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Anybody in here doing anything with real estate syndications and/or private lending?
We put some cash into a syndication deal last year that purchased some very large apartment complexes. We get monthly 10% distributions (cashflow), and we also get a K1 that shows paper losses which offset the income we're generating, so the income we make from the deal is completley tax free.
Separate from that we are now doing private lending deals as well. So we're earning 10%+ interest payments on those deals monthly, and again, the income from these deals is offset by the K1 losses from the syndication, so it's all tax free income as well.
When the syndication closes we would have to recapture the depreciation, but you can do a 1031 exchange into a new syndication just like any other RE deal. This defers the tax, gives us even more K1 paper losses from the new deal, and allows us to continue earning monthly distributions from syndications and private lending deals tax free.
When we die our beneficiaries get a "step up" in basis the same as any property we pass to them outright, so they won't have to pay any of the taxes from all those years we've been deferring.
They could continue where we left off, and keep moving into new deals to continue getting more tax free cash from them, or they could exit and only pay a small tax on the little gain they may have had after the step up in basis.
It's giving us most of the benefits of RE without any of the hassle! I don't have to shop for deals, negotiate, manage properties, service loans, or any of the stuff that comes with RE investing.
The only thing we don't get (because we chose the higher cash flow option) is equity growth on the back end when the deal closes. We just get our initial principal back.
However, we still have active income as well, so we're taking the tax free passive income we're getting from these deals and throwing it all into a ROTH where we're DCAing into index funds (and some individual stocks.)
Of course, that will all be 100% tax free as well, and in theory will give us the growth factor that we aren't getting from the syndication itself.
Again, we could choose to take less cash during the holding period and then get part of the equity growth from the syndication, but I prefer the cashflow right now.
I'm loving it so far, but would appreciate any feedback others might have that are already further down this road than we are.
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