All Forum Posts by: Tushar P.

Do you think there is some complicated quantum mechanics going on that an average brained person cannot understand cost segregation, or do you think people could get confused because the OP doesn’t have any articulation skills? At least he regretted that there is no delete button. Or do you think it’s something these?

Is it a big news that cost seg is better than linear depreciation? Or do you think suggesting that to be the main conclusion is simply a manifestation of poor articulation skills?

Thanks for the follow up questions, but looking at the previous posts from the OP, there may be more confusion coming 😅

@Tory Sheffer you should definitely get a trophy for confusing everybody 😏

@Cody L. that’s a great return! How long was the hold period? You may be making it look very easy - there must have been a lot of effort during the hold period to improve the value, and many hurdles/challenges to overcome. Or was it mostly generic stuff like upgrade the standard things and increase rent with inflation?

As for sponsors making money from the fees itself, I totally agree. As a co-GP, I will get my money back just from fees during the hold period. And if the exit is compromised, LPs will take the hit mostly. That’s why my first criteria when looking at a deal as an LP is the GP’s skin in the game - they make more money than the LPs when the deal works, but they should also lose more money when the deal goes south.

@Cody L. I’m investing in a multifamily syndication deal in Houston as a co-GP. Maybe I will dm you to find out what kind of dog it is. I wonder if your broker friend ever categories the dog breeds to further differentiate the deals - like a poodle with covid vs a husky with fleas vs a Labrador with mites.

@Kat N. how much is the sponsor contributing to the capital stack, net of all the fees collected at closing? It’s a big red flag for me when I see a sponsor with no/little skin in the game. It doesn’t necessarily indicate that the sponsor doesn’t believe in the projections themselves. But unless they have some skin in the game, why would they bother to work hard to achieve the projected results when things become difficult? Unless you say they are very renowned and have impeccable reputation.

I thought the tax benefits for real estate professionals were applicable only if they earned very little.

@Rick Martin I guess being a co-GP would mean better returns (portion of fees and promote on top of the regular returns), though I wonder if the tax treatment will be less attractive. Does being a co-GP mean the distributions are taxed at ordinary income rate, compared to long-term capital gains rate for being a LP?

@DeShaun Sellers depending on the commission amount, you may want to invest only a part of it or maybe all of it (or maybe none). This should be irrespective of the percent, as I assume the valuation will be the same for all the investors.

@Michael Plaks what happens when someone makes an investment as a co-GP (instead of LP), getting a share of the cash flow from fees during the hold period (asset mgmt fee, property mgmt fee, etc) - are these cash flows treated as long term capital gains / qualified dividends (15/20% taxation) or ordinary income (tax rate based on income)?

A high IRR hurdle rate for the co-GP would mean that the entire cash flow from fees will be transferred to the co-GP every year (on top of the profits at exit). Quite attractive for the passive co-GP, unless the cash flows and profits are not treated as qualified dividends or long term capital gains.

Instead of 1031X, actually reaping the gains would mean paying more taxes than saved (depreciation recapture tax is at a higher rate than long term capital gains tax).

What is the best thing to say when someone does 1031X: “I deferred my taxes by investing in another property (I’m so smart)”; ”I deferred my taxes by investing in another property - although I overpayed into a risky deal because I was time constrained and hence can lose the invested capital”; “I deferred my taxes because trying to see the actual money would mean paying more taxes than saved”; “I deferred my taxes (because I don’t want to pay more taxes than saved), which means I will never actually see the money until I die”.

I only invest in syndications. Maybe I will start buying rentals when I’m old and retired.

@Chris Montgomery thanks for the explanation. I understand the example, though not the basis update details. That’s the missing part for me.

For simplicity, let’s assume the initial 8 million equity was funded by equal contributions of 100k from 80 LP investors. And upon refinance, 4.8 million was distributed as 60k to each of the 80 LP investors. Without the OZ, this would mean long term capital gains tax on the 60k, right? If that is how it is going to be with the OZ too, then what’s the point?

But seems like you are saying that the basis for any LP investor at refinance was 250k (loan+equity), not 100k (only equity). Hence, while the 60k distribution may still be charged long term capitals gains tax, the OZ tax benefits will not be eroded as the actual initial basis of 100k is still invested and hasn’t been returned. Or maybe I have misinterpreted everything.

Anyways, I dumped capital gains into a few QOFs in 2019, and am just curious how any refinancing could play out - will that retain or erode the OZ tax benefits.