Frequently Asked Questions
What is a general partner? What is a limited partner?
A general partner (GP) is also known as the syndicator or sponsor of the deal. They are responsible for overseeing and managing the project. The limited partner (LP), also known as the passive investor, provides equity to carry out the project.
What is the minimum investment?
The general partners create the minimum investment amount per deal with most starting at a 25-50k minimum and a $250k maximum.
Can I invest with my IRA?
Yes, you can invest through a self-directed IRA. This will allow you to invest tax-advantaged retirement funds into real estate. You must have an entity that specializes in SD accounts that will manage the transaction, paperwork, and financial reporting. This custodian will protect you from any violations and typically charge a fee.
What qualifies an accredited investor?
An accredited investor must exceed a net worth of $1,000,000 excluding a personal residence or an individual income above $200,000 in the last two years or a joint income with a spouse above $300,000.
How frequently are distributions made?
Distributions are generally made quarterly and begin to accrue once the deal closes. Whether distributions can be sent will be based on the strategy, implementation, and stage of the general partner's project. At Yarusi Holdings distributions are sent quarterly.
What is included in the property update?
At Yarusi Holdings, the LP will receive a monthly update on the status of the deal. Monthly updates will include vacancy rates, renovation plans, where the deal stands in the business plan, new leasing rates compared to projections, what CAPEX has been started, any updates on the market, etc.
What is the difference between a 506(b) and 506(c)?
A 506(b) is a deal that is open to any accredited investor and up to 35 sophisticated investors. A sophisticated investor is someone who does not meet the accredited investor requirements but has knowledge and experience in financing and business matters and is capable of evaluating the merits and risks of prospective investments.
A 506(c) requires all investors to be accredited. This involves a strict verification process that requires tax returns, proof of income and assets as well as verification of net worth from an attorney or certified accountant. A 506(c) also allows for advertising the deal to the public while 506(b) offerings don’t.
What are the tax benefits?
Depreciation: An income tax deduction that allows a taxpayer to recover the cost of a real estate investment that accounts for the property’s exhaustion or “wear and tear” over time. This is a paper loss that effectively offsets the cash flow generated on an investment property by reducing the income thus lowering the taxes owed.
Cost Segregation: Accelerated depreciation that separates a personal property from land and building improvements. It assigns a useful life to each asset segregated
Bonus Depreciation: This is an enhanced version of accelerated depreciation in which investors can take all of the front-loaded depreciation in year one instead of waiting over the 5-15 years. This is extremely helpful for those that have significant K-1 passive activity gains from other sources.
What is a K-1?
Your investment is made into an LLC that acquires the property. Each investor within the LLC will receive a K-1. This is a tax form provided for investors with information on their share of a partnership’s taxable income. This is not subject to a federal or state income tax but is used for an individual to report his/her share of the partnership’s income, deductions, gains, and losses.
What is a PPM?
The PPM is a private placement memorandum. It is a legal document provided for investors with full disclosure on their investment based on the federal securities law. It includes what is required of investors, what fees and commissions the Sponsor earns, and a full description of the investment property. It includes a summary of the subject property, all warnings, and disclosures of the investment, the legal agreement, and the subscription agreement.
What is my money being used for?
Investor funds go towards the down payment for the loan, renovation, and CAPEX items, fees charged for putting the deal together, and initial operating and reserve funds for the property. The PPM will have a detailed section on the uses of equity.
How long do I have to keep my capital in the deal?
The GP will provide their projected business plan for LPs so the LP can have the opportunity to decide whether this opportunity is right at this time for the LP. The business plan will include the holding period requirement to keep the capital in the deal until the project has been completed. Typically these investments are illiquid until a refinance or sale event occurs to allow for a return of capital.
Do you invest your own money into the deal?
Typically yes unless otherwise stated. It is reassuring when the GP is invested in the deal with the LP as it shows trust in the numbers as well as the risk associated. This shows the LP that the GP is confident with its projected returns.