Contribution to net worth

5 Replies

If you have shares in a publicly traded company, their contribution to your net worth calculation is the number of shares you hold times the price per share.

If you have a house, it's contribution to your net worth calculation is whatever you could sell it for minus what's owed on the mortgage.

How do you factor syndication investments into your net worth? Do you just include your initial investment minus whatever capital has already been distributed, or will the syndicator provide periodic updates/reports with enough information where you can mark to market?

I would think the value would be what you have invested. Interest payments I think would be income yet you still hold the value of your investment in the syndication. Your net worth would increase after exit when you equity is returned. You may be able to inflate the number based on projected IRR, but an accountant could answer better than I.

Most of our investors use the amount they originally invested, minus any return of capital.  Don't deduct income distributions, only return of capital distributions.  Sometimes that's easier said than done because you don't always receive a breakdown of "return of" versus "return on" capital from sponsors.  

In my opinion (which isn't worth the website it's written on) is that it would be reasonable to report your investment on a marked to market basis using your own calculation or estimate (unless you were provided one by the sponsor, which is rare).  There is no way for anyone to easily verify the number, really, so the test would seem to be an estimate that is "reasonable."  This isn't much different than reporting a personally-owned value minus debt, except that you then multiply that result by your ownership percentage.  Perhaps estimating the market value is a bit more challenging, however...

@Carl Fredrickson it would be the current value of the project minus any debt against the project times your percentage ownership.

Any distributions are totally irrelevant that is income and expense not net worth (Balance sheet) No the syndicator is not likely to send you any net worth statement because that is not required for taxes.  He or she probably will send you a balance sheet but that is the book value not necessarily what the property is actually worth today.

Now perhaps you are talking about your capital account within the company that owns it. That is another matter that an accountant would have to explain. 

My question for you....... what are you trying to accomplish on really nailing down your net worth? Is that critical that you get it dead on accurate?

For most cases when you are trying to keep a decent account of your net worth, just use the $$ capital you put into the syndication as cash essentially...... since that's basically what it is. You put $$ into an account and the syndication is using that $$ to buy the asset and paying you based on the performance of the asset. You don't owner the asset, only a part of it and you have no control over it or its sale.

So if you put 100k into a syndication, I would just use 100k in your net worth calculation.

In most cases, do you really need it more detailed than that?

@Carl Fredrickson

It depends on how the syndication is keeping their books. Are they keeping their books on tax basis or another basis which marks assets to fair market value.

If it is the latter, you may be able to see your K-1 and see how much your investment is worth.
I would assume proper syndications keep it this way, they should know what an investment is worth if people wanted to liquidate their position.

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