FAQs

FREQUENTLY ASKED QUESTIONS

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FAQs

We spent a lot of time carefully curating the questions to include. If we spent half that amount of time on the answers, this page might even be helpful!

General FAQS

Will each investor hold joint title to the property?


No. The Company (LLC) will hold title to the property. Each investor will own Units (Shares) in the Company.




Isn't it better for the investor to hold title directly to the property?


If an investor held title directly to the property, they would be personally liable for anything that happens on the property or to the property. By having the company hold title, the liability is limited to the assets of the Company. We, therefore, think it is more beneficial for the investor to own Shares in the Company versus holding direct title to the property.




What is the meaning of the term "member units"


LLCs use different terminology than Corporations. An LLC Member is the same as a Shareholder in a corporation and LLC Units are like Shares in a corporation. So "member units" is like saying "Shareholder shares".




What' the difference between membership interest and membership units?


Both terms refer to a members ownership interest in a company. In an LLC, the portion of the company that someone owns, can be expressed in two ways. One way is in the form of a percentage (Membership Interest), and the other is by number of Units (or Membership Units) they own. For example, LLC A has a total of 100 Units of which John owns 30 Units. However, LLC B does not use Units, but instead refers to ownership as Membership Interests. In that case, a 30% Membership Interest in LLC B is equivalent to John owning 30 Units in LLC A.




I know the terminology used for corporations. What are the terms used for LLCs?


LLC and Corporation share the same corporate shield, and althought their respective terminologies are different, they are parallel.
Corporate LLC
Shareholder Member
Officer/Director Manager
Stock Membership Interest/Units
Dividend Distribution
Articles of Incorporation Articles of Organization
Bylaws Operating Agreement




Will I recieve some version of a 1099 from the Company to use when filling my personal taxes?


Yes, you will receive a K-1 from the Company, which is similar to a 1099 but with more information on it. You will use the information from this K-1 to complete your personal taxes.




Can I invest in the Company using my 401k or IRA funds?


You can invest in the Company using funds from a self-directed IRA. You cannot invest using your 401K funds, because you can only choose investments that your employer has made available. However, if you are no longer employed by the company that holds your 401K, you can roll it over into a self-directed IRA. You need to open an account with an IRA trustee that specializes in self-directed IRAs, and then you have to direct the trustee to make the investment. Not all banks and brokerage houses offer this service, but if you are interested in this, call or email us and we can refer you to some companies that do offer the service.




I have a Revocable Living Trust. Can I invest in the Company using this trust?


Yes, you can. Please use the Individual Purchaser subscription form that is attached to each proposal and enter the name of your trust instead of your name.




Will our LLCs books be audited by an independent auditor on a yearly basis?


Typically not. Given the financial size of most of our LLCs in relation to the cost of auditing its books, it is not cost effective to pay for external audits. However, if an investor or group of investors wants to do an external audit, they can do so at their own personal cost. Of course, we will provide any information that the auditor needs.




Do your LLCs have an exit strategy or is it open ended?


This varies between different investments. Most are open ended in that we have not committed to a sale or exit strategy. Even LLCs whose members had initially set a time period for holding on to a property have typically chosen to go beyond that period. In many cases the members elect to sell the first property by doing a tax free exchange and moving up to a larger property, thereby keeping the LLC intact, but increasing their assets and overall return.




If it is open ended, who makes the decision and has the authority to sell the property?


The LLC Manager has the authority to sell the property. However, the LLC Manager always confers with the investors before making any such major decision.




If for any reason I need to sell my share, and the other investors are not ready to seel the property, do I have a way out? Has this situation happened before?


You always have the option to sell your share. Should this need arise, we suggest talking to the LLC Manager who may already have a list of investors to whom you can talk. This has happened once in the last 20 years, and in that case, another investor of the same LLC bought the share.




Is there some kind of formula or method to know the value of my share on an annual basis?


At the end of the year, our CPA will calculate the basis of each share which represents the share’s book value. However, this may not be the same as the market value of your share.We do not estimate market value of shares on any regular basis, but we can provide you with any information needed for you to value your share on your own.




I have heard that one of the advantages with real estate is that it generates a paper loss that can be offset against my other income, thereby increasing my after tax return. Is that the case with this investment?


Due to depreciation which is a book (paper only) expense, it is possible that the Company has a taxable loss while having a positive cash flow for the year. Some amount of this loss may be taken as a deduction from other income on your personal tax return. Some real estate proposals consider this loss when calculating the investor’s after tax return. We do not try to calculate investors’ after-tax returns because we would have to make assumptions on each investor’s personal tax situation. Of course, it is possible that the opposite could happen (typically in later years), when the taxable income is more than the cash flow. We encourage investors to consider the investment on its own merits and, if we do happen to have a tax loss, consider it a bonus.




What are the differences between investing in a Denbar sponsored LLC versus a publicly traded REIT that invests in apartments?


The biggest advantage in a publically traded REIT is liquidity. A publically traded REIT is very liquid because they are purchased and sold similar to stocks and bonds. If you want to sell your investment, all you have to do is call your broker or go online and sell your shares. You will have your capital back in your bank account in a couple of days. Of course, you will get the market price for your shares, which may be less than you paid for them. The tax situation of an REIT is similar to that of an LLC in that the REIT itself does not pay taxes and the net income is passed through to the investors. However, one subtle difference is that an REIT is obligated by law to distribute a large percentage of its net income every year. Most distribute 100%. With our Company, any distributions are discretionary so we have a lot more flexibility on how much to distribute. The requirement that an REIT has to distribute most of its net income also has another negative consequence in that if net income is LESS than cash flow and reserves, they need to borrow in order to make the distribution.




Why do you prefer this kind of investment (i.e., the LLC Company) versus a Real Estate Investment Trust (REIT)?


I have a few reasons for preferring this type of investment. First off, our overhead and costs are much lower. REITs have overhead that they need to cover similar to any big company, like office space, technology, utilities, admin, accounting, etc. Typically, they charge a management fee similar to the management fee a mutual fund charges. This fee covers some of the overhead and is also used to manage the funds - which is in addition to the fees charged to manage the properties. Another reason is that we have more control over the investment. As mentioned above, REITs have to distribute a large percentage of their net income every year. This may or may not be good for the investors. We think these decisions are best made by the Company and its Shareholders and not by the government.




Will you work with people who want to do a tax-free exchange?


We will consider this on a case-by-case basis.





FEAR FACTOR!

I think investing in real estate would be great, but...

Click a fear, any fear...

I don't know how (or don't have the time) to fix things


As a Denbar investment owner, you don't have to fix anything! We take care of it at a reasonable cost which is already reflected in our propsals' pro-forma.




I have a full time job and don't know how I will be able to show the property to prospective tenatns during the day


As a Denbar Properties investor, you leave all the leasing to us. Our managers and leasing agents make appointments that work with prospective tenants shcedule - whather that is 6:00 in the morning or 10 at night.




I don't mind risking my downpayment but I am worried about having persona liability for the whole mortgage


With many of our investments you are not required to personally sign the mortgage, so the extent of your liablity is up to the amount you invest.




If someone say, slips on the ice, I don't want to get persoanlly sued for thousands of dollars


By keeping our properties well maintained, we limit the number of potential accidents. But if something should happen - that's what insurance is for. We have at least a $1MM liability policy on each of our properties should anything unfortunate like an accident happens. In the unlikely event that the person sues for more than what the policy covers, they have to sue the LLC, not the investors personally; and what is at risk is what the LLC owns and not what you own personally.




I'm going to loose a lot of my profits if I buy a property and pay someone to manage it for me.


You will have an additional expense if you pay a property manager. However, a professional manager should bring you more revenue by getting vacant apartments filled faster than you could fill them yourself. The additional rent probably outweighs the management fee. But instead of buying a property yourself and giving it to someone to manager, why not consider investing in one of our projects? Look at a pro-forma of a place you plan to buy yourself. Then look at our historical figues and pro-formas of one of our new projects. You may be surprised how well you could do with us - with no effort on your part other than depositing your distribution checks every year. Actually, you don't have to even do that, becasue we can electronically send you your distribtions right to your bank account!




I may need my property investment funds back at short notice. How do I do that?


OK. I guess we don't have an easy answer to everything. You may be able to get your investment back at short notice, however our property investments are really long term in nature. Denbar (or you) may be able to find a buyer for your share on short notice, but there is no guarantee you will be able to sell, or get the price you want at short notice. We have only had an ermergency withdrawal request a couple of times, and the investors units/shares were purchased by other members of the same LLC in about a month. Although I hate to say this, if you are looking for quick liquidity, ours is not the investment for you.




Any other questions? Get it? Got it? Good!


If you have any other concerns or fears about investing in real estate please contact us and we will answer them to the best of our ability.