Smart or SCAM? - Help a Newbie with Some Math!

[Paris Williford]

Hi All,

I'm a super newbie, and I've come across an opportunity to invest a small chunk of change in a development. This seems to be a form of syndication but I want to be sure it's legit and potentially profitable before investing anything. Any feedback would be appreciated.

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The developer is raising up to $1,070,000, which is the maximum raise allowed by SEC regulations. $700k will be allocated toward the acquisition of the rental portfolio. The remaining funds will be utilized as repair reserves ($25k) + cost of design and improvements to the commercial property ($345k).

The company is offering shareholders a 40% profit share in this project. Shareholders will collectively split 40% of profits after expenses, including taxes, insurance, management fees, repairs, and third party services such as accounting.

The developer is selling 21,280 shares at $50 per share. The minimum investment is 5 shares ($250). The company will retain ownership of 31,920 shares. Dividends will be paid bi-annually to all shareholders. 7 Year Project Valuation $2.9M

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PROPERTY & INCOME

There are six(6) - 2 bed /1 bath homes and twelve(12) - 1 bed 1 bath homes. Most tenants have been here for a decade or more. There are also two commercial buildings on the property with one existing tenant. The developer plans to upgrade the commercial property to attract additional tenants. Rents range from $550 - $800 per month on the residential side. The one occupied commercial tenant pays $1300 per month. Total revenues are $13k per month as is.

The current rental income is $13k per month ($156k annually). The developer projects that the rents will increase to $15k per month ($180k annually) after reno. The goal over the next two years is to increase total revenue to $20k per month with the addition of a new commercial building ($240k annually).

EXPENSES

Taxes - $1,145 per month

Common Area Maintenance - $475 per month

Insurance - $850 per month

Management Fees - $2500 per month

Utilities - $50 per month

Average Repairs - $850 per month

TOTAL AVERAGE MONTHLY EXPENSES - $5870 per month

The portfolio is located in a gentrifying area and the developer has already had some success with new construction townhomes in the area. I think this could be a great way to get my feet wet and agin a better understanding of syndication without too much exposure if it's legit.

Thanks for reading this post! Any feedback would be super helpful.