Real estate investment has certain distinct tax advantages over other investments; therefore, taking advantage of these tax benefits will help you maximize your investment return. As a taxpayer, you must report the rental income and can deduct several related expenses. Most people buy their own home first, and then when their equity grows, they take out another loan to buy investment properties.

This is because of the highly illiquid nature of real estate, which cannot be purchased and sold on a moment’s notice. As such, many people will opt to invest in real estate investment funds as a way to diversify and protect their holdings. Consider, for example, an instance in which the stock market plummets overnight. Real estate investment funds are generally structured to return profits to investors before any profit is earned by the fund’s sponsor.

Taxation for foreign investors

Choosing the right fund can make the difference between a smart real estate investment and a less profitable one. During formation, the fund sponsor will establish the general parameters for investments. As noted above, some funds are structured to target investments in a specific product type, https://www.good-name.org/how-accounting-services-can-help-real-estate-companies-optimize-their-finances/ such as multifamily investments in core markets. Other funds may be more lenient with the product types and locations in which they invest. Sometimes, the fund will be created to have minimum threshold requirement. The formation phase helps to establish the fund’s “guardrails” and objectives.

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Many traditional brokerages will not move funds from a traditional/Roth IRA or 401 to a non-traditional investment. Therefore, investors looking to pursue this strategy will need to direct the funds from their current brokerage account to an IRA custodian that allows for self-directed investment accounts. Managers responsible for real estate private equity funds need experts who truly understand their business.