All Forum Posts by: Kurt Granroth

@Daniel Dietz, yes, I started with my plan last year and successfully found an apartment syndication in Texas with projected higher returns and a similarly higher risk plus a storage unit syndication in Florida that was a bit more conservative.  I'm really liking the mix of geographical locations, market influences, and risk levels.

This year I'm hoping to find some suitable deals that are maybe even more conservative than those.  It really feels like we are right at the end of the current high in the cycle and I have very little faith that it'll continue for the next five years.  So I'm going to focus less on the five year projections and more on how stable the investment will be if it all crashes next year.  Low debt; long  term fixed rates; and conservative to the point of pessimism assumptions on attributes like vacancies and price increases will all be very important factors!

I also discovered relatively recently the idea of "funds" that encapsulate multiple real estate deals. Those sound on the surface not unlike an REIT but they apparently aren't and they do require being accredited to participate. I know extremely little so far but the idea of a relatively high return "income fund" that could still be "safer" than an individual property is intriguing and worth a look.

@Brandon Hall - I'm on the LP side.

So with "tax strategy", does that include actually filing my taxes or is it more that you'd tell me what to do and I'd be responsible for doing the filing myself?  I'm still not clear how CPAs work across state lines when it comes to taxes.

I've historically done my own taxes and lately the complexity has just barely stayed on my side of the line of understanding it all... but that's all coming to an end this year.  This year is the first year I'll have a couple of syndications under my belt (one multi-family apartment and one storage unit) and I can already see that the tax implications of those are well beyond what I know!  I definitely need an experienced hand at this.

So I'm looking for a CPA with extensive experience dealing with the subtleties of taxes for passive investors of syndications.  I would prefer said CPA to be in Arizona but that's not a hard requirement.  I'm just unsure how "portable" CPAs are after visiting the "CPA Mobility" site.

For what it's worth, I do see quite a few requests for CPA recommendations on this forum, but my searching didn't come across any specifically requesting one with syndication expertise.  If there is an existing thread with recommendations and referrals, then please point me in that direction!

A common way to kick-start a real estate investment is to wire the funds to wherever they need to be.  Maybe it's $25k, or $50k, or $100k.  It's money that you have in an account that is then transferred to somewhere else.

My question is: where do you keep that money prior to the time it needs to be wired?

In my case, the money tends to be either in very liquid form in simple savings accounts (up to maybe $50k for a few months) or it's in the stock market and I simply sell some shares in advance of the cash demand; transfer that to a bank account; and transfer it from there.

It seems like there should be a better way of handling these funds in the short term.

So yeah... you have a funding call in two weeks (or three months) -- where is that money now?

@Ivan Barratt - you are to blame for my descent into the K-1 details as you showed me just how little I knew about the topic but how critically important such knowledge is!  Did I say "to blame"?  I mean "to be eternally thanked!" :-D

Let's talk, then about the difference between the taxable income on the K-1s and the possibly non-taxable distributions, which are completely different things.  @Brian Burke and @John Woodrich, you have both stated or reinforced this point.

The thing is, I know NOTHING about that.  I read everything I could on BiggerPockets on syndications (including such articles as "The Compelling Tax Benefits of Real Estate Syndication") and searched on the wide web and nothing even hints at how a cash distribution (what I often hear referred to as a "dividend") is anything but taxable income like you'd get on a 1099-INT or 1099-DIV.

So what is a distribution if it's so independent of the taxable income?  And if this is too big a topic to answer in a forum post, then please point me to any articles that talk about this in any detail on the subject because this seems like very fundamental knowledge!

I'm getting fantastic answers to my questions, here -- thanks everybody!  But for every question answered, I find myself with a cascading set of even more questions!  I thought I knew the basics of all this but clearly I'm far from that!

So if I ignore all of my other questions and concentrate just on estimating the taxable amount that could be stated on a K-1, then does this look like it's even in spitting distance of what could happen?

$20,000,000 acquisition price
70/30 loan
$6,000,000 down payment
$14,000,000 loan @ 5% amortized over 25 years
$100,000 investment
1.66% share

Year 1:
NOI: $1,000,000
Mortgage Interest: $680,000 (from calculator)
Depreciation: $400,000 (($20M * 0.6) / 30)
K-1 Taxable Income: -$80,000
My Share: -$1,328

Is that even a tiny bit accurate (even given fake numbers) or, if not, is it obvious what fundamental thing I'm still missing?

Then, both @Brian Burke and @Ivan Barratt have made mention of my own tax advisor and I'm not understanding why.  What does my personal tax situation have to do with a K-1 at all?  Wouldn't the K-1 be based exclusively with my investment in the property itself and thus would be created by the GP completely independently?

@Christopher Smith @Matt S. - Ah, that does illustrate the first of my assumptions that is wrong.  I cannot subtract the K-1 taxable earnings from my cash earnings since they are both taxable earnings.

Thus, for my first year estimate, it's not: $8,000 - $5,000 = $3.000 but rather something more like:

Cash: $8,000
K-1: $5,000
Total: $12,000
30% tax: $3,600
Net: $4,400

Another way to look at this, then, might be to say that the $5,000 K-1 earnings is reducing my cash earnings by ($5,000 * .3) = $1,500.  Thus, the 8% dividend is actually 6.5%

But what this really is telling me is that it's even MORE important than I thought to find some way of knowing before investing what that K-1 statement is going to look like.  It's sounding like maybe the investment summary isn't even remotely enough info.

@Inna Chernyak  The numbers in my example aren't based on any specific deal but are rather a pastiche of other investor summaries I've seen, rounded around to make the numbers easy to calculate.

I'm trying to track down some real world numbers or estimates of Schedule K-1 statements beyond the high level handwaving on Investopedia and the like. I'm going to make a huge number of assumptions and I want to be told which assumptions are wrong and what the right way of looking at this is.


Say I invest in an apartment syndication or storage unit or mobile home park or something like that. In this example, the GPs aren't going to do any accelerated depreciation via cost segregation.


I see from the investor summary that the acquisition fee of the unit is $20M. I invest $100K in it as an LP, giving me a 0.5% share of the property.


The investor summary predicts the following NOI:
Year 1: $1M
Year 2: $1.25M
Year 3: $1.5M


So given my 0.5% ownership stake, does that mean I would be receiving a K-1 showing my income from this as:
Year 1: $5,000
Year 2: $6,250
Year 3: $7,500


If we continue the example and say that I receive an 8% dividend each year, then my actual profit each year would be:
Year 1: $8,000 - $5,000 = $3,000
Year 2: $8,000 - $6,250 = $1,750
Year 3: $8,000 - $7,500 = $500


This tells me that I must be missing something incredibly fundamental in all this -- that one of my assumptions is so egregiously wrong that it invalidates literally everything else.


But what? And how can I estimate the K-1 before actually investing in the property and locking me into a 5-10 year investment?

I use the Personal Capital website and app to track my typical accounts and stock investments -- it's very easy to use and super handy for tracking net worth. It doesn't natively support real estate investing, though, and the more esoteric the REI style, the less obvious it is to me how to note the investments in the app.

In particular, I'm not sure how to enter in such things as investing in notes as well as in apartment syndication.  It's a manual something-or-other, but what?

What I'm hoping for is some thoughts on precisely how YOU handle these style of investments in Personal Capital, if you do.

Ideas?

(PS. I'm not 100% certain this is the ideal BP forum for this question, but "Real Estate Technology" seemed like a possible good fit)