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  • General Investing in Real Estate Syndication Fund?

    Im not sure if this is a general investing question, real estate or both. Ill go through my situation as Im trying to think of the pros and cons of investing heavy in RE syndication funds(MLG capital)

    34, married with a 2 year old
    403b-150k
    rollover IRA 90k
    Roth IRA 14k
    Wifes pension account-40k
    Emergency fund- 50k
    Mortgage 695k left at 3.8% 30 year
    HSA-25k
    Contributing $300/month in Edvest account
    HHI-450k/year

    I am maxing out 403b through work with a match so about 28k/year as well as HSA

    We can save about 100k/year for investments. We recently put 100k into RE syndication fund producing 8%/year in dividends. As of now we plan on putting in 50k every 6 months as that is the minimum we can contribute.

    I know K1 forms and taxes are going to be awful but besides that is there a major downside to investing in RE syndication funds and re-investing our dividends over time? I like the liquidity and tax benefits and don't care to own homes outright.

    Im not sure if putting the excess money into index funds in a taxable account makes more sense? I guess Im trying to think of the major disadvantages of doing this considering our portfolio. Thanks

  • #2
    If you are in MLG Fund V then I am right there with you.

    Be careful allowing these deals to become a significant portion of your holdings. I limit private placements to 20% of my holdings, and have only let it grow to that level after becoming FI and doing a few deals, including one that has helped me know what/who I don't want to invest with.

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    • #3
      Originally posted by Molar Mechanic View Post
      If you are in MLG Fund V then I am right there with you.

      Be careful allowing these deals to become a significant portion of your holdings. I limit private placements to 20% of my holdings, and have only let it grow to that level after becoming FI and doing a few deals, including one that has helped me know what/who I don't want to invest with.


      Yes it is fund V---Are you keeping it to 20% due to risk? If i do 100k/year in MLG ill be in for a lot more than 20% eventually--I mean these are funds not individual deals so I think the risk is relatively low as the money is in 10-15 different properties right?

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      • #4
        MLG has sounded like a good operator though I don't invest with them personally. I also have a lot of money in RE syndications. My target was 30-35% of my net worth though with my equity holdings going way down since the stock market peak in Nov 2021 or so and with excellent RE performance for the past year that has continued into 2022 this has drifted towards an allocation of almost 50% which makes me a bit uncomfortable. I do like the fact that RE uses leverage and has higher projected returns than expected with stock market and lower volatility (at least perceived volatility) that keeps me from being glued to a stock ticker all day. Tax protected cash distributions and passive income has been an exciting part of the investments for me as well.

        Overall I think that whatever you decide that diversification should be a high priority. The MLG fund is more diversified than an individual property but still 10-15 properties or so. You would still be vulnerable to:

        1) Sponsor risk: What if MLG loses their mojo and makes some bad decisions on this particular fund which performs abnormally poorly?
        2) Concentration risk: You are still going to be heavily dependent on multifamily real estate. This has had a great bull run lately but could the recent great numbers be more performance chasing as we rotate into something that performs much better?
        3) Geographic risk: looks like they mainly focus on the southeast. Better COC deals there than CA for example, but still some risk. Better than just one city though.

        At the very least I would look to spread real estate investments out to 2-3+ sponsors, and ideally some different asset classes besides just multifamily. I do a bit of senior housing through Alpha investing but am heavily in multifamily. Diversify between new build, renovation etc. I would also be sure to not neglect traditional stock market investing. My mantra has been to max 401k and all tax advantaged investment accounts (HSA, defined benefit plan) and then split the rest between taxable vs real estate in a ratio that has been quite variable for me but likely could benefit from a more set IPS.

        Comment


        • #5
          Originally posted by footguy2 View Post
          Im not sure if this is a general investing question, real estate or both. Ill go through my situation as Im trying to think of the pros and cons of investing heavy in RE syndication funds(MLG capital)ndi
          34, married with a 2 year old
          403b-150k
          rollover IRA 90k
          Roth IRA 14k
          Wifes pension account-40k
          Emergency fund- 50k
          Mortgage 695k left at 3.8% 30 year
          HSA-25k
          Contributing $300/month in Edvest account
          HHI-450k/year

          I am maxing out 403b through work with a match so about 28k/year as well as HSA

          We can save about 100k/year for investments. We recently put 100k into RE syndication fund producing 8%/year in dividends. As of now we plan on putting in 50k every 6 months as that is the minimum we can contribute.

          I know K1 forms and taxes are going to be awful but besides that is there a major downside to investing in RE syndication funds and re-investing our dividends over time? I like the liquidity and tax benefits and don't care to own homes outright.

          Im not sure if putting the excess money into index funds in a taxable account makes more sense? I guess Im trying to think of the major disadvantages of doing this considering our portfolio. Thanks
          # 1 What does your investing plan say? Do that. That's how I decide whether to put money I have to invest this month into a real estate fund or an index fund. This month it all went into VXUS. Other months it all goes into a real estate fund.

          https://www.whitecoatinvestor.com/in...nvesting-plan/

          # 2 These funds are not particularly liquid. Some are more liquid than others, but you should expect your money to be tied up for years in any sort of equity fund. I think the most liquid private funds I've seen are 3 months for debt and 1 year for equity and most are far less liquid. You can sell a house faster than that, especially these days.

          # 3 Some funds are worse than others for taxes, but if you've decided to invest in real estate funds you've decided to invest in multiple real estate funds (unless you don't want to diversify for some bizarre reason). That means that almost surely you're going to be filing in multiple states and waiting on K-1s each year. That's just part of the game. If you don't want to play it, go buy VNQ.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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          • #6
            Is started to reply, but everything Hoopoe said is pretty close to perfect. The risk of concentrated holdings done by one company in one asset class with limited escape options from an opaque investment keeps my holdings limited and I avoid concentrating on one sponsor.

            An option would be to not use additional money for follow on investments, but rather to find a different sponsor and or fund and spread your money around. I've never had more than 2% of my net worth in a single private placement. I do have some direct real estate investments that were at one time 5-10% of my net worth, but those were tied to my business and my net worth was much lower.

            Comment


            • #7
              I've been in MLG's Fund 3 for about 3 years and it's paid on time, every quarter; I just invested in the latest fund as well. But agree with posters above, I'd be leery of putting too many eggs in one basket. I'm in about 15 different passive RE vehicles (both debt and equity, individual syndications and funds like MLG), but only got into this heavily after maxing out tax advantaged accounts and growing a good sized taxable brokerage account as well; I'm "fat" FI even if I lost all the RE investments - which is very unlikely even with a severe economic downturn. The RE is about 30% of my NW. I personally think you should invest more in the public markets for now, with your assets, and much more gradually add to the RE.

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