All Forum Posts by: Gaspare U.

@Michael Plaks thank you for the detailed answer. I would be investing as well, so as you mentioned... dual hats for me.

@Brian Burke much appreciative of your time. As always, thorough answers. Thank you again!

So when a GP in a syndication gets paid how are they taxed if the payment is:

• a fee (acquisition, refinance, etc)
• CF split

Also, does the GP get to benefit from depreciation in either of those? 

Thanks in advance!

@Alejandro Antonio Taylor JR are you looking to do a syndication? Syndication means that there are two groups the General Partner (GP) that finds the property, financing, property manager and all that good stuff. The Limited Partners (LP) put up the cash. 

If this is the case there are numerous ways to structure that deal, but to offer a single simple agreement:

The Pref is 8%. Meaning the LP will receive 8% interest on their investment BEFORE the GP are paid.

After the Pref is paid the proceeds (cash flow aka CF) is split 50/50

When the property is sold, the investors receive their cash outlay back and the proceeds are split 50/50

Typical investors are looking for 10-15% IRR

This is a very basic layout. If you wish to learn more about syndications let me know. If this is not what you meant forgot everything I said :)

Do you have a PM in place if the deal goes through? I would discuss with them and see what they suggest. Perhaps they have experience with this and could offer this service for you.

@Mike Iger I have a Q in this setup. So let’s say you invest 100k and in this example you are the only investor.

• At the end of year 1 you receive 8k in Pref AND there is 10k in CF remainder which the LP pays down your investment by 7k.
• Year 2 you receive $7,440 in Pref (100k - 7k = 93k * .08) and there is 13k in CF. The LP reduces your investment now by $9100 and your investment is now $83,900.
• Year 3: your Pref is $6,712. CF is 18k and GP reduces your investment by $12,600 for a investment balance of $71,300

Lets assume the project goes well and all parties involved are happy with this and continue this strategy. At a certain point your investment will dwindle to zero and your Pref will be 0. 

You are now still entitled to 70% of the cash flow?

If a sale or refinance nets $1mm you are entitled to $700k?

Understood and good to know. TYVM 

I was told that “mechanics eat all the profits”. I’m curious if this is or was the case. Do you fix the machines yourself, if not how is that handled?

@Timothy Douglas I am almost done with the book and must say the book is amazing. And yes there is some information that will help @Kenneth Westervelt with his decision for example they go into great details on how to pick an area to invest in. I think it’s a big read for someone looking for tips on investing as this book was created to help people learn how to create a syndication. 

Kenneth, to be clear, you would be investing X amount of money as an investor (aka Limited Partner, LP)? Well just to get an idea on the benchmark a lot of syndications are offering a preferred rate of 6-8% with a split of 30-70% going to the syndicator. Goals of an IRR of 10-15% once the deal reaches full cycle.

There needs to be more information on how the “deal” is formed. Remember just because the project is good the deal may be really bad. 

I would ask a broker I know what they think of the project to confirm what my findings say. And if you are serious I would perhaps consult with a SEC Attorney to go over the syndication deal and see if this is typical or if it favors the syndicator unfairly. 

Good luck

@Michael Le that's a great point!That may not be the answer you wanted to hear @Robert Carlson but may very well be the right answer.