Thoughts on DLP housing fund

[Jtlax]

I am interested in the DLP housing fund. Having listened to several of the interviews with Jim, and read through their documents, including the PPM, this is a very intriguing investment. For those who are invested or considering investing in this fund, what are your thoughts. From my perspective here are some of the pros/cons that I see.

Pros:
-equity investment, allows for pass through depreciation. Tax efficient
-Fund structure allows for diversification, with downside protection
-Evergreen structure allows for yearly liquidity
-reinvestment of distributions if so desired
-composite tax return... you don't have to file with individual states
-6% preferred return paid before 1.5% management fee


Cons:
-1 year of data on the fund. It is a fairly new structure
-large initial investment (could be good or bad)
- 60:40 split (investor:member) after 12% is less than some other syndications

[DDSNick]

I’m also very interested in the DLP housing fund. I agree with your perspective on the fund.
How would you invest in the fund? I don’t think I can establish a self directed IRA/401K because of my situation but I have a brokerage account. From prior reading it seems that using a brokerage account for the DLP housing fund is a good option considering the tax efficient nature.

[Hoopoe]

I made a big investment (for me) and I can at least say they are very professional and responsive and and paying the first few 6% (0.5% monthly) distributions as promised. I think that the fees are a mixed bag compared to competition but acceptable overall. I sort of see it as a low fee lower risk fund to generate 6% with less volatility than stocks, more moderate fees from 6-12% but still in line with industry standard. Their 60/40 split above 12% is high and quickly caps returns much above that but I saw it as a price to pay for their evergreen structure and the nice potential “dividend” structure of the 6% return paid out monthly. Also, if a company can reliably deliver compounded 12% anual returns for me I’ll be rich and don’t mind if they get rich in the process. I also see it as a great fixed income product that can be reinvested in the growth stage of your career and then kicks off tax free dividends at 6% late in career which is excellent.

Curious to hear what others say as well. I’m invested in another fund and also have done a few individual property syndications too and my portfolio is about 60% stocks, 35% syndicated real estate and 5% cash and equity in our physician group.

[MK$]

Can someone explain to me how the pass through depreciation works? Can I use it to offset the 6% return? What makes this form of REIT different from others where depreciation option does not exist.

Thank you!

[Hoopoe]

Can someone explain to me how the pass through depreciation works? Can I use it to offset the 6% return? What makes this form of REIT different from others where depreciation option does not exist.

Thank you!

Supposedly pass through depreciation shields the 6% return. The other 6% or so if it performs is equity and may be taxed at capital gains rates when sold.

[wonderwoman77]

Still unclear ...does that mean the first 6% is not taxed?

[Hoopoe]

Still unclear ...does that mean the first 6% is not taxed?

It is taxable income but is balanced out by pass through depreciation so the goal is that with a paper loss (even though you get 6% distributions per year) you don’t end up paying any taxes on that.

Given current tax plan proposal to limit 1031 exchanges and expiration of accelerated depreciation I wonder how much of this benefit will be lost but for now it’s a great deal.

[Hoopoe]

Anyone with other thoughts or investing in this? It's a WCI recommended fund and seems like a good bet. I can't be the only one on a forum with this many people. Would also like to get other perspectives.

[NebDoc7]

I took the plunge 2 months ago after doing my best to research everything. I choose the housing fund as it seems by far the better tax benefit compared to the other two funds. Less liquid but significantly better from a tax standpoint. From what I understand the first 6% is likely not taxed each year and the amount above that (nearly 8% last year) would be taxed at capital gains rates when withdrawn.

I have had good communication from DLP and do not have any complaints thus far.

[ChowYunPhat]

I'm a recent investor in the DLP housing fund and like it so far. Very professional, paying as advertised, and appreciate the transparency within the fund. It take a little while for new cash to be funded (30-45 days is what they share) but will see. I recently put in some additional through back door Roth. If you are going to invest with them through an IRA, they recommend using Midland Trust which is a close DLP partner and has a preferred set of rates for DLP customers. If you will invest in a taxable account, they will set this up directly at DLP and you will need to wire money to their bank.

[Hoopoe]

Curious how this compares to the Origin Income Plus Fund, which I think mixes in a bit of debt rather than just housing and maybe has a touch more stability but slightly lower yields, but also better fee structure (1.25% management fee and 10% of returns (90/10) after a 6% preferred return). Also an evergreen fund. I think I've seen that WCI and POF invest in this one.

[ChowYunPhat]

(1.25% management fee and 10% of returns (90/10) after a 6% preferred return). Also an evergreen fund. I think I've seen that WCI and POF invest in this one.

This sounds like a nice fund and something I will check out as we're looking to diversify custodians. Thanks for info Hoopoe.

[Sower]

WCI shares pros and cons of Private REIT investing. DLP investors, pls clarify which are/are not applicable to investing with DLP.

Reference: The 18 Downsides of Private Real Estate Investing | White Coat Investor

Do DLP investors have to file multiple state tax returns?

Will I be able to file taxes every year by April 15th?

How is transfer on death handled? Do DLP investments qualify for step-up-basis?

Thanks again for your time.

[zlandar]

Anyone with other thoughts or investing in this? It's a WCI recommended fund and seems like a good bet. I can't be the only one on a forum with this many people. Would also like to get other perspectives.

I recently read passiveincomeMD’s article and one thing he wrote in stuck with me:

“You don't need six different reasonable ways to invest. You only need one.”

https://passiveincomemd.com/the-best-strategy-to-build-wealth-is-offense-defense-offense/

If I am going to complicate my investment portfolio it better be worth the extra time and effort. These type of funds don’t move the needle for me.

[Hoopoe]

WCI shares pros and cons of Private REIT investing. DLP investors, pls clarify which are/are not applicable to investing with DLP.

Reference: The 18 Downsides of Private Real Estate Investing | White Coat Investor

Do DLP investors have to file multiple state tax returns?

Will I be able to file taxes every year by April 15th?

How is transfer on death handled? Do DLP investments qualify for step-up-basis?

Thanks again for your time.

My understanding is that there is a consolidated K1 so no additional state tax returns needed.

K1s can be delayed with real estate syndications. I haven't gone through a full tax year as I started with DLP in early 2021, but based on my other syndication investments I would expect the returns to come in late. Usually around or even before April 15 but would be a huge rush on your CPA to get everything in. Plan on filing an extension each year if you invest with syndications (and often if you are doing your own real estate investing with cost seg, bonus depreciation etc).

Call DLP for the specifics. I believe this would qualify for step up in basis as well but should verify. I'm assuming much easier to handle with some paperwork than inheriting privately own and run rental complex in another state on your own.

One thing that I'm excited about with RE fund investing is potential for tax free dividend distribution. This can be very powerful and provide good income to live on, while simultaneously drawing down 401k and/or taxable accounts to be in the lowest brackets.

Ie if you wanted to retire on 200k for spending you could withdraw 100k from 401k and 100k from taxable and pay taxes on the 10,23,22,24% brackets plus 15% cap gains for the taxable account. With real estate income you can take out 100k or so for spending and not have any taxes on that portion, getting 0% cap gains on additional withdrawals up to 40k in gains (I'm not a CPA but I think that the concept in general is highly favorable though the math may be off a bit).

All of this of course requires that the real estate investments perform similar to stock market gains over the years which I am confident with and has been true for the last 20-30 years or so. Possibly the chance to do much better than the market but this introduces more sponsor risk. I think a good sponsor can provide much more benefit than an investment manager picking stocks, but I still wouldn't put all eggs in one basket with just one company as a result. I know many are averse to RE on this forum but I am planning to make it a major part of my retirement and savings strategy (but still no more than 50% of investments and currently about 25% and seeing how things shake out in the near future with a few full tax years.