All Forum Posts by: Paul Ryan

Hi all - I have a question on depreciation recapture as it relates to syndications and calculating after-tax returns as an LP (I am mainly thinking about multi-family here). As I understand it, an LP will have to pay 25% on any depreciation taken during the life of the investment upon sale of the asset. While cash distributions are likely mostly tax-free given the LP's K-1 is likely showing a loss, ultimately there will be a significant tax liability upon sale. My questions are 1) can other passive losses offset deprecation recapture? 2) Do losses from a deal prior to sale go towards offsetting the capital gains realized upon sale (such that much of the capital gains tax liability is offset)? 3) Is there any way (apart from a 1031 exchange, which I believe is fairly rare for syndications) to avoid or reduce deprecation recapture as an LP?

If depreciation will be taxed upon sale, why do GP's look to accelerate depreciation through cost segregation. I understand that LP's not paying taxes on distributions prior to sale is a significant advantage, but to the extent that most LP's don't have other sources of passive income, any passive losses that carried forward aren't of use to these LP's. And in fact, if deprecation is accelerated aggressively (and not fully used up by income being generated by the property), isn't this a negative (i.e. incremental taxes) for LP's.

Finally, I imagine certain investors (either through syndications or active investments in real estate) amass a lot of passive losses which cannot be used to offset ordinary income. What do these investors do to utilize these losses? Dividends, interest income, etc. cannot be offset by passive losses as far as I understand, and in many cases investing in more real estate could just result in more passive losses given deprecation etc.

Thanks very much!

Hi all - I have a question on depreciation recapture as it relates to syndications and calculating after-tax returns as an LP (I am mainly thinking about multi-family here).  As I understand it, an LP will have to pay 25% on any depreciation taken during the life of the investment upon sale of the asset.  While cash distributions are likely mostly tax-free given the LP's K-1 is likely showing a loss, ultimately there will be a significant tax liability upon sale.  My questions are 1) can other passive losses offset deprecation recapture?  2)  Do losses from a deal prior to sale go towards offsetting the capital gains realized upon sale (such that much of the capital gains tax liability is offset)?  3) Is there any way (apart from a 1031 exchange, which I believe is fairly rare for syndications) to avoid or reduce deprecation recapture as an LP? 

If depreciation will be taxed upon sale, why do GP's look to accelerate depreciation through cost segregation.  I understand that LP's not paying taxes on distributions prior to sale is a significant advantage, but to the extent that most LP's don't have other sources of passive income, any passive losses that carried forward aren't of use to these LP's.  And in fact, if deprecation is accelerated aggressively (and not fully used up by income being generated by the property), isn't this a negative (i.e. incremental taxes) for LP's.  

Finally, I imagine certain investors (either through syndications or active investments in real estate) amass a lot of passive losses which cannot be used to offset ordinary income.  What do these investors do to utilize these losses?  Dividends, interest income, etc. cannot be offset by passive losses as far as I understand, and in many cases investing in more real estate could just result in more passive losses given deprecation etc.

Thanks very much!

Hi all - I have a question on depreciation recapture as it relates to syndications and calculating after-tax returns as an LP (I am mainly thinking about multi-family here).  As I understand it, an LP will have to pay 25% on any depreciation taken during the life of the investment upon sale of the asset.  While cash distributions are likely mostly tax-free given the LP's K-1 is likely showing a loss, ultimately there will be a significant tax liability upon sale.  My questions are 1) can other passive losses offset deprecation recapture?  2)  Do losses from a deal prior to sale go towards offsetting the capital gains realized upon sale (such that much of the capital gains tax liability is offset)?  3) Is there any way (apart from a 1031 exchange, which I believe is fairly rare for syndications) to avoid or reduce deprecation recapture as an LP? 

If depreciation will be taxed upon sale, why do GP's look to accelerate depreciation through cost segregation.  I understand that LP's not paying taxes on distributions prior to sale is a significant advantage, but to the extent that most LP's don't have other sources of passive income, any passive losses that carried forward aren't of use to these LP's.  And in fact, if deprecation is accelerated aggressively (and not fully used up by income being generated by the property), isn't this a negative (i.e. incremental taxes) for LP's.  

Finally, I imagine certain investors (either through syndications or active investments in real estate) amass a lot of passive losses which cannot be used to offset ordinary income.  What do these investors do to utilize these losses?  Dividends, interest income, etc. cannot be offset by passive losses as far as I understand, and in many cases investing in more real estate could just result in more passive losses given deprecation etc.

Thanks very much!

Thanks @Michael Wagner. What are the typical cap rates you are seeing in self storage today? Are these projects financeable and what do terms typically look like (LTV, Debt coverage ratios, etc)?

I am willing to build up to this level of cash flow but am looking to generate cash on cash returns at least in the low double digit to mid teen range initially.

Hello,

I have been reading the forum for some time and doing research.  I’m  Just getting started in real estate.  I’ve done a lot of research looking at deals (including buying vacation rental properties, syndications, etc) but have not pulled the trigger yet.  I am exploring how I can generate cash flow of at least $20k per month using $1mm of capital.  My goal would be to see this monthly cash flow grow with time to twice that amount or more.  Based on the $20k/month on $1mm of capital, this would require cash on cash returns of 24%.  My sense is that this is an aggressive return expectation in today’s market.  I am fairly open to the type of investment (multi family, mobile home parks, vacation rentals, self storage, investing in debt , syndications, hard money lending, etc) but seek stability of cash flows and capital preservation/lower risk (I’m more of a buy and hold type investor).  I would be willing to take a very active role to achieve these levels of returns.  Also, I would be willing to move if needed (I live in a high cost city where cap rates are low). 

I understand this is a very general question - but I’d love for some ideas for a plan to get the juices flowing.  What’s the quickest way to get to the desired level of cash flow, with the least risk?  And using a model that continue to scale over time?

Thanks.