Why people prefer going the syndication route in real estate

[William Costello]

The main reason why investors prefer real estate syndication is access and time to deal flow. Not everyone has time to search for deals and underwrite hundreds of properties to find the perfect property. Instead they rely on real estate and investment firms who take the time to find deals, underwrite and have knowledge about the property. With getting involved in real estate syndication, investors have access to deal flow and the ability to invest in real estate without the hassle of finding the deal and executing the business plan and doing the asset management.

[Tushar P.]

Originally posted by @AJ Shepard:

In addition to that, Syndication allows you to compound your money for years without paying taxes until the property is sold while generating a positive cash flow, so investments will be extremely tax efficient!

Perhaps you could have underlined the words “until the property is sold” and added a fine print that when the property is eventually sold the taxes due will be more than the taxes saved because depreciation recapture is taxed at a higher rate than long term capital gains rate 😏

Here is a an example of someone paying thousands of dollars in tax preparation each year in order to record the paper losses noted in K-1.

https://www.biggerpockets.com/...

My guess is paper losses were significant because the GP did cost seg to solely benefit themselves and the middlemen - most LPs are busy professionals, not real estate professionals, hence cost seg doesn’t benefit them but their money is nevertheless used by the GP for GP’s tax benefit. If these significant losses are not recorded in LP’s tax return then upon exit (when the property is sold) the LPs will pay more taxes than due because depreciation recapture will apply even if losses were not recorded in prior years’ tax return. And if the losses were recorded and used/captured during the hold period then the LPs will still pay more taxes than saved because depreciation recapture is taxed at a higher rate than long term capital gains rate.

I don’t think real estate investing offers any unique tax benefits (except for people with REP status who are slogging their a$$es harder than W2 employees, which doesn’t necessarily mean they are earning more), though it definitely offers some unique tax disadvantages. But highlighting those will be conflict of interest for many on biggerpockets 😉