As a passive investor, you have various options to fund your investment in a multifamily syndication. Below is a quick summary of some of these. As always please consult with your financial planner or tax adviser before you decide on an investment funding option.
A self-directed IRA provides tax deferments and tax breaks on revenue generated through an asset. Investors can also avoid paying for capital gains tax if they decide to sell the property later on.
However, there are strict regulations covering the use of a self-directed IRA to invest in a multifamily property. With proper guidance and advice, anyone can maximize their self-directed IRAs and start building their multifamily investment portfolios.
Self-employed individuals can still manage their own retirement plans in lieu of one provided by an employer. Such an arrangement is known as a solo 401(k) plan, which is specifically designed for self-employed individuals and business owners. Like self-directed IRAs, a solo 401(k) provides several tax deductions and excludes penalties for early withdrawals.
Once a solo 401(k) account is set up, an investor can begin funding the account at a maximum annual contribution of $61,000. The acquisition process will be funded straight from the account and, upon closing, all future profits will go directly to the 401(k).
There are several institutions offering a solo 401(k) account. At any rate, investors can leverage great benefits, such as savings from capital gains and access to a wide variety of loans.
Sure enough, any 401(k) account is considered a qualified retirement plan or QRP which allows for tax deductions based on an employees’ contributions from the payroll. Typically, a QRP may take many forms, including a profit-sharing arrangement or a simplified employee pension.
QRPs are an excellent source of funding for multifamily properties. Aside from the numerous tax breaks they entail and the flexibility they give to investors, QRP funds can also accumulate handsomely to form the capital needed to acquire a multifamily investment property.
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