For a real estate investment with reduced risk, consider a low-income housing venture that qualifies for federal tax credits. These credits are not provided for welfare projects. Instead, tenants are those whose income is below the area’s average but not in poverty.
In such deals, a sponsor will raise millions of dollars from investors, working through brokers and financial planners. Often, minimum investments are as low as $5,000. The money raised will be spent on a variety of properties around the country so investors will have geographic diversification.
Tax credits that are passed through to investors might equal 10 percent of an investor’s outlay, each year for 10 years. The end result, then, would be approximately $10,000 in tax savings, on a $10,000 investment.
From tax savings alone, the investor would just about break even. Any net sales proceeds will be passed through to investors. If you break even from tax savings, these proceeds will be profits.
