YOUR GUIDE TO SUCCESSFUL

500 DOORS REAL ESTATE MAGAZINE

YOUR GUIDE TO SUCCESSFUL REAL ESTATE INVESTMENT

INTERVIEW WITH WHITNEY HUTTON

Whitney Hutton is the director of investor education at PassiveInvesting.com and a partner in over 700 million dollars worth of real estate. And that's multifamily mobile home park, mobile. Home properties that is also single family residence and assisted living, plus more than 1400 self storage units across eight states. She's experienced in flipping over $4 million In residential real estate.

There are numerous ways to invest in real estate. Some people like to buy a single-family home and rent it out, taking advantage of rental income and potential capital appreciation. However, one way that can be potentially lucrative is to invest in real estate through group real estate investing.

There are typically two ways to invest in real estate with a group: syndication and real estate investment trusts (REITs). What are the differences, and which one is potentially the best for you? that spearhead the project — selecting the building, planning the project, raising funds and executing it. The sponsor forms a legal entity, typically an LLC, and then finds investors to put money into the project. The investor owns a proportionate share of the LLC and, thus, owns that percentage of the building and is entitled to their portion of the profits.

What are REITs? At first glance, REITs are similar to syndications; however, a REIT is a company that invests in properties and needs to adhere to many other requirements. Investors buy shares in the REIT and, thus, own that percentage of the REIT company rather than the property itself. As large corporations, REITs often trade on public exchanges and usually offer monthly income in the form of dividends.

What are real estate syndications? Real estate syndications are private endeavors that aim to pool investor funds to make a big real estate purchase. Syndications have a sponsor (or sponsors) Even though conceptually both of these investment vehicles appear similar, they have quite a few differences that investors need to know. Here are the top four:

500 DOORS REAL ESTATE MAGAZINE

1. You’ll need more funds to invest in a syndication. Perhaps the most significant difference between the two is the amount of capital you’ll need to invest upfront to participate in the opportunity.

While there are private REITs, you can also find REITs on any stock exchange. If you load up your brokerage, and they support fractional shares trading, you can find a REIT and probably own a fraction of a share for as little as $1. The bar to invest in REITs is thus much lower.

Since a real estate syndication involves owning part of the LLC, which owns the building, while there’s nothing technically prohibiting a sponsor from taking a smaller investment from someone, it’s also far more of an administrative hassle and headache to accept that small of an amount of money than it would be worth. Most syndications have minimums of $50,000.

In order to invest in a group syndication, you will need to do your due diligence on the project and the operator. This includes understanding the business plan and the time frame for the investment. You will also need to make sure you are comfortable with the operator and the market.

The optimum time investment for a group syndication is 3 to 5 years. This is because the tax benefits are maximized in the first 5 years, and after that the incentive to sell the property resets the depreciation clock. Therefore, it is in the best interest of the investor to hold the property for at least 5 years. The optimum time investment for a car wash development is 12 to 18 months.

2. What syndications and REITs own are different. A syndication is a company built by the sponsor to buy a specific property. On the other hand, a REIT is a company that invests in a variety of real estate projects. REITs almost always have multiple projects, and as an investor, you may not have visibility into exactly where your investment is going.

For example, a REIT might have an apartment complex in Nashville, a mall in Houston and a condominium complex in Las Angeles. With syndication, you know the project and business plan and most importantly, the exact sponsors you are partnering with, and from there you can decide for yourself if the investment is worthwhile.

3. Syndication and REITS have different structures. Since REITs have a different structure, you can buy many of them no matter how much money or income you have. As noted earlier, if you have even a limited amount of funds and open a brokerage account, you can buy into a REIT; however, with syndications, investors need to be classified as either accredited or sophisticated. Therefore, if you do not fit the accredited or sophisticated investor definition, a real estate syndication may not work for you.

4. The tax benefits are not equal. Real estate syndications have numerous tax benefits over REITs. REIT income is considered ordinary dividend income, leading to a larger tax bill. However, real estate syndication’s income and depreciation pass through to the investor’s tax return. In other words, syndication income can not only give you cash, but they can lower your tax bill by offsetting other income (like income from a job).

Which is better? When you invest in a REIT or syndication, you’re getting many of the benefits of real estate without needing to manage it actively. Choosing between a real estate syndication and a REIT often comes down to the following factors: your desired level of control, how much you have to invest, the type of investor you are (accredited/sophisticated) and the returns and tax advantages you are looking for.

Whatever investment vehicle you choose, both syndications and REITs are fantastic ways to start investing in real estate with little to no time commitment.

Connect with Whitney Website: passiveinvesting.com LinkedIn: linkedin.com/company/passiveinvesting-com Facebook: fb.com/passiveinvesting