A question I am frequently asked by passive investing partners is how (via what legal entity) they should invest in a syndication.
To begin with, I am not an attorney or a CPA and do not pretend to be either one. As such, my first response is typically that they should always consult their legal counsel and tax advisor.
In today’s quick snippet I share some of the more common ways I have seen passive investors enter into syndications and key considerations in relation to that.
Invest As An Individual Under One’s Name
As passive investors do not actively manage the property, make key decisions, or run the business, they are shielded from liability (hence the term limited partners, LPs). As such, if there is a lawsuit they are not part of that lawsuit – the property LLC and likely the management team would carry that liability instead. For that reason, most LPs enter into syndications under their individual name.
Invest Via A Business Entity
If asset protection or estate planning are important to an LP, then a Trust, Limited Partnership, or an LLC are some common business entities we see passive investors participate via. It is important to consult with your legal counsel and CPA to determine which structure is the most optimal one for you, keeping both asset protection and tax efficiency in mind.
Invest Via A Retirement Account Entity
Many passive investors prudently utilize their self-directed retirement accounts to invest in real estate. Depending on the self-directed provider and retirement account structure (IRA or Solo 401K), such retirement entity could be an LLC or a Trust. Sometimes the custodian may invest via their own entity. The set up varies quite a bit and is usually determined based on how the provider is organized and their requirements.
I understand the journey and process of investing in syndications can be overwhelming and confusing. I hope today’s quick snippet shed some light on this one common question I often discuss with passive investing partners and brings clarity to many.
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Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.