Fee Assumptions

The Fee assumptions are used to compute the partnership fees that are added to the “Operating Expense” column of the Before Tax Cash Flow Projection output page. Fees are, in general, the extra costs associated not with the property, but rather with the fact that the property is being purchased by a group of investors instead of an individual. Such costs include marketing costs, syndication fees, positive cash flow guarantees, and other costs associated with the creation, administration and dissolution of the Partnership / LLC. Fee is a multiple page type, so you may include as many Fee Pages as you desire. For each Fee Page, the individual assumptions are:

FEE AMOUNT is the amount on which the fee is computed, which, depending on the Fee Type, may be either a percentage (for % of Effective Income Fees) or a dollar amount (for all other Fee Types). Dollar Amounts may be negative if desired.

FEE TYPE allows you to control the type of fee to be computed. Your choices are:

Not Specified allows you to cancel the calculation of any fee for this page without otherwise disturbing the other assumption values on the page.

Acquisition Fee is a dollar fee to be inserted in the analysis at the time of the acquisition of the property. This type of fee might also be included in the closing costs, but use of a Fee Page for this purpose allows the user to specify that the fee accrues to the General Partner / Managing Member (closing costs do not do so). This treatment also clarifies the analysis, since the fee page carries a Page Title. The Fee Amount for this type of fee is treated as a dollar amount, and may be negative if desired.

% of Effective Income is a percentage of the Effective Income for the property. This type of fee might be included in the individual revenue pages as a management fee, but use of a Fee Page allows you to specify that the fee accrues to the General Partner / Managing Member (management fees do not do so). The Fee Amount for this type of fee is treated as a percentage. Percentages greater than 100 are treated as if they were 100%, and percentages less than zero are treated as if they were zero.

Annual $ Fee is a constant annual dollar amount. This type of fee might be included as an Expense Page, but use of a Fee Page allows you to specify that the fee accrues to the General Partner / Managing Member (expenses do not do so). The Fee Amount for this type of fee is treated as a dollar amount. Negative values are allowed.

One-Time Expensed Fee is an absolute one-time dollar amount paid on the date specified by the Fee Date assumption. This amount is added to the operating expenses in that year. The Fee Amount for this type of fee should be the dollar amount desired. Since a zero Fee Date defaults to the Acquisition Date, this Fee Type with a zero Fee Date is functionally the same as an Acquisition Fee with the same amount.

See also the following topics: Page

Partnership Fee Planning............... 210 One-Time Capital Fee is an absolute one-time dollar amount paid on the date specified by the Fee Date assumption. In contrast to the One-Time Expensed Fee, this amount is added to the Investment and Sale item of the output, and therefore is capitalized, affecting basis and the capital gain. The Fee Amount for this type of fee should be the dollar amount desired.

FEE TAX DEDUCTIBLE allows you to control the tax deduction of the fee. Your choices are:

! Deducted when paid ! Not Deducted ! Deducted at Sale ! Deducted at Acquisition

FEE TO GENERAL PARTNER / MANAGING MEMBER specifies whether the fee amount(s) for the individual fee page are to be paid to the General Partner / Managing Member. Choosing Yes causes the model to pay the fee to the General Partner / Managing Member, and the fee is shown in the “General / Manager Fees” in the General Partner / Managing Member Cash Flow Projection. Choosing No causes the fee for the page to not be added to the General /Manager Fees. planEASe assumes that all fees which are paid to the General Partner / Managing Member are taxable revenue to him.

FEE DATE is the date that the fee is to be paid for both of the One-Time Fee Types. This assumption is ignored for other fee types. This date is used by the system to place the Fee Amount in the proper year of the analysis. A value of 0.00 defaults to the Acquisition Date, and a value of -1.00 defaults to the date of sale.

In the case of the Sample Apartments, only one fee has been specified, which is a $10,000 commission, tax deductible, paid to the General Partner at acquisition. Incidentally, some syndicators have problems planning commissions, since they are typically expressed as a percentage of the capital raised, and therefore lead to an apparently “circular” computation. For instance, a 10% sale commission on our $260,000 partnership here requires $26,000 more capital, but then you’ve got to pay commission on the additional $26,000 raised, et cetera. The total amount to raise in such circumstances is easy to compute by simply dividing the raise before the commission by one minus the commission rate. Thus $260,000 divided by.90 gives a $288,888 total required after considering the commission.