Thought Leadership

15 Questions to Ask Before Investing Your Money: Part 4


Nathan Clayberg

Vice President

You’ve gathered enough information to make an informed decision about your manager. Now what? Consider how you might want to invest and the type of experience you want to have once you sign on with a specific manager.

  1. What Are the Tax Implications of My Investment?

Some firms may have in-house tax staff, which can be advantageous for structuring investments to benefit their investors. These staff might also serve as a resource for you, once you invest, to answer questions about withholdings or other tax reporting.

Compared to other types of investments, private real estate can offer many tax advantages. While tax efficiency should not be the sole driver of your investment decision-making, it is helpful to know how investing in private real estate might impact your tax situation or if it makes sense for your overall financial picture.  It’s important to note that tax situations can vary from investor to investor, so it is best to discuss tax planning with a professional such as a CPA or tax attorney.

  1. Do You Accept IRAs or 401ks?

While tax-advantaged investment vehicles such as IRAs and 401ks are typically invested in public equity, there are opportunities where these vehicles can invest in alternative assets such as private real estate. However, because of regulations implemented by the IRS to prevent tax-exempt entities from engaging in active business without paying taxes, investments through IRAs and 401ks should consider the impact of triggering unrelated business income, or UBIT, which could result in an additional tax.

UBIT could be triggered if the IRA/401k invests in a real estate partnership through a pass-through entity (such as an LP or LLC) that has leverage involved (debt). At MLG, we offer an investment opportunity that is specifically geared toward retirement accounts and is structured to allow these investor types to invest without being subject to UBIT. Here’s a quick comparison of that offering, the Dividend Fund, and our Private Fund option.

Discuss whether the opportunity to eliminate the potential impacts of UBIT exists, if available by the sponsor or fund, especially if you are looking to invest via a benefit plan or self-directed vehicle. As mentioned above, you should also consult your tax professional about the implications of investing your IRA or 401k monies in a private real estate investment.

  1. Reporting Capabilities for Investors

No matter what type of investment you’re vetting, it is imperative that you work with managers or firms that value transparency with their investors. Any of the questions we’ve covered in this series can and should be easily addressed in your conversations. In addition, managers should also be willing to provide you investment-specific information once you become a client.

Most firms will offer some sort of investment portal that you can log into to view your specific investment(s) and its performance over time. Here are some questions to consider:

  • What type of data would I have access to?
  • Will my investment documents always be available for my review (i.e., quarterly reports, K1s, etc.)?
  • What are your security policies?
  • Who is available to me if I have investment questions or issues with my account?

In this series, we’ve provided some insight on how to understand your potential investment, information to gather from a manager, and how to evaluate your overall experience as an investor. At MLG, our core focus has been preserving our investors’ wealth and producing exceptional income and appreciation over time. If we’ve piqued your interest in getting to know what we do inside our four walls, we’d be happy to chat.

Nathan Clayberg is a VP at MLG Capital, splitting his time between working with investors and chasing joint venture acquisitions in the Midwest. Outside of work, Nathan cherishes time with friends and family and enjoys working on his own real estate portfolio.

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