Realty411 Magazine A Spotlight on Charles and Lena Sells | Page 24
they received their funds. This was
stressful to those who had not set
aside the funds.
Additionally, some people used
their selfdirected IRA’s to invest.
The I.R.S. considers new home
construction to be a business activity
which can trigger U.B.I.T. tax
within a selfdirected IRA.
Today, my company, Real Wealth
Network, is still partnering with this
developer to build homes in
inventorystarved markets like
Reno, Nevada. In order to help self
directed IRA investors, we often
structure the deal as a note versus
equity, to avoid the triggering of
UBIT.
For example, in our most recent
syndication. we acquired 800 acres
of lush, fertile land in Costa Rica.
We are building a residential
community and luxury resort hotel,
surrounded by 10,000 organic fruit
trees, gardens and waterfalls.
Equity investors will earn a 15%
preferred return and 30% of the
profit which will be taxed as
ordinary income. Debt investors will
earn a flat 15% annualized interest
which will shield them from UBIT.
In some projects, our business
plan is to not build homes ourselves,
but simply entitle the land and then
“flip” it to a home builder. The profit
in this case is often taxed as long
term capital gain, which is
advantageous inside or outside of an
IRA.
The tax benefits from rental
income can be far superior than any
other asset class. When investing in
an apartment or commercial property
syndication held in an LLC,
investors may be able to take
depreciation deductions, along with
many other landlordrelated write
offs. Since IRA’s are already tax
deferred, it’s better to invest in rental
property outside of a selfdirected IRA.
Why Syndications over
REITS?
Real estate investment trusts
(REITs) have been a viable option
for the totally passive investor for a
long time. However, they often yield
low dividend income, and when
publicly traded, REITS can be
volatile.
Real estate syndications, which
are generally smaller than REITs,
usually have lower overhead and
lower management fees, which can
increase returns.
Kathy Fettke is CoCEO of Real Wealth Network and best selling author of
Retire Rich with Rentals. She is an active real estate investor, licensed real estate
agent, and former mortgage broker, specializing in helping people build multi
million dollar real estate portfolios that generate passive monthly cash flow for life.
With a passion for researching real estate market cycles, Kathy is a frequent
guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the
Wall Street Journal. She was also named among the “Top 100 Most Intriguing
Entrepreneurs” by Goldman Sachs two years in a row.
Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for
Investors — both top ten podcasts on iTunes with listeners in 27 different
countries. Her company, Real Wealth Network, offers free resources and cutting
edge education for beginning and experienced real estate investors. Kathy is
passionate about teaching others how to create “real wealth,” which she defines
as having both the time and the money to live life on your terms.
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Here are some of the benefits to
investing in syndications:
1. Access to Bigger Deals Smaller
investors can participate in bigger
deals that they couldn’t afford on
their own
2. Partner with Experts
Inexperienced investors can
benefit from the expertise of
experienced asset managers
3. Economies of Scale The cost of
materials and services can be
reduced with bulk purchases for
construction
4. Security of Hard Assets
Investors can experience the ease
of stock market investing with the
security of real estate
5. Diversification For example, a
private lending fund could be
secured to multiple properties as
opposed to a loan for one trust
deed for one property
If you would like to learn more
about the syndications offered by the
Real Wealth Network, visit
www.RealWealthNetwork.com