7 Reasons to Invest in Real Estate Syndications
Real estate syndications have been a rapidly growing investment class in the last several years and are very popular with self-directed retirement plan investors.
The concept of pooling investors to purchase a large property isn’t new. But until recently access to these opportunities was limited to accredited investors.
The passage of the JOBS act in 2012 and resulting SEC rules implemented in 2015 allowed investment sponsors to raise capital for these types of much more easily. As a result, more and more such opportunities are available to the average investor.
For those with a self-directed IRA or Solo 401(k), syndicated real estate deals can be a great way to put your money to work for your retirement savings. Here are 7 reasons to invest in real estate syndications with your retirement plan.
1. Access to Larger Opportunities
Commercial real estate has always been one of the best performing asset classes.
However, large properties like apartment complexes and business centers can be quite expensive, and are generally out of reach for individual investors.
By pooling investors, a syndicator can acquire the large amounts of capital necessary for these projects, while only requiring a modest amount from each individual investor. Minimum investments are commonly in the $50,000 to $100,000 range, but there are funds available that will accept minimum investments as low as $10,000.
2. Diversification
Investing in multi-tenant properties is a great way to achieve diversification for individual investors. If your IRA owns a $100,000 single-family home and there is a vacancy, you have no income from the property until it’s rented again.
If your IRA places that same $100,000 into fractional ownership of a 50-unit apartment complex and 5 units are vacant, there’s still rent coming in from 45 units. That means 90% of potential rents are still being collected.
3. Let Professionals do the Work
Most real estate syndicates take the form of a limited liability company or partnership. All the work is done by the investment sponsor, who acts as the general partner for the entity. That person or team identifies the opportunity and negotiates a purchase, obtains financing, and then operates the property.
Your IRA or 401(k) participates as a limited partner. The plan is purely a financial investor in the project and is leveraging the expertise of the professional team that is running the show. For busy professionals, this type of passive investment is great.
As an investor, you need to put the effort into finding the right opportunities, vetting the investment sponsor, and paying attention to the project once it’s up and running. However, all this is a lot less work than self-managing a rental property.
4. Truly Arm’s Length Investing
One of the primary IRS rules that applies to investing with a self-directed IRA or Solo 401(k) is keeping your investments at arm’s length, and avoiding too much personal interaction with the plan.
Acting as a limited partner in a syndicated real estate deal is one of the most hand’s off ways to approach real estate investing and is therefore very well suited to retirement plans.
5. The Benefits of Leverage
Most syndicated real estate transactions use a mix of investor capital and debt-financing. As a result, the project produces leveraged returns that can outperform any all-cash deal.
It’s not uncommon to see an apartment project using 30% investor capital and 70% debt. The returns on these properties can easily run in the 12-14% range, and sometimes higher.
Because the general partner is obtaining the financing, there’s no need for a personal guarantee on behalf of your limited partner investment. This meets the IRS criteria that any loan obtained by a retirement plan must be non-recourse.
For IRA investors, the use of debt-financing in the deal will create generate Unrelated Debt-Financed Income (UDFI) and a resulting UBIT tax liability. The impact of this taxation in terms of actual dollars and percentage of income will be nominal.
A 14% top line return might be reduced to 13.5% or 13.25% net of taxation, which is still an excellent return on investment. However, the presence of this taxable income will require that you work with your CPA to perform the necessary tax filings.
6. Limited Liability Risk
As a limited partner in a LLC or LLP syndicate, your IRA or Solo 401(k) has no direct exposure to liability risk or debt obligations. The general partner may be guaranteeing the loan. As a limited partner, you certainly will not. In the event of a default, the lender will have no means to come after limited partners.The entity structure will also shield your plan from exposure to liability that may stem from the actions of the managing partner, hired vendors, or other operational aspects of the project.
As a limited partner, your plan (and you acting on behalf of the plan) won’t have any controlling responsibility for the entity, and won’t be making management decisions. You and your plan are removed from any chain of responsibility and the resulting liability exposure that can create.
7. Overall A Great Investment Choice
Making passive investments in larger real estate syndicates provides a wide array of benefits for an IRA investor. These opportunities can produce high returns with minimal effort and no liability exposure.
As with all investments, you must perform thorough diligence before putting your retirement funds into a syndicate. From there, it can be as simple as depositing quarterly checks and watching your tax-sheltered retirement savings grow.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
