Why investing in a syndication is one of the top choices of the wealthy

Investing in real estate syndication remains a very viable option for individuals looking to diversify their portfolio passively with alternative investments outside of typical Wall Street options. Commercial real estate syndications offer plenty of investment benefits, such as tax advantages, truly passive investing, portfolio diversification and wealth accumulation.

The first of such benefits are a variety of tax advantages – and in my opinion the primary benefit is effect of depreciation. When a property is purchased, the depreciation for certain items is taken up front. In addition to that, what many property buyers do is they also hire cost segregation experts to perform cost segregation study and to be able to take advantage of accelerated depreciation. Essentially this process allows to create losses and it represents one of several ways that reduces tax implications.

Time is a very valuable and scarce resource, and investing in a real estate syndication would be a surefire way to save as much of this resource as possible while maintaining and generating income. Therefore, another major benefit of investing in syndication projects would be the level of passiveness presented to investors. The official definition of passive income, according to the Internal Revenue Service, is any money generated from rental or business activity in which the first receiver makes “income from a business in which the taxpayer does not materially participate”. Simply speaking, passive investors, also referred to as Limited Partners, are individuals who may or may not have the required experience or time to handle projects themselves. Instead, General Partners manage all syndications project activities. This presents Limited Partners with a major economic advantage, time and stress reliever, and the ability to take advantage of alternate investments in commercial real estate industry. The process of creating real passive income is surprisingly rare among industries outside of alternatives, and a syndication acts as a solid option for individuals who would like to make money without having to roll up their sleeves, knowing how to manage properties, or handling day-to-day complications of the investment.

Another reason why investing in a real estate syndication is incredibly beneficial because it offers a wide variety of diversification options. The concept of a real estate syndication is, by its very nature, wide open to tap into the benefits of investing in various asset classes and/or various markets, making it a prime option for someone wanting to enter and explore the world of real estate. Investors can focus on a plethora of different types of real estate and asset classes, as well as the ability to either focus on investing in an individual commercial real estate property or in private equity funds that further diversification. The beauty of being an investor is having the freedom to choose which firms best fit their individual needs since real estate investment firms often prefer specific types of properties in which to invest, manage, and develop. The major constant and a great advantage is that virtually all real estate syndications permit their investors to be completely passive and independent from the processes of selecting and maintaining a property.

The final reason highlighting the ways real estate syndication firms offer incredible investment opportunities is the accumulation of wealth. I have described in another article that a major difference between a private equity real estate firm and a real estate investment trust is the speed at which the investment grows as well as the tax aspect of it. A syndication, which would fall under the category of a private equity firm, requires a larger upfront investment in order to create a longer-lasting and greater buildup of profit. The process of selecting and developing a private equity firm is quite extensive, and a return on the investment in short-term is not guaranteed or expected. Therefore, the purpose of investing in private equity is to grow more wealth for the long-term, which is exactly what investing in a syndication offers. Of course, investors can also pursue a real estate investment trust, or a REIT, which would be a more suitable investment option if the investor’s desire for returns is more aligned with quicker profits, albeit with a very low ceiling in terms of profit potential. Nonetheless, one the most attractive features of a real estate syndication, or any form of private equity real estate investment for that matter, is the long-game potential to accumulate a significantly larger amount of wealth.

While the investment options for the high net worth (HNW) and the ultra high net worth (UHNW) individuals are plentiful, the reasons described above tend to often attract the wealthy to syndication investing. If you are on your way to creating your wealth, then consider following the strategy that the wealthy chose.