estate investors wouldn’t touch a property if it had 4% annual cash flow. Instead, they want 15-20% or more in cash on cash returns – which makes a meager 4% return look like chump change.

It’s Easy to Become a Local Expert:

You don’t need a degree to become an expert on your local real estate market. You can simply use public information to learn about local property values, area rents, economic conditions and real estate market trends and health. Once you know these indicators, it’s easy to spot a bargain.

Real Estate is Easy to Value:

Unlike intangible assets which can have somewhat arbitrary valuations, properties are easy to value because they are easy to compare.

You Can Inspect Real Estate:

When you buy a piece of real estate you can inspect the property before you buy. On the contrary, you can’t possibly inspect all the pieces of a company to affirm it’s stock valuation before you invest. You have to trust that others have done the legwork for you and that nothing will happen to dramatically impacts the valuation.

You Can Add Value to Real Estate:

Unless you’re in a corporate role for a public company, your opportunities to influence stock value in any relevant way are basically zero. In real estate, however, you have ample opportunity to add value to your assets.

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