@Jonathan Twombly
The following is from an older post on bigger pockets about the calculations of preferred returns:
Section 4.02 Cash Receipts. The cash receipts of the Company shall be applied in the following order of priority:
(1) To pay the debts and expenses of the Limited Liability as they become due;
(2) To the Asset Manager of the Limited Liability Company his fees as described herein; then
(3) The establishment of a necessary reserve of funds as determined by the Managers in their sole discretion; then
(4) To the Members of the Limited Liability for their preferred return as described herein;
(5) To the Members in proportion to their membership interest; and
Section 4.03 Preferred Returns. Notwithstanding anything in this Operating Agreement to the contrary, the non-managing Members identified on Exhibit A as “entitled to preferred returns” shall be entitled to an 8% preferred return on their invested capital beginning January, 2016, and each year thereafter. All cash equity preferred returns will be distributed equally amongst the members as described below. Distributions to the Members shall be made at least quarterly, if available
At the end it says that the distributions will be made at least quarterly - how is this calculated if you are basing your preferred returns on an annual percentage? How does the preferred return effect a refinance or sale of the building?
Line 3 talks about reserve funds - when you take out the original loan is it common to place a % of the loan in a reserve funds account?
Thanks for all your help!
