How Real Estate Investors Invest with Us - Multifamily Apartment Investing
With Percy Nikora, Co-Founder
Generally, when an investor invests with us, they are coming into a fund or, essentially, an LLC that's been created. That LLC will have investors as limited partners, who get one asset- one class of shares and sponsors. The LPs generally get a preferred return on their money. So, there's- the first, let's say, eight percent, 10 percent of any of the profits get ... It goes straight to the investors coming into the deal. After that, it gets split. Again, based on the fund, it could be anywhere from a 80/20 split, all the way to a 60/40 split, depending on the nature of the fund.
So, the LP investors, as we like to call them, or the equity partners, they are owners of that LLC which happens to own the property. As such, any of the depreciation or any of the tax advantages that you get are passed through from that LLC to the owner. At the end of the tax year, you will get a K-1, or a 1065, if you're familiar with that, tax form. That will say, "You own X percentage of this LLC, which happens to own that asset," and that LLC had either X amount of profit, or X amount of paper loss. That is reflected on the LLC, which is then- then you report on your individual tax returns. For most investors, that's considered passive income, and if you have passive losses, you can write it off against your passive income, as well.
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