DO INVESTORS LOSE MONEY IN THEIR MULTIFAMILY PROPERTY INVESTMENTS?
A Tax Benefit driven question…

First let’s define our common denominators here

1) Schedule K-1 (or K-1): This is an IRS form issued annually to report activity from investments.
The K-1 reports the investors share of any taxable items for the calendar year for the investments they hold participation interest in.

In simpler words, the K-1 is used by real estate investors who earn rental income. This form reports how much money was received from the properties invested in over the course of the year, as well as certain expenses related to the property.

2) Tax Write Off (Tax Deduction): This is an expense that can be deducted from the taxable income.
A tax write off allows the investors to pay a less significant amount in their tax bill. The important note here is, the expense that’s deducted must fit the IRS criteria of a tax deduction. Must be legitimate.

In simpler words, never play with Uncle Sam! We love this because honest business makes good business and even better, it creates a transcendent level of business as the people involved are honest and trustworthy people.

Now, to answer the tax benefit driven question…

THERE’S NO NEED TO WORRY
When submitting the K-1 tax document received for investing in multifamily real estate partnerships, investors may be confused on why the document shows loss in value. But there’s no need to worry and here is why…

THERE’S ACTUALLY A TAX INCENTIVE
Multifamily properties benefit from depreciation. This a legitimate tax deduction!
To put it in perspective, while real estate values generally appreciate, physical components generally lose value through the hold period as the result of wear and tear. Examples like appliances, roof and electrical items depreciate and eventually are in need of replacement. The IRS understands and accounts for this by offering an income deduction for owning depreciating assets.

HOW IT COMES TO LIFE (An Example)
The JETGINC group and their partnered investors buy a commercial property for $5M. The tax assessors estimate the land value to be $1M, and the building value estimate is $4M. While the land does not benefit from depreciation, the physical property gets depreciated over 40 years. This results in a tax loss of $100,000 ($4,000,000/40 = $100,000) This is something leaders in our network referred to as a phantom expense, meaning there’s no physical check written for the expense but it does get to be claimed as a loss for tax purposes nonetheless.
In many real estate deals, depreciation and other tax write-offs allow all cash flow during the hold period to be tax deferred. So, regardless of the amount received in cash flow throughout the hold period, the annual taxable gain will usually be net negative or extremely close to it.

THE OUTCOME
Positive cash flow each quarter while still claiming a loss at the end of the year.
To put it simply, investors generate more and are able to keep more.
What an awesome way to reap the benefits[legitimately] of the hard earn money used to invest as a yearly reward.

We love honesty in business, it is a principal core value to any relationship, especially the ones revolved around finances. Which is why we take pride in sharing these topics and informing you!