Before we begin, did you know this fun fact about investment property? In 1961 a group of 3,000 investors purchased the Empire State Building, many of whom invested only $10,000?
Investment groups or real estate syndications are a unification of effort and ultimate decision-making that allows the group to benefit from the shared knowledge and experience of the members to earn a high return on more significant investment properties, such as apartment complexes. In addition, as rents and Arizona property values tend to keep pace with inflation, you have a built-in hedge against inflation.
While each member of the investment group shares in the monthly cash flow and divides the profits when exiting the investment, you also share the risks, so consider the group you work with carefully. Find a good team by performing due diligence; your checklist should involve a review of their track record for beginners. You will also want to explore their portfolio and consider how long they have been operating, the soundness of their entry and exit strategies in past dealings, and the financials to ensure plentiful reserves and conservative underwriting.
These partnerships are open to accredited investors with incomes of $200,000 or a net worth of at least a million dollars, excluding your primary residence. Investing in property with a group makes it easy for individual investors, referred to as passive investors or limited partners, to work together and locate investment properties in asset classes and geography for diversity.
Read on to discover five things you should know about buying Arizona investment property with a group.
The first thing you should know about buying Arizona investment property with a group is that the investment is long-term, typically five to ten years. These funds are not liquid and not easily accessed in the event of personal emergencies. Therefore, funds used for investing in real estate with a group should be exclusive of those set aside as a reserve or remain liquid.
In addition, investing with a group allows you the freedom to spend your leisure time as you wish. Because you are not involved in the day-to-day investment property management, the next thing you should know about buying Arizona investment property with a group is that while you have all the financial benefits, you will have none of the responsibilities of a landlord. Late-night calls about leaky roofs, collecting rent, or problems with other tenants will not be your day-to-day issues to handle.
You should also know about the tax advantages of buying Arizona investment property with a group. Among these is depreciation, which allows investors to pay a much lower tax rate on the investment; a loss could offset other passive income. In addition, you avoid capital gains taxes until the final sale of your holdings by utilizing the 1031 exchange laws to swap out one investment property for another.
Self-Directed IRA For Investments
Yet another of the things you should know about buying Arizona investment property with a group is that you can use your self-directed IRA to fund your real estate investment. This self-directed option feature of the IRA allows you to diversify your investment portfolio.