Savings/investments/bonds Master Thread.

[Thingywingy]

Any thoughts on investing in RE v. the stock market (assume S&P500 index fund or ETF)? RE would be through a syndicator—not my own time and effort managing. There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation. I understand that the latter is often close to the dull amount of rental income, at least until there is a capital event. At that point, tax can be further deferred via 1031 exchange. Has this been discussed already?

[Euclid]

There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation.

You get these benefits even when investing through syndication?

[Thingywingy]

You get these benefits even when investing through syndication?

Sure. They finance approx 80% of the deal and deals are generally structured as LLCs where you have a membership interest (and so are entitled to tax deprecation).

[aygart]

CREDIT SUISSE GRP FDG GUERNSEY SER B yield is 72%. You feel lucky? 

Is that for these?

https://www.bloomberg.com/news/articles/2023-03-19/credit-suisse-s-17-billion-of-risky-bonds-are-now-worthless

[whacked1]

Any thoughts on investing in RE v. the stock market (assume S&P500 index fund or ETF)? RE would be through a syndicator—not my own time and effort managing. There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation. I understand that the latter is often close to the dull amount of rental income, at least until there is a capital event. At that point, tax can be further deferred via 1031 exchange. Has this been discussed already?

When you are an LP, its difficult to rely on 1031 unless you are sticking with the GP. RE two major cons; 1) capital calls and 2) your money isnt liquid. The depreciation is great, however, for most it would be limited unless they file as a real estate professional...

[ExGingi]

Any thoughts on investing in RE v. the stock market (assume S&P500 index fund or ETF)? RE would be through a syndicator—not my own time and effort managing. There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation. I understand that the latter is often close to the dull amount of rental income, at least until there is a capital event. At that point, tax can be further deferred via 1031 exchange. Has this been discussed already?

There are obviously major differences (syndication probably should legally be only for accredited investors).

1. Liquidity.
2. Liquidity.
3. Liquidity.
4. Control by single GP vs control by shareholders/board.
5. Ability to invest Tax Qualified money (various types of retirement accounts or HSAs)

There are probably more, but the first 3 are definitely what comes to mind right away (various issues that come to play from the fact that it's an illiquid private investment).

[CountValentine]

Is that for these?

https://www.bloomberg.com/news/articles/2023-03-19/credit-suisse-s-17-billion-of-risky-bonds-are-now-worthless

Not sure but they are no longer showing.

[gozalim]

Any thoughts on investing in RE v. the stock market (assume S&P500 index fund or ETF)? RE would be through a syndicator—not my own time and effort managing. There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation. I understand that the latter is often close to the dull amount of rental income, at least until there is a capital event. At that point, tax can be further deferred via 1031 exchange. Has this been discussed already?

is the return/structure otherwise very different?

[Joe4007]

Any thoughts on investing in RE v. the stock market (assume S&P500 index fund or ETF)? RE would be through a syndicator—not my own time and effort managing. There seems to be two very significant advantages to RE: leverage and tax benefits of depreciation. I understand that the latter is often close to the dull amount of rental income, at least until there is a capital event. At that point, tax can be further deferred via 1031 exchange. Has this been discussed already?

As far as leverage, depending on the fed's path, that might turn out to be a disadvantage for RE.

[Euclid]

There are obviously major differences (syndication probably should legally be only for accredited investors).


5. Ability to invest Tax Qualified money (various types of retirement accounts or HSAs)

On the other hand, for non-Tax advantaged money - RE provides tax benefits that stocks don't.

[ExGingi]

On the other hand, for non-Tax advantaged money - RE provides tax benefits that stocks don't.

Correct. Though for a passive investor less so than an active investor (RE Professional) IINM.

Also, 1031s are a trap IMHO. While current tax law gives a get-out-of-jail-free from that trap at death (step-up in basis), it is low-hanging fruit for any significant tax changes (and could distort investment decisions during lifetime).

[Yehudaa]

There are obviously major differences (syndication probably should legally be only for accredited investors).

1. Liquidity.
2. Liquidity.
3. Liquidity.
4. Control by single GP vs control by shareholders/board.
5. Ability to invest Tax Qualified money (various types of retirement accounts or HSAs)

There are probably more, but the first 3 are definitely what comes to mind right away (various issues that come to play from the fact that it's an illiquid private investment).

All really good points. I’d also add a couple more:

1. Diversification. Unless you have enough capital to invest in a whole bunch of deals in different asset classes and different markets, you’re not going to get much diversification in RE deals.

2. Due diligence. Unless you have the time and expertise, your DD on a syndicated deal is unlikely to be thorough enough.  Unless you hire an objective, trusted third party to do your DD, you’re putting a huge amount of trust in the syndicator and GP. You have to be certain that they have both the trustworthiness to honestly present the opportunity, and the skills to execute on the strategy.

3. Transparency. Depending on the type of deal, financials often don't tell the whole story. Once you invest, you’re more or less limited to whatever the GP want to tell you, so it’s hard to know how things are really doing. (Mind you, if you have no liquidity it doesn’t really matter because you have no recourse if things go south, but at least you can push people for more info if you have some transparency.)

I think RE deals can be a great investment for people who don’t need liquidity, have sufficient capital to be properly diversified, and who can either understand the nitty gritty of the investment, or who have a GP who they trust and has the skills to execute.

[aygart]

Correct. Though for a passive investor less so than an active investor (RE Professional) IINM.

Also, 1031s are a trap IMHO. While current tax law gives a get-out-of-jail-free from that trap at death (step-up in basis), it is low-hanging fruit for any significant tax changes (and could distort investment decisions during lifetime).

There are other strategies that can mitigate the tax deferal too.

[ExGingi]

There are other strategies that can mitigate the tax deferal too.

Are we going to start discussing the mechanics of NIMCRUTs here? 

[aygart]

Are we going to start discussing the mechanics of NIMCRUTs here? 

That wasn't even what I was referring to, but no need for details here.

[aygart]

https://www.propublica.org/article/secret-irs-files-trading-competitors-stock

[yomo]

When you are an LP, its difficult to rely on 1031 unless you are sticking with the GP. RE two major cons; 1) capital calls and 2) your money isnt liquid. The depreciation is great, however, for most it would be limited unless they file as a real estate professional...

What do you mean?

[Thingywingy]

As far as leverage, depending on the fed's path, that might turn out to be a disadvantage for RE.

You mean that high rates will cause dip in RE prices?

[Thingywingy]

Correct. Though for a passive investor less so than an active investor (RE Professional) IINM.

Also, 1031s are a trap IMHO. While current tax law gives a get-out-of-jail-free from that trap at death (step-up in basis), it is low-hanging fruit for any significant tax changes (and could distort investment decisions during lifetime).

By trap you mean that it may be legislated away?

[ExGingi]

By trap you mean that it may be legislated away?

No. I mean that when one has an ever growing tax DEFERRAL it becomes harder to make a move that will cause actual taxation, which could lead to skewed investment decisions (the tax tail wagging the dog).