investing with a developer

[Eric Furst]

I'm looking to put some money into real estate to bring in another stream of income. As I have a full time job I'm looking to become a silent partner in a larger investment. I've spoken to some people and the numbers they are selling me on sound good. Obviously I understand that is there job, and I need to look into the underlying figures to make sure that what they are selling me on is possible. 

Just wanted to get some insight from members of the community to see if anyone has actually experienced these types of returns. They expect approximately 8-9% annual returns, paid out quarterly. As I can take my portion of the depreciation that money should mostly be tax free which is a big benefit to me. Within 2-3 years they refinance, returning my principal, though I continue to hold equity in the project. After the refinance I continue to bring in 5-6% annually while having my principal back to put into another property. Then within 15-20 years they sell the property hopefully giving significant returns, though obviously being so far down the road this is somewhat speculative.

I guess my question is twofold: These numbers sound too good to be true, especially given the tax free nature of the returns. So if anyone can verify that they are actually possible that would be helpful. Secondly, having little experience in the field I plan to pass the underlying numbers on to someone more experienced to look over. But knowing what the "catch" for such investments is could be helpful in my initial meeting with the developer. So if anyone knows the questions that can get me to the bottom of things that would also be a bit help.

Thanks all  

[Scott Krone]

@Eric Furst  I do appreciate @Jay Hinrichs assessment of "there" set up.  That being said, without knowing "there" development, it is hard to speculate as to what are appropriate rate of returns.  New developments typically yield a better rate of return due to the higher risk.  The terms you are suggesting appear to be for an existing development that may be re-positioned.  In either situation, it is important to assess the associated risk and time frame.  Jay makes a great point regarding rising interest rates.  With MF there is also the rising concern of over saturation.