Los Angeles, CA · Member since 2014 · 17 posts · 5 votes
Hello,
I was offered an opportunity to invest with an apartment developer.
So I would pay $100,000 for 4% interest in a 12 unit apartment build in a Limited Partnership.
I have just had a rental unit, so I am not sure about LPs...
The developer sent me this:
When constructed in two years, the LP will refinance the project. The builder's estimate of return on money after the two years is thus: when refinanced and rented out (builder estimate) an 80-90% return on investment and you would still hold your percentage of ownership.
-So my question.
1. Does this mean in two years my $100,000 will be paid back to me (let's estimate low at 80% ROI) so at refi I get a $180,000 check?
2. If that amount is correct, what are the taxes on a refi gain? STCapGains or LTCG??
3. Does my 4% still equal a part of the monthly rent...or what does that 4% represent after refi? Like will I get a 4% portion of the rents each month?
4. Has anyone used CheckaContract dot com for $199 for a lawyer to review a LP or similar contract?
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
10y
Refi usually means that you get a portion or whole of your principal back, so in this example, you may want to count that $85K as return of principal, not ROI.
So, your initial position is $100K cash. Then it becomes $100K equity. Then you get $85K cash back while retaining $XXK in equity. How much that $XX is depends on the property value. It is (prop. value - loan amount)*your share of ownership. Finally, when the property is sold, you'll get that $XXK (or more or less() in equity converted into cash and distiributed to you.
I am not sure that 4% means "4% of rent". You mentioned 4% interest in your first post. So, it is probably 4% of your principal balance and should not change after refi. I.e., you would still receive $4000 annually even if all your principal is returned to you. Read your prospectus. It all should be spelled out in there. If not, ask the deal sponsor. If they cannot explain it, walk away.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
10y
@Account Closed,
Based on what you posted and not knowing all the details:
#1. The way I see it, you should get 80-90% of your principal back in two years. That is a one lump sum of, say, $85K (middle number) paid to you at the end of the second year.
#2. Regardless of the amount in #1, you will not pay taxes on this distribution as this is a loan. You will however pay taxes on all your profits after the property is sold.
#3. 4% should be based on your original principal and should not change unless there is a provision in the company agreement that states otherwise.
Please don't take this is as a tax or legal advice. I am NOT a lawyer nor a CPA.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
10y
Refi usually means that you get a portion or whole of your principal back, so in this example, you may want to count that $85K as return of principal, not ROI.
So, your initial position is $100K cash. Then it becomes $100K equity. Then you get $85K cash back while retaining $XXK in equity. How much that $XX is depends on the property value. It is (prop. value - loan amount)*your share of ownership. Finally, when the property is sold, you'll get that $XXK (or more or less() in equity converted into cash and distiributed to you.
I am not sure that 4% means "4% of rent". You mentioned 4% interest in your first post. So, it is probably 4% of your principal balance and should not change after refi. I.e., you would still receive $4000 annually even if all your principal is returned to you. Read your prospectus. It all should be spelled out in there. If not, ask the deal sponsor. If they cannot explain it, walk away.