THIS IS A PRIVATE PLACEMENT ONLY FOR QUALIFIED PURCHASERS
WHO ARE KNOWN TO US OR TO OUR PLACEMENT AGENT.
WE DO NOT SEND OUR PRIVATE PLACEMENT MEMORANDUM IN RESPONSE
TO UNSOLICITED INQUIRES. THANK YOU FOR YOUR INTEREST IN US.
Alpha Fund, LLC
View the Private Placement Memorandum
First Year Asset Value Target (Leveraged 75%): $1 Million
Location Target: Midtown and Downtown Omaha, NE
Total Cash Contribution Target: $250,000
Units (or Shares) Remaining (of 50): 17
Contribution Deadline: 4/15/2010
Unit (Share) Price: $5,000
Inception: 11/2/2009
Contact Your Local Investment Manager to Learn More
Who else has invested?
We will gladly share our list of investors upon request. Out of respect of their privacy we do not publicly display our list of investors. Those that do not mind disclosing that they have invested with us are Chris Miller, Delta Real Estate Portfolio, LLC, Angela Siske (our very first investor in 2006), and Van Deeb, founder of Deeb Real Estate.
Who are the people that make this work?
The two most important people in our business at the moment would be our part time cleaning specialist Brittany Granados, our leasing specialist Ben Mathes, and our repair specialist Jim Evans. Brittany is a UNO student and keeps our properties in top notch shape when it comes to weekly cleaning. Ben makes sure all the properties are full. And Jim has over 20 years experience with plumbing and is also talented with electrical. work Without Brittany, Ben, and Jim our properties would be a dirty mess with leaky pipes and bad wiring! Carol Miller has also been a huge help on the photography and digital media front. She is a critical component as all of our marketing efforts are focused online.
Rounding out the rest of the team, Cole Stunkard (Operations Manager) from Omaha, Chris Miller (Investment Manager) from Mead, and Jason Hassler (Landscape and Project Manager) from Omaha, all moved in together in 2006 when we acquired our first property. In three eventful years, we have grown the business from nothing but $5,000 in a savings account to a management company collecting over $300,000 in rent checks each year. Chris has since graduated from UNO with undergraduate degrees in Finance and Real Estate and is now working on his MBA. Also at UNO, Cole is working on his bachelor’s in Small Business Management while Jason is finishing up his bachelor’s in Construction Engineering.
Although we appear to be a young company we have many years of advice to tap into in the form of our Board of Advisors.
Frank DeMonbrun, served in the Navy and experienced entrepreneur, now district executive of ITT Tech advises us on Corporate Strategy
Ted Vasko, a successful commercial real estate investor advises us on capital management
Brian Petranick, COO of a national franchise (Right at Home) advises us on scalability
Van Deeb, founder of Deeb Real Estate advises us on brokerage and sales activities
Frank Klesitz, President of Vyral Marketing lends his marketing insight
Joel Pape, President of Websplashes advises us with utilizing technology
Without these incredibly talented and accomplished advisors we would be a ship lost at sea.
What is Delta REP?
Delta Real Estate Portfolio, LLC is the property management firm hired to manage the properties owned by Alpha Fund as well as other individual clients. They specialize in creating unique environments where young professionals can sign individual bedroom leases in a home while sharing the common areas with their roommates.
What is Alpha Fund?
Alpha Fund, LLC (the fund) is a private real estate buying group structured as an LLC and taxed as a partnership. 50 units (or shares) will be sold initially to raise a total of $250,000. After the initial funding, no additional units are planned to be created. Alpha Fund will own three categories of assets.
1 – Cash
2 – Real Estate
3 – A Small Amount of Personal Property (Appliances, Furniture, etc.)
Before reading any more, what do I need to know?
Since the investment is private, the terms we use are different than typical financial advisor jargon. Since we are an LLC and not a Corporation (Inc.) the folks that own the fund will not be called shareholders. They are called members (they’re liability is limited however, hence LLC.) And the pieces of the company that the members own are not called shares, they are called units. It is important for tax and legal purposes to keep these terms straight.
What does one unit get me?
One unit gets you 2% of all the cash, real estate, and property contained within the fund. If we do not end up finding owners for all 50 units it will be a simple adjustment on the percentage of ownership. For example, if we sell 25 units you would then own 4% of all the company equity.
How Can Units be Purchased?
Any combination of the following can be done to purchase units:
1 – A Simple Cash Transaction
2 – Transfer of assets from an existing IRA
3 – New contributions to a self directed IRA ($5,000 annual limit)
Contact us if you are interested in IRA options for more details.
What’s the basic game plan?
This fund is just one fund in the works of many similar funds we’d like to continue creating once a year. The basic game plan for each fund will be to pool money, acquire real estate, manage it extremely well for the long term, and as the fund gets older we can do one or a combination of the following:
1 – Sell all the real estate and personal property, distribute all the proceeds to members accordingly
2 – Keep the real estate, once mortgages are paid off after 20 years begin sending serious cashflow back to members
3 – Keep the real estate, conservatively borrow against it, and then expand the fund into more properties
4 – Merge existing private funds into one large publicly traded organization (such as a REIT)
What do the projected numbers look like? What are they based on?
We have a history on rent prices and operating expenses since October of 2006. Since inception our vacancy rate has been 0%. For all of 2009 our collection rate was below 2% and our repair expenses were under 5%. All these percentages are based on the amount of rent we collected. Compared to other property managers these figures are astounding.
Although our lawyer won’t let us guarantee this performance in the future, we are very proud of our track record and go to great lengths to uphold it. If you would like a breakdown of both historical numbers on our existing properties as well as projected numbers on properties on our watchlist give us a call and we will gladly share them with you if you prove to be trustworthy and a non competing investor.
How are you financing your properties?
It’s our goal to lock in interest rates for 20 years, set them up so they can be paid off in 20 years, and to seek the most cost effective method with closing costs. We take the following measure to secure the best financing possible.
1 – Seller Finanicng. If the seller is willing to do so, paying them a down payment directly and creating a simple seller financing agreement is the best way to go about acquiring property. It may take some education and convincing on our part, but we can acquire properties with locked in interest rates, smaller down payments, and with little to no closing costs. In most cases it puts the seller in the best situation as well, if they are able to understand the benefits of a seller financed transaction.
2 – Secondary Market Wrap Around Mortgages. Since the fund has no credit history it cannot guarantee mortgages on its own. If the seller is unwilling to participate in a seller financing deal, we can have one of our clients step in and buy the property with a down payment provided by the fund and secure a secondary market loan (Fannie Mae, Freddie Mac, etc) at a low interest rate that is fixed for the long term we need. Alpha Fund would then in return sign a seller financing agreement with our client at a slightly higher rate. Their interest rate could be fixed at less than 6% and our rate to them would be fixed at 7% (aka wraparound mortgage). Our clients could create an income stream of $100 per month per mortgage without having to invest any of their own money. Over 20 years they would receive $24,000. Not bad with a 20% margin of safety on the equity side and a nice little income stream all with no out of pocket costs to them. And we get our fixed rates.
3 – Traditional Bank Financing. If all else fails and the members of the fund are comfortable with doing so we can turn to local banks for traditional financing. An SBA loan might be able to provide us with a fixed (but higher) interest rate, otherwise conventional bank loans will be loans set up for 20 years, but rates would be reset every 3 or 5 years.
What are the risks?
While owning property we will be exposed to all of the typical risks an individual real estate investor takes. Some of these consist of vacancy risk, collection risk, repair risk, legal risk, market risk, and others. We suggest you to consult with a third party legal or financial counsel to fully understand what risks are involved.
What is the worst case scenario?
The day after you write us a check we go bankrupt and you lose your $5,000.
What is the best case scenario?
The properties perform as expected, we are able to merge multiple funds as Delta REP scales its’ business, and we all cash out after a few decades and live happily (and wealthily) ever after.
What are the benefits for me?
Besides the cashflow, tax savings, and equity build up over time the fund provides a few other benefits. First it allows people to reap all the benefits of owning investment property without having to take on all the risk of just one property and all of the management headaches are outsourced. Investing in a buying group such as this also adds diversification as you would be a partial owner of not just one property, but many just in case something abnormal goes wrong at one property vs. the other so you don’t get stuck with that one bad property.
What are the benefits for you?
Delta REP will receive income via property management fees based on the percentage of rent we collect. As much as possible, these fees will be converted into units of the fund. Chris Miller will also be acting as the representing real estate broker and the typical commissions a broker would make will also provide a financial benefit for the creator of the fund. Like the management fees, these commissions will be converted into units at any opportunity possible to ensure managers are acting in the best interest of the other members.
What financial returns do I get?
Although we cannot guarantee any sort of financial returns for equity investors, we are happy to meet with you in person to give you projections based on the properties we have our eye on and how our performance has looked in the past.
How do you determine the value of my investment as time goes on?
If there is a willing seller and a willing buyer, we will let free markets determine the value. In the event a member is forced to liquidate their unit(s) because of death, divorce, or bankruptcy, or any other reasons and the acquiring party is not approved by the fund, the following valuation procedures will take place.
1 – The county assessed values will be used to determine the value of the real estate and added to the cash amount and book value of personal property in the fund to reach a total asset value. All liabilities will be deducted from that to reach a total equity amount. A prorata amount of that equity shall be awarded to the beneficiary over an installment period of up to 60 months.
2 – If the fund or the beneficiary disagree with county assessed values, the disagreeing party shall pay for a third party appraisal and their figures shall be used to determine the value of the real estate.
3 – If the opposite party disagrees with the initial third party appraisal, the opposite party shall pay for a final third party appraisal and an average of both appraisals shall be used.
When would I get to touch the money while I own my unit(s)?
Of each $5,000 contribution, we plan on returning 5% of that contribution to the investor at the end of each full year for the first 20 years. During the first 20 years it will just be withdrawal of capital contribution amount which will not be taxed so long as we classify it as a return of capital rather than a dividend. It would be similar to withdrawing your money from a savings account while keeping the interest income in the bank.
If you would like to tap into the rest of the underlying value of your unit(s) before the fund liquidates or makes the amount of cashflow you want available to you, there are a few ways we could help you get access to the cash you need. Besides the following options, you would also obviously have the ability to sell your unit to any other person or entity as long as the fund approved of the sale. Otherwise;
1 – If Alpha Fund has cash available on hand it may buy back your unit(s)
2 – If Delta REP has cash available on hand it may buy back your unit(s)
3 – If both the fund and Delta REP do not have the available cash on hand, an installment sale may be negotiated
4 – If you just need a little extra cash for whatever reason but don’t want to let go of your unit, the fund or Delta REP could lend you money with your unit(s) acting as collateral.
5 – New units of following funds cannot be created or sold until all the existing units have owners that are happy owning them
These options are simply possibilities and are not guaranteed outlets for sale. Although you are owning a percentage of a company, the company is private and the primary assets held are real estate which makes for an investment meant for long term purposes.
What obligations do I have? What paperwork will this add for taxes?
If you want to be a hands off owner all member meetings and votes will be done via email and will not require a response from you if you agree with the manager’s suggestions. At bare minimum, the only thing you would have to do is file a K1 statement at the end of the year on your taxes which would simply show your portion of the net income of the partnership.
What if?
- I want my money back sooner? Other than the options above, you can sell your unit(s) on your own.
- I die, get divorced, or file for bankruptcy? Your unit is transferred to your beneficiaries as decided by your will or the courts. If the fund members oppose who those beneficiaries are, the unit(s) will be valued as previously discussed and your beneficiaries will receive a cash payout over a term of up to 60 months.
- Chris dies? The fund will be a beneficiary of a term life insurance policy
- Chris is in a coma? Same as above, minus the life insurance. If any of your capital is in any minute danger, Chris says pull the plug!
- Cole dies? His replacement in training will step in or Chris will step down to take over the day to day management of the properties.
- Cole is in a coma? Replacement steps in, or Chris steps down.
- Chris and Cole die at the same time? If Cole’s replacement cannot step in, we have a designated property management company to take over the properties. Loans would be paid off by the insurance policies to give the members time to relax and room to breathe. If needed, members can initiate a liquidation of the properties via majority vote.
Chris and Cole go into a coma at the same time? Cole’s replacement would step in and the member’s could vote to liquidate if necessary. Although Chris was the one who set this all up, Cole is clearly the one who provides value when it comes to the operations of the assets. Chris says pull his plug, and keep Cole alive! Just make sure you dedicate some of the life insurance money to something nice for Chris (preferably a scholarship at Mead High School and UNO).
- The fund starts losing money? Besides halting the annual 5% return of capital, contribution members could elect to contribute more money to prevent foreclosure. Before any of this would happen we would seek short term loans before making capital calls and would even go as far as sacrificing Delta REP’s unit(s) to the bank or other individuals as collateral to keep things moving along.
How much of the fund is spoken for?
The list above shows which units are already reserved and which units are available.
Who are the other investors?
After getting to know you we will give you a brief rundown of the other investors. We have purposely designed our funds to be a tight nit group of friends, family, and clients that we already manage for in which we have created a long standing level of trust. If you are a new investor you will only be allowed in by the recommendation of another member.
What’s the timeline for all of this?
Funding will occur before April 15th. We typically try to set up properties all year round, but the bulk of our expansion occurs in our busy summer months. Christmas break also provides a good time to grow.
What else should I know?
You should meet with your legal, financial, and accounting counsel before investing.
What decisions do I need to make?
A – Is this an opportunity that you would like to act on?
B – What are all of your available options to invest? (Cash, Roth IRA, Traditional IRA, 401K loan, etc.)
C – How many units would you like to purchase?
First Things First
If you work for a company that does not provide any retirement plan options or are self employed, talk to us ASAP!!! There are a lot of cool things you can do that will save a bunch on your taxes! (Simple IRA, SEP IRA, Self Directed 401(k), Defined Contribution Pension, etc.)
Tax Treatment (Please verify this with your tax advisor):
- At the end of the year if we post a positive net income, this amount will be reported on a K1 statement and will add to your taxable income (passive) for the year.
- At the end of the year if we post a negative net income, this amount will reported as a loss on a K1 statement and may be deducted against other passive income you may have or may be carried forward for when you do have passive income gains in the future. (If your income is low enough, you may be able to deduct this amount from your regular earnings).
- If we sell any of our property above book value in the future, the difference between the book value and our net proceeds from the sale will be passed through to you as capital gains (Expected to be 20%).
Being Smart with Taxes
In order to help you defer these taxes, self directed investment accounts can be created. Although Delta REP will handle the financial records on a day to day basis, which will be reviewed by a CPA once a year, a third party (that cannot provide investment advice) is required to handle all of the IRS reporting each year. The best company we have found to handle this is The Entrust Group (www.theentrustgroup.com).
Besides having more physical locations across the country, we have also found Entrust to be the most reasonable when it comes to fees. For self directed IRA’s they charge the following:
$50 – One time Account Opening Fee
$95 – Asset Transfer Fee (It is a flat $95 per instance of transaction, no matter how many units)
$125 – Annual Asset Fee for Accounts Valued Less than $14,000 (scales up after that, capped at $250 after $40,000)
Can I Transfer Investments from an Existing IRA?
Yes. If you already have an existing IRA, it is very simple to transfer your previous investments into our fund. We will walk you through the short and simple process.
If I Don’t Want to Transfer Assets from Another Account, What’s Right For Me?
To simplify things, we’ve already crunched the numbers and you just need to answer a few simple questions to figure out what’s right for you:
1 – Do you plan on sticking with us for more than 5 years as long as the fund performs?
2 – Are you buying more than one $5,000 unit?
If you answer yes to both questions above, an IRA makes sense as the fees are worth paying to receive favorable tax benefits.
Which is Better, Traditional or Roth?
It depends on your Annual Gross Adjusted Income!
If you are contributing new money and your AGI falls between $34,000 – $55,000 ($68,000 – $89,000 married filing jointly) It actually makes sense to go with a Traditional IRA (we’ll explain why in person if you fall in this category.)
If your AGI is greater than $55,000 and less than $105,000 (greater than $89,000 and less than $166,000 for married filing jointly) you can still receive tax benefits via a Roth IRA.
If your AGI is greater than $89,000 ($166,000 if married filing jointly) shares shall be purchased with cash as the IRS claims you make enough and don’t need any tax breaks. (Call us anytime to rant about that, we don’t like it either!!!)
