Introduction to Investing in Syndications

Introduction to Investing in Syndications – Video


Video Transcript

Skip: My name is Skip. My topic is going to be a generalized topic on real estate investing with an orientation towards syndications. A lot of the topics I’m going to be dealing with are going to be similar to ones you’ve heard before, some of then are going to be identical to things that others have already covered.

When I hit those areas, I’m going to go through them fairly quickly, but it’s going to also give you the opportunity to get a second opinion on some of these stuff. I’m agreeing with 99% of what they said. There are some areas that are a little grey in some of this.

Same disclaimer, we’re not attorneys. We don’t give legal advice. The things that we talk about, by the nature of giving a presentation like this, have to be general. We’re dealing in generalities that may or may not hone in specifically with your situation. Please hire a CPA who knows real estate, and this point came up before. There are a lot of tax preparers out there, and there are a number of very qualified CPAs out there that are just not familiar with real estate, and it’s critically important.

This is just to let you know that I know a little bit about what I’m talking about. I’ve got my Bachelor’s in MBA degrees from Berkeley. I’ve been in real estate for a long time, was a syndicator. I’ve done some major syndications, so I know something about what I’m speaking about here.

I just formed a new entity in Nevada. I split my time between California and Nevada. Don’t consider me long distance please, but my cards are on the back table. We are building a practice, and I would sure appreciate working with you folks. Pick up my card, if you just have a question, something that you want clarification on, please send me an email. That works very well.

All right. General benefits of syndications. What is a syndication? As Kathy mentioned earlier, it’s the ability for a number of investors to pool their resources and buy the types of properties that they might not otherwise be able to do.

By pooling funds with others and putting them into a formal syndication, you get many benefits. The first is just by pooling the funds, you’re obviously being able to buy into larger projects that you wouldn’t be able to do as an individual. This, in and of itself, is going to help to diversify your portfolio.

Along with the diversification by the size of the investment, you can also quite commonly get diversification by the type of property that you’re buying and also by the geographic area in which it’s located. These are very strong diversification and investment points.

Another benefit, your tax reporting from a syndication. Most of your syndications nowadays are done with limited liability companies which file partnership returns. On a partnership return, I’m sure many of you are familiar, the partnership does all the hard work.

If you own your own property, you know what it is to go through and collect all that data and get your schedule prepared for your rental income and expenses. There’s a firm I’ve put in there. The partnership and the LLC will do all of that. It gets summarized, and then you get a K1 form, two or three pages that you hand to your CPA that will tell the CPA how to incorporate that information into your tax return. Your accounting and administrative effort here is a piece of cake. It’s basically being done for you by the syndication.

Syndications are considered an investment activity, and we’re going to talk more about that later. We have different types of income that are treated very differently for tax purposes. A syndication is an investment activity, so think of it in terms of investment and investment income. It’s also a passive activity.

Bob talked some about passive activities, I’ll speak to that same topic and add a few additional points to that. One major issue is when you’re dealing with passive activities. Essentially, unless you’re a real estate professional all of your real estate activities are passive activities. Your syndication will be a passive activity. You can first offset all of your passive income with passive losses.

That’s the very first step, put all of your passive activities together and determine whether or not you have a gain or a loss. What does that mean?

Well, I had a client who had a lot of real estate investments. He was pretty aggressive. He had them all fairly highly financed. He was generating some pretty substantial real estate losses, particularly in the earlier years when he first bought his properties. What he did was he went and found a syndicator who was actually flipping properties but doing it in a very profitable way so that the syndicator was generating very consistent, very high profits.

By investing with this particular syndicator he was able to get passive income from those syndications. He totally sheltered his passive income. They put the cash right in his pocket because he was able to use his real estate passive losses against that syndication passive income.

How sweet was that? Instead of having to pay the tax directly on that by being able to add all of his properties together including the syndication. All of his passive activities had been added together. He was able to shelter that income with his real estate passive losses. Made a huge difference on his tax bill at the end of the year. He was very pleased and I was smiling all the way to the return.

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