#16 – Brad Shepherd – A guide to passive income with real estate syndications!
I had a great chat with Brad Shepherd from Sugarhouse Investments. Brad specializes in passive real estate syndication deals and has a lot of information on his website.
We discuss the difference between passive and active investing and the differences between investing in the stock market and real estate. We also tax taxes, IRA, REIT (real estate investment trusts) and a lot more. Basically we go over the entire syndication process and answer a lot of questions.
Show Notes and Highlights from the Episode are below.
1:29 Differences between passive and active investing?
6:55 Differences between stock market investing and real estate?
9:53 Tax differences between IRA and investing in real estate
12:46 Differences between a REIT fund and real estate syndications
15:10 Custodian companies that can help you invest in real estate through your self-directed IRA
19:24 What type of investor qualifies to invest in a real estate syndication deal?
23:04 How much of your portfolio should you consider investing in real estate deals
25:34 Liquidity of real estate syndication deals.
29:24 Tokenization with real estate deals
31:47 Different types of deals and how they may be constructed
35:34 Differences between Class A, B, C type properties
40:04 Cap rates in real estate explained
48:34 The syndication process – all your questions answered!
PASSIVE REAL ESTATE AND TAXES
“That’s what the tax code is all about. It’s providing incentives. What does Congress want us to do? And apparently, they want us to invest in real estate cause they provide a lot of tax benefits. And suppose I’m doing this outside of a retirement account. In that case, there are a lot of tax advantages that can come through just investing in passive syndication like this, where there’s depreciation that all the investors participate in. So you’re getting monthly cash flow, you’re getting money in your bank account, but at the end of the year, you’re getting a K-1 that shows a passive loss.
And then, yeah. I’ve used my IRA, both my wife and me; we use our self-directed IRAs to invest in these passive syndications as well. And I’m not going to provide tax advice here. Still, you can hand that to your CPA, which could potentially offset a lot of tax liability, especially if you’re doing passive investing in other places where you’ve experienced a gain”
CAP RATE ASSUMPTIONS IN PASSIVE REAL ESTATE DEALS
“When you’re underwriting any of these deals, many assumptions must be made, right? You see some that will write really aggressively, the business plan is to go in there and update from the Formica countertops to the granite install, the backyard patios, the dog runs, then the Amazon lockers or what have you. It’s not an exact science, but we want to go in there with very conservative assumptions.
And they say, now by doing so, we can increase the. Each month by 200, $250. That’s a pretty big jump, 250 bucks; I’d like to see somebody who’s underwriting. What, if we can increase, what if we could only increase the rents $50 a month or a hundred dollars a month?
Why do you think you can jump $250? That’s a pretty big leap. So those are the areas you want to look at; what are the assumptions that they’re making? They’re telling you, they’re going to buy it at a five cap, sell to three caps again at a that’s a pretty big jump”
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