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Real estate has long been a popular investment choice due to its potential for steady cash flow and wealth accumulation. For those seeking consistent monthly income, several real estate investment options stand out. Among them, private mortgage funds and Real Estate Investment Trusts (REITs) with special tax advantages are particularly attractive. In this article, we’ll explore these two investment avenues and their benefits for investors seeking monthly income.
Private Mortgage Funds
Private mortgage funds are investment vehicles that pool money from multiple investors to fund real estate loans. These loans are typically provided to real estate developers, homebuyers, or property investors. Investing in private mortgage funds can offer consistent monthly income through the following mechanisms:
1. Interest Payments
Investors in private mortgage funds receive monthly interest payments from borrowers. These payments are based on the interest rate charged on the loans. Private mortgage funds often offer competitive interest rates, making them an attractive option for income-seeking investors.
2. Diversification
Private mortgage funds spread investors’ money across various real estate loans, reducing risk. Diversification helps ensure a more stable and consistent income stream as it mitigates the impact of defaults on individual loans.
3. Security
Investments in private mortgage funds are typically secured by the underlying real estate assets. In case of borrower default, the fund may have a claim on the property, providing a layer of security for investors.
4. Professional Management
Private mortgage funds are managed by experienced professionals who assess risk, underwrite loans, and make investment decisions on behalf of investors. This expertise helps optimize returns while minimizing potential losses.
Tax Advantages of REIT Status
Real Estate Investment Trusts (REITs) are publicly traded companies that own and operate income-producing real estate assets. REITs enjoy certain tax advantages that make them appealing for investors seeking monthly income:
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This results in regular and often high dividend payments to investors. These dividends can provide a consistent monthly income stream.
REITs are structured as pass-through entities for tax purposes. This means that the income generated by the REIT is not subject to corporate income tax. Instead, shareholders are responsible for paying taxes on their share of the REIT’s income. Pass-through taxation can result in tax-efficient income for investors.
REIT investors can also benefit from potential capital gains tax advantages. When REIT shares are sold at a profit, they may qualify for capital gains treatment, which often results in lower tax rates compared to ordinary income.
Investing in REITs provides an opportunity to diversify across various types of real estate, including commercial properties, residential complexes, and more. This diversification helps spread risk and can contribute to a stable income stream.
Conclusion
Investing in real estate for consistent monthly income can be achieved through private mortgage funds and REITs with special tax advantages. Private mortgage funds offer monthly interest payments, diversification, security, and professional management, while REITs provide consistent dividend income, pass-through taxation benefits, potential capital gains advantages, and portfolio diversification.
Brock VandenBerg is the President of TaliMar Financial and Fund Manager of TaliMar Income Fund I. Mr. VandenBerg started investing in individual trust deeds in 2008, providing capital to real estate investors taking advantage on the housing crisis. He soon brought in outside investors to share in this lucrative opportunity to earn above market returns. After funding over $375 million in short-term loans and attracting over 500 investors, Mr. VandenBerg launched TaliMar Income Fund I in 2021 to offer investors a much more efficient way to invest in individual trust deeds. Currently, TaliMar Income Fund I invests on behalf of over 220 individual investors with over $60 million in assets under management.
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