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Updated over 5 years ago on . Most recent reply

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Roy Mitle
  • Palo Alto, CA
14
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investing in real estate LLC - what to watch for

Roy Mitle
  • Palo Alto, CA
Posted

I was recently approached by a LLC that includes 100+ members and invests in large real estate (>$100MM+) projects. The idea is that you invest along with them and get fractional ownership. The project is rehabbed, refinanced and sold off.

The active members in the LLC take 1.25% upfront and 50% of the cashflow when the properties are sold (around year5). year 1-4 you get 100% of the cashflow. During all this time you get K1.

a. Is this typical fee for a real estate LLC.

b. Is there anything one has to be careful about. Any experience from people on this thread.

c. If we get K1, its a pass through as income. I am in the high tax bracket. Do you get any tax benefits. 

Thanks a lot

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Ned Carey
  • Investor
  • Baltimore, MD
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Ned Carey
  • Investor
  • Baltimore, MD
ModeratorReplied

@Roy Mitle

The devil is in the details. Are you getting a fractional ownership of real estate or a fractional ownership of the LLC. How is the LLC taxed? These questions will affect how you are taxed.

Have you received a private placement memorandum? What is their operating history? Are you investing in project by project or an open ended fund? What are the expected returns? Are you getting a preferred return? These are sizable projects, people should know who they are. What do brokers, bankers, clients, competitors have to say about them?

Search here for posts by @Brian Burke or @Joe Fairless They may have some good ideas of what to watch for.

Good luck - Ned

  • Ned Carey
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