Real Estate Syndications: A Guide to Investing for High Net Worth Investors
Investing is a crucial component of financial planning, and investors commonly use several traditional vehicles to grow their wealth, such as stocks, bonds, 401 K’s, and IRAs. However, another option that can potentially provide even greater returns is real estate syndications.
Real estate syndications involve pooling money from multiple investors to invest in a real estate project. This type of investment allows investors to purchase larger properties that are typically out of reach for individual investors. Investing in real estate syndications can provide significant benefits over traditional investment vehicles.
Understanding Real Estate Syndications
To better understand the potential benefits of investing in real estate syndications, let’s look at the profit differences between investing $100 per month in traditional investment vehicles versus investing $100 per month in real estate syndications from 1990 to the present day.
From 1990 to 2021, the S&P 500 index had an average annual return of around 10%. If you invested $100 per month in the S&P 500 during that time period, your total investment would be $37,200. Assuming a 10% annual return, your investment would grow to $196,732.69.
In comparison, investing $100 per month in real estate syndications from 1990 to the present day can provide even greater returns. Real estate syndications offer tax benefits that can significantly increase profits. One of the benefits of investing in real estate is the ability to take advantage of depreciation, which allows real estate investors to write off the value of their property over time, resulting in significant tax savings.
According to a study by the National Council of Real Estate Investment Fiduciaries (NCREIF), commercial real estate has provided an average annual return of around 9.5% over the past 30 years. If you invested $100 per month in a real estate syndication with a 9.5% annual return from 1990 to 2021, your total investment would be $37,200. With a 9.5% annual return and tax benefits from depreciation, your investment would grow to $245,415.92.
In addition to potential higher returns, investing in real estate syndications provides the opportunity to invest in larger properties that would typically be out of reach for individual investors. This type of investment also allows for more control over your investment and the ability to diversify your investment portfolio.
However, it’s important to note that investing in real estate syndications does come with risks. Investors should conduct their due diligence and work with reputable syndicators with a proven success track record. This type of investment is illiquid, which means that investors may be unable to access their funds immediately if needed. Additionally, real estate values can fluctuate, and there is always the risk of a downturn in the real estate market.
Conclusion
In conclusion, investing in real estate syndications has the potential to provide greater returns than traditional investment vehicles. With tax benefits and the ability to invest in larger properties, this type of investment can be an excellent addition to a diversified investment portfolio. However, it’s essential to approach this investment option with caution and do your due diligence to mitigate risks.
