Finding capital: where do I get the money to invest?

So you want to join a syndication and invest in real estate. The next question is a big one: where are you going to get the money? A typical real estate syndication requires initial investments anywhere from $25,000 to $250,000, and your return can be based on how much capital you can invest.

Rather than simply spending the next five years saving as much of your paycheck as you can, why not look into ways of repurposing the capital that you already have?

Looking at money you might have in other investment accounts or ventures provides the opportunity to diversify your investments and put inactive funds to work. With some planning, this can boost the return on your overall investments and frees up your monthly income to be used towards personal expenses and other financial goals.

Savings

If you’ve been consistent with setting aside funds from your paycheck, there’s a chance you have quite a bit of money in savings. In a traditional savings account, that cash is gaining marginal interest over time that doesn’t even keep up with inflation rates. In other words, it’s doing nothing to benefit you except acting as a security blanket.

Depending on your lifestyle and your risk tolerance, investing part of your savings towards a real estate opportunity could be a good option for you. The key to figuring out whether or not to use your savings is to look at the reasons you might need emergency cash in the future. If you’re comfortable living your life with less fallback cash, why not put it to work for you and see returns? On the other hand, if you’re saving to go back to school or planning to have a family, the liquidity of your assets might be a higher priority.

If your savings account provides important security for your future, there are other ways to finance a real estate investment from capital that you already have, whether from investments in stocks, retirement accounts, or property that you own.

HELOC on personal residence

If you are a homeowner and have built up equity in your property, consider taking out a HELOC (Home Equity Line of Credit). This allows you to borrow against your equity in predetermined amounts that you can then pay off in monthly installments. With a HELOC, you can withdraw capital from your equity, place it into a real estate investment, and pay back the balance to your mortgage over time, whether from your paycheck or better yet from returns off of the investment.

Borrowing against your own equity has much lower interest rates than traditional lending options, and you will be able to enjoy the benefits of the money you have already put towards your home.

HELOC and other options with an investment property

If you have an investment property, you have a few different options to help fund a passive investment. You can take out a HELOC on an investment property if you have built up equity or, if the property has either increased in value or is no longer functioning well as an investment, you might consider selling and using any money from the sale to finance a more passive and higher return form of investing.

Sale of stocks to diversify investments

Whether you’ve watched the stock market carefully over the years or have just dabbled with an investment app like Robinhood, chances are you have some money in stocks. Consider selling some of those stocks and redirecting that capital towards a real estate investment, where you can have a personal relationship with the sponsor who will be making investment decisions. In addition to giving you the chance to diversify, a syndication provides you with the opportunity to know more about how your money is working and how it’s being used. And you don’t have to stress over whether to invest in GME as it shoots up or to sell as it crashes back down.

IRA rolled into an SDIRA

The SDIRA (self-directed IRA) is a great option for taking the money you’ve been saving up over time and repurposing it towards a more active form of investing. Unlike an IRA account, which maintains low-risk credibility by putting limitations on how money can be invested, an SDIRA can be invested in almost anything (including limited partnerships, precious metals, LLC’s, and real estate) and you are able to have a bigger part in directing how your funds are invested. If you don’t already have an SDIRA but you have an IRA, you can rollover the IRA into an SDIRA to start investing in alternative assets.

Old 401(k) rolled into an SDIRA

An inactive 401(k) from an old job can also be rolled into an SDIRA account. Choose where you want to get an SDIRA account and reach out to the party holding the 401(k) to have them directly transfer those funds to the SDIRA. From there, you’ll be able to have control over how to invest those tax-deferred funds.

Financing your investments

Whether you have money in savings or capital in another form of investing like stocks or real estate property, it’s always important to strike a balance between ensuring the best return and maintaining security for your lifestyle and future financial plans. If you’re considering passively investing in a syndication for higher returns, tax benefits, or day-to-day management of your investments, saving cash from your paycheck might be the best option, but it’s possible that you have value in your retirement funds or property that you can put to work for you.

Interested in investing?

I provide opportunities to passively invest in larger multifamily properties. To learn more, visit www.jheckrei.com. If you want to get started, join our investor club.