Thoughts on DLP housing fund

[Hoopoe]

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.

Regarding my comment above with tax advantaged withdrawal: Assuming that DLP performs even close to projected returns, with 6% preferred dividends covered by pass through depreciation, plus additional appreciation each year- I am thinking of it almost like a nearly unlimited contribution Roth IRA. Namely, tax advantaged growth but different from stock investing with more of a focus on income. And in retirement once past the accumulation phase the 6% tax free withdrawals can serve as a pseudo Roth IRA to help draw down other accounts with maximal tax efficiency.

The downsides as others have mentioned primarily being limited liquidity and higher annual fees (though all real estate investing will have higher fees which accounts for management and not just custodial fees), plus some sponsor risk.

[The White Coat Investor]

Anyone with other thoughts or investing in this? It's a COMPANY THAT BUYS ADVERTISING FROM WCI SO WCI INTRODUCED IT TO ME 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.

Fixed that for you.

We don't recommend specific real estate investments. We really do mean it when we put this disclaimer at the top of the real estate page:

https://www.whitecoatinvestor.com/re...ing-companies/

With some services we recommend, vetting/due diligence is relatively easy because of the nature of the business. Insurance might be the prime example, but I also include student loan refinancing, mortgages, and even financial advisors in that list. The services take place relatively rapidly and many readers use each of those services in any given month. Due to the long-term nature of real estate investments, this process is dramatically more difficult, so I consider our real estate company list more of an “introduction list” than a “recommended list.” I have invested myself with many of these companies, but usually only with a single deal or two over a few years. Just finding their name on this site doesn't excuse you from having to do your own due diligence, which should include reading this post about some of the risks and downsides of investing in private real estate.

Have I invested with DLP? Yes. Am I invested in this particular fund? Yes. Do I think Don Wenner and his team does a really good job with these funds and this company? Sure. But I can't vet these funds in the same way I vet other service providers. The reason returns are high is that risk (both manager and market) is high and liquidity is low. Liquidity is a little better with DLP than most of their competitors, but these aren't publicly traded mutual funds.

[The White Coat Investor]

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.

I invest in both funds being discussed on this thread. I see the Origin Income Plus Fund being riskier than the DLP Lending Fund (all debt) and less risky than the DLP Housing Fund (all equity). I love that all three of these funds are evergreen and more liquid than their peers. Several of my funds are VERY illiquid. These are really liquid by comparison, but again, nothing like publicly traded mutual funds.

[The 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.

1. Maybe. I'll let you know next year. I expect so but will be pleasantly surprised if not. I think the plan is to file composite returns where allowed but I doubt that's every state the fund invests in. If you plan to invest in private real estate funds, plan to file multiple state returns each year.

2. If you're going to invest in private real estate, I would not expect to be able to avoid filing extensions. Will DLP get you their K-1 before April 15th? I think there's a pretty good chance (ask them what date investors received their K-1s each of the last 5 years to get a good idea), but once you have more than a small handful of these types of investments don't plan on it.

3. Good question for DLP whether they offer that titling. It should certainly qualify for a step-up in basis at death like any investment.

[OneDay]

I have been reading through the DLP PPM and found that they get a "catch-up" 20% on the 6% preferred return that is paid out to investors. So investors get the first 6%, then DLP gets their management fee, followed by the 20% catch up, then the remainder is split 80/20 until 12% then 60/40. My concern is that this isn't discussed in their general waterfall structure and when I asked about it the rep was also surprised and took over a week to get back to me that this is the correct fee structure. It seems like that gives them another 1.2% fee. I like that the investors get the first 6% but it seems like a lot for them to get the next 2.7%. Does this seem comparable to other funds? I know other funds have more up front fees so maybe this is DLPs way of getting their cut. I know there are fees associated with running a company like this and in some ways the fees are irrelevant if you are getting good returns but this seemed like a red flag that the fee structure is not as transparent. Has anyone else had any discussion about this fee structure? Is there a different fund/company that seems to have a more favorable after-fee return?

[Hoopoe]

I have been reading through the DLP PPM and found that they get a "catch-up" 20% on the 6% preferred return that is paid out to investors. So investors get the first 6%, then DLP gets their management fee, followed by the 20% catch up, then the remainder is split 80/20 until 12% then 60/40. My concern is that this isn't discussed in their general waterfall structure and when I asked about it the rep was also surprised and took over a week to get back to me that this is the correct fee structure. It seems like that gives them another 1.2% fee. I like that the investors get the first 6% but it seems like a lot for them to get the next 2.7%. Does this seem comparable to other funds? I know other funds have more up front fees so maybe this is DLPs way of getting their cut. I know there are fees associated with running a company like this and in some ways the fees are irrelevant if you are getting good returns but this seemed like a red flag that the fee structure is not as transparent. Has anyone else had any discussion about this fee structure? Is there a different fund/company that seems to have a more favorable after-fee return?

I always assumed that this was the case. It’s 80/20 for up to 12% returns plus 1.5% management fee but there is a preferred return of 6% so even if those fees seem steep it’s “free” for 6% then a catch up if you prefer that language. All the same to me. I do think that the 60/40 split above 12% is excessive though and exceeds industry standard. Their portfolio of deals is usually targeting 17-19% IRR which would mean the 12%+ after all the extra fees. That being said if you had another deal and had to pay 80/20 then 20% capital gains taxes (ie another 80/20) plus depreciation recapture then you come out ahead with evergreen structure.

If some of the other sponsors I like start offering 1031 options or evergreen fund would make things very interesting and put downward pressure on fees which is much needed with expected deceased yields in the future which seems more likely given sky high valuations across the board.