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Real Estate Syndication/Fund and Tax Implication

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  • Real Estate Syndication/Fund and Tax Implication

    Hello All,

    I am looking to dabble in the Real Estate arena and mainly looking at syndication deals as well as Funds.  My goal is primarily to diversify from the market, but also to help with some sheltered income from a tax standpoint.  As someone who currently has all W2 income 500k+ I am trying to figure out syndications that are quality, but wont completely turn my taxes int a nightmare.  I was looking at Broadstone, but their 200k min kinda steep, them looked at MLG Fund IV but it appears that with the regular fund you would get like 10+ K1 which would make taxes a pain and their 1099 Fund i think you then lose Depreciation which would be one of the main deductions I get, (Since I can use pass through deduction at least as I understand it since my income is already over 500k).  Just trying to see if anyone has experience/recommendations on quality syndicators/funds that have favorable tax options in my circumstance?



  • #2
    I would suggest reading the posts pretty heavily on the other two real estate groups/forums that you posted this to. I think you posted those today, I’m unsure if you have had replies yet or not. That will be more fruitful than advice you’ll get here given that the other two are real estate specific.

    In general, you cannot reduce your W2 income with these types of investments, only your passive income. What I think you’re trying to do is offset your passive income gains with paper losses. You need to find a good debt fund that pays a pref (essentially a dividend) and match it up with an equity investment or fund which typically generates paper losses. You then can offset your taxable gains from the debt fund with the paper losses from the equity fund, thus reducing your tax burden.

    Some to look at would be Broadstone, Grubb and MLG, though there are tons of reputable options. I’d veer away from the more popular platforms right now as I feel the threshold for good investments/experienced sponsors has declined over the years.

    Best of luck


    • #3
      Agree with Wonka.  Just fyi I invested in MLG Fund 3 and got one K-1, with a large amount of depreciation that offset other passive gains.  So may consider Fund 4 as well.


      • #4
        I have the same question. Which other groups/forums did this person post to? Thanks.


        • #5
          PM me, but I think WCI has mentioned at least one of them in a post and/or podcast.


          • #6
            Thanks so much everyone for your input, it means a lot.  Just trying to make sense of this whole new world of investment opportunity and evaluation.


            • #7
              Just invest in a REIT. If all you're doing is 'dabbling', you're not going to make outsize returns with some goofy syndicated find. Get your real estate exposure and avoid the tax hassle.

              If the market crashes, what do you think happens to most of these highly leveraged syndicates? How uncorrelated do you really think they are?


              • #8
                Actually, public REITs have a high market correlation and Lack tax efficiency. That doesn’t mean they are necessarily bad investments, just that they don’t offer the typical asset diversification that traditional real estate does. You really need to figure out your desired asset allocation and investment plan as dabbling indicates lack of a plan. You don’t need to invest in this stuff. I do, but only after over a year of looking at public vs private REITs, direct ownership, direct ownership with a property manager, turnkey investing and syndications. A year was excessive, but the point is that these are generally long term illiquid investments and you need to be sure they’re right for you.

                Best of luck.


                • #9
                  There are a tremendous amount of options when you consider syndication offerings ranging from highly leveraged high risk investments (new-build A grade properties) to low leverage B/C grade properties.  I would not lump all syndications into one generic bucket.  There are different strategies and level of risk.  It's just a matter of finding one that fits your style.

                  As far as REITs go, it is mostly just real estate flavored stock.  There is a high correlation to the stock market.  As such, any downturns will be felt in the REITs along with the rest of the market.  Syndications offer freedom/independence from the stock market.  If you can find a syndicate that matches your strategy, it is a great diversification opportunity with tax advantaged returns.  It provides direct real estate ownership without the hassle of being a landlord.


                  I know of a very successful, very conservative syndicate that has an established track record that I can provide if you are interested.  PM me if you would like a recommendation.