Syndications have been a rapidly growing investment class especially in Real Estate, over the last several years they have become extremely popular with the community of self-directed retirement investors. While the structure of pooling money from many investors to purchase a large property is not a new idea, it has until recently been the access to these opportunities which was been the limiting factor for accredited investors.
Due to the passing of the JOBS ACT by the Obama Administration in 2012 and along with it the changes of SEC rules in 2015 which allows for the investment sponsor to raise capital, which has a direct result of more opportunities becoming available for the average investor. For the people who choose a self-directed IRA or SOLO 401(k), A Syndicated Real Estate opportunity with Vertical Equity could be a great way for you to invest in property with likeminded people who are looking at structured investments to have more money once working life has concluded and retirement is started. Below are Vertical Equities reasons for an IRA or Solo 401(k).
1. Greater returns due to larger opportunities
Real Estate, especially commercial real estate has always been consistently one of the most outstanding classes of assets to invest in over the last few years. Due to the nature of the apartment complexes this asset class has generally been out of reach for the average individual investor however now that investors are able to pool their funds with our investors, a syndication group now can raise the amount of funds required to complete these types of investment as a group, with a minimum investment from each accredited investor of between $75,000 to $150,000 which allows for greater return.
2. Do not put all your eggs in one basket
The easiest way for an Accredited Investor to diversify their portfolio is by investing in what we call multi-tenant properties. We have found that is a logical and structured format which helps balance the portfolio of individual investors as an example should your IRA own a single-family house and for some reason its is not tenanted the fund will not receive any income until the property is occupied and this could cause strain on the fund as it would have to incur on going cost at the expense of its capitol. However, if the same amount of money ($150,000) was invested into a syndicated property with an ownership of a 100-unit apartment complex and 10 units are unoccupied this would have less impact on the fund as it is still generating income from 90 Units which would allows funds to be returned back to the investor’s IRA.
3. You do what you do, let us do what we do
Vertical Equity takes the form of a limited liability company or partnership. All the work is done by the investment sponsor (Vertical Equity), who acts as the general partner for the entity. Vertical Equity will identify opportunities, negotiates a purchase, obtains financing, builds the property and once completed operates the property on behalf of all the investors. IRA or 401(k) participates as a limited partner. The structure that works best for all of our investors is to act purely a financial investor and leveraging off all the expertise of the professional team that is running the show. For busy professionals, this type of passive investment is great.
4. What is Arm’s Length Investing
The “arm’s length standard” means controlled parties should price transactions in the same way as uncontrolled parties under similar circumstances. Accordingly, the price that FP charges USS should be the same as it would charge to an unrelated party for the same product under similar circumstances.
5. Why we leverage
While all most all syndicated real estate transactions use the same format, which is a mixture of debt financing and capitol from investors which allows for the project produces to be leveraged which that can outperform any all-cash deal. Typically, it is quite common to see projects which invest in Apartments using up to 30% investor capital and 70% debt and due to this structure is allows for returns to the investors of between 12-14% of Return on Investment. With this structure it reduces the risk for the investor as the general partner is obtaining the financing 70% debt, which means no need for a personal guarantee on behalf of your limited partner investment and more importantly meets the criteria of the IRS that loans which are obtained by a retirement plan should be non-recourse. Another benefit of using this structure is the creation of Unrelated Debt-Financed Income (UDFI) with a resulting of UBIT tax liability. An example of this is a 14% top line return could be reduced to 13.5% or 13.25% net of taxation however for all Taxation related workings we strongly advise talking with your CPA.
6. Retire better
By making passive income by investing with Vertical Equity syndications we have provided a wide array of benefits for any IRA investor. We have consistently through our real estate opportunities produced high returns with minimal effort and no liability exposure from our Investors which in turn have allowed for a better retirement. Before becoming an investor with us we strongly advise you to perform thorough diligence before putting your retirement funds into any syndication, however once done it could be as simple as receiving a payment each quarter and watching your retirement fund grow and you retiring better.
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