Investor · Katy, TX · Member since 2015 · 10 posts · 2 votes
I am interested in using my W-2 job salary to invest in multifamily apartment complexes. I would like to start out by being a passive investor in a few deals to learn the process. I would welcome your suggestions on how to find and become involved in this process.
Also, it is my understanding that returns from these deals end up being tax free as a result of depreciation on the property. True if done correctly?
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
Evan it's about what you want to accomplish and how much you have to invest.
I am doing some sponsor ships now I am setting up with investors but I focus on retail these days as multifamily frothy right now and overvalued in a lot of markets.
I like safer margins with more room to move with future market shifts.
If people want to 1031 into passive opportunities you run into TIC and DST models for the sponsor which are more complex and take more expense to put together for a syndicator.
This is why lot's of syndicators either sell smaller shares at 25k a share from a bunch of investors or they simply have larger investors with cash out in bigger money of 300,500k,1 million that is not 1031 money and is sitting around liquid. The syndicator tells the investor that to simply figure in long term capital gains tax on the exit.
Some people with 1031 money have to use the TIC or DST model because over the years with other properties they have built up a lot of depreciation recapture and capital gains that would wipe out a considerable amount of their wealth that has been accumulated.
A syndicator has to make sure you are accredited. There are some ever changing rules and some crowd funding going on where investors pool money but those platforms take a chunk from the syndicator on the deal and makes deals harder to work.
I just believe in simplicity. When things are simple there is less to go wrong. If you start getting too creative and say if this, and this, and this, and this happens then everything will turn out great is when the SNAFU's clusters usually happen.
For me the smaller amount investors want to do sometimes it is not worth it for me to syndicate. I would rather have larger investors that can move from syndicated deal to deal without running out of funds.
Example if I put together 100 investors with 50k each to invest that is a logistical nightmare. Just not something I want to do.
There are some syndicators doing smaller properties like building duplexes to quads where a small amount makes up a big part of their raise. For example they might be raising only 200k for a project where a retail center for me the raise might be in the millions for the 25% down and the rest a regular loan.
I am interested in using my W-2 job salary to invest in multifamily apartment complexes. I would like to start out by being a passive investor in a few deals to learn the process. I would welcome your suggestions on how to find and become involved in this process.
Also, it is my understanding that returns from these deals end up being tax free as a result of depreciation on the property. True if done correctly?
Thoughts? Advice?
Best Regards,
Webster
If you're doing completely passive investing then do it inside of a Roth IRA for tax free investing. Generally depreciation is a temporary benefit that would be recaptured at some point. (exemptions are 1031 and death)
Investor · Shawnee Mission, KS · Member since 2015 · 423 posts · 114 votes
11y
Even without Roth IRA rental income is virtually tax free after depreciation, interest and normal expenses. Exit strategy should be 1031 exchange.
In Kansas City area as a 50% partner you could get cash on cash about 10% in B neighborhood and 20% in C neighborhood (it may be a package of SFH, 2-4-8 units, or up to 20 units). PM me if you need more details.
I am interested in using my W-2 job salary to invest in multifamily apartment complexes. I would like to start out by being a passive investor in a few deals to learn the process. I would welcome your suggestions on how to find and become involved in this process.
Also, it is my understanding that returns from these deals end up being tax free as a result of depreciation on the property. True if done correctly?
Thoughts? Advice?
Best Regards,
Webster
I bought a 4-family and learned the business by doing everything myself.
As for income tax, your depreciation expense = building cost/27.5
Reduce your net gain (or loss) by depreciation expense and that's your taxable income. Nothing is free though, so you'll probably have a taxable gain on sale when you sell the building from all the depreciation you took during your ownership.
You can find passive oppopportunities here on BP if you ask right people right questions. You can identify the right people pretty easy - they have a lot of posts, blog articles, high vote counts. The right questions are a little harder. You need to understand what you're getting into, be able to evaluate a given deal by yourself, and then decide if this deal makes sense to you.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
Evan it's about what you want to accomplish and how much you have to invest.
I am doing some sponsor ships now I am setting up with investors but I focus on retail these days as multifamily frothy right now and overvalued in a lot of markets.
I like safer margins with more room to move with future market shifts.
If people want to 1031 into passive opportunities you run into TIC and DST models for the sponsor which are more complex and take more expense to put together for a syndicator.
This is why lot's of syndicators either sell smaller shares at 25k a share from a bunch of investors or they simply have larger investors with cash out in bigger money of 300,500k,1 million that is not 1031 money and is sitting around liquid. The syndicator tells the investor that to simply figure in long term capital gains tax on the exit.
Some people with 1031 money have to use the TIC or DST model because over the years with other properties they have built up a lot of depreciation recapture and capital gains that would wipe out a considerable amount of their wealth that has been accumulated.
A syndicator has to make sure you are accredited. There are some ever changing rules and some crowd funding going on where investors pool money but those platforms take a chunk from the syndicator on the deal and makes deals harder to work.
I just believe in simplicity. When things are simple there is less to go wrong. If you start getting too creative and say if this, and this, and this, and this happens then everything will turn out great is when the SNAFU's clusters usually happen.
For me the smaller amount investors want to do sometimes it is not worth it for me to syndicate. I would rather have larger investors that can move from syndicated deal to deal without running out of funds.
Example if I put together 100 investors with 50k each to invest that is a logistical nightmare. Just not something I want to do.
There are some syndicators doing smaller properties like building duplexes to quads where a small amount makes up a big part of their raise. For example they might be raising only 200k for a project where a retail center for me the raise might be in the millions for the 25% down and the rest a regular loan.
Investor · Katy, TX · Member since 2015 · 10 posts · 2 votes
11y
Thank you for the information. I will research syndication and after getting a bit of education, be back with more questions!
@Joel Owens I am with you that simpler is better. I believe that complex systems will inherently fail at some point. It is the elegantly simple ideas and solutions that win in the end.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
11y
You should look into the crowdfunding portals if you're an accredited investor. There are frequently good projects on them if you know what to look for.
