Flip and Danny break down K-1 tax forms for real estate syndications and share a timing disaster: partnership returns due March 15, investor filings due April 15, but upstream delays caused cascading extensions. They learned to demand K-1s by February in future deals and stress the need for earlier coordination between sponsors, partners, CPAs, and investors.
Questions this video answers
April 3 (recording date mentioned by hosts).
March 15.
April 15.
Hey, everybody, Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.
Podcast which is called Freedom through Passive Income.
That's right. And today's episode is called a K1 or lesson learned.
Yes.
We're going to start this episode off by explaining what a K1 is.
It's a tax form.
Boom, done. See you later. We like to keep these short and sweet, but we were just talking about K1s because this is just with not being in syndications for very long. You know, somebody had said, had emailed all of us and I was copied on the email and they were asking, hey, do you know where my K1 is? And I was just, is that a dog food? What is it? What is he looking for?
K1, K9. I can see where the confusion comes in. Anyway, but yeah, the simple answer, it is a tax form. It's a tax form that you're going to get on syndications that if you're doing syndications with us, that's the form that you're going to get. Somebody recently just asked, am I going to get a 1099 as well on these syndications that we're doing? No, you're not. The K1 is going to have all of the information that you're going to need to give your CPA to do what your CPA does. We are not CPAs. We are not financial planners.
None of the above, none of those.
But we did learn a lesson about K1s, and that's what we're going to talk about.
This is a document that you need to get to turn into your accountant, CPA or whatever for you to do your taxes.
That's correct.
And so March 15th is important, right?
Yeah, March 15th is important for the partners.
Right.
April 15th is important for the investors.
Got it.
So there's a two tier thing. And so he and I, Flip and I were just talking about this before we started recording, recording this. And he was like, okay, so what are we going to be talking about here? I said, oh, you haven't been getting all the emails. So here's this lesson learned that we've got. And I'm going to say this before I get into the lesson. Don't be afraid of lessons learned. Right? Because we're in real estate and it's just life in general. But you're always going to learn lessons. You're always going to make mistakes, you're always going to slip up, stumble, fall, fail. That's part of life, it's part of business. It just happens. And anybody who tells you different, well, okay, whatever. I'm not working with them because I don't trust them right out of the gate. But it's the aftermath of all of that, of learning the lesson, what do you do next? That's what's really important. So we're in this deal and we don't have our K1 yet. And it is April 3rd right now that we're actually recording this video and we don't have our K1 yet. Now we were supposed to do our partnership return on March 15th. That's when we should have gotten.
That was a few weeks ago.
Yeah. So we filed an extension. Our investors in this particular deal need to be filing their taxes by 4:15 and it's now February 3rd and we still don't have ours. Now our CPA needs a two week turnaround in order to get ours, do our return and be able to get the K1s to our investors. So here's how this looks. We've got this big deal and it's a big deal. And the entity level, the property entity dirt level, the very, very, very beginning of this entire deal needs to get kick out the very first K1. The very first K1 is going to our partners. And our partners did get their K1 on March 15th exactly when they needed to get their K1 just in time. However, they didn't have time to actually give IT to their CPAs and do their returns by March 15. So they also filed an extension. But the K1 is now with their CPAs and their CPAs are working on their partner level tax return. And then they're going to be able to kick out the K1s to us and their other investors. And so we're waiting on ours. As a result, our investors are saying, hey, are we going to get our K1 yet? And we're like, we haven't gotten ours and we can't give you yours until we get ours. Because once we get ours, our CPA is going to do our partnership level return. Then we're going to kick them out to the other investors. So we are fingers crossed. We keep on asking and asking and asking. Please, can you just, you know, just hurry, hurry, hurry, hurry. Here's the lessons learned is now going forward. And we have a big notebook with lessons learned, right. That we change now going forward as we do more deals with other people. If we're not fully in control of it, like the 48 unit, we're fully in control of it. Our investors are going to get a K1 on time. But if we're not, we're going to make sure we step back. And in the letter of intent when we say we want to do this deal with you. But in order to do this deal with you, you're going to have to to these certain things. One of them is going to be we need our K1 early. Like say February ish early. Because we need to be able to do our returns in order to kick out the K1s to our investors. And we can't do that if you give it to us at the last minute and then we're all just scrambling, we're all filing extensions. So I thought it was really important to like just bring this up because when you're working with different investors and sponsors and depending on the type of deals you are, you want them to be experiencing these types of things, tracking those lessons, fixing them, and be getting proactive about not making them. The more organized you are, the better it is for everybody involved. And when you're dealing with deals like this, you really want to be working with a very well oiled and organized team. Now, the property level entity that got the K1 to our partners on time, they've been in the business 40 years. Right. They've never really needed to get K1's returned faster than that. It's never been an issue for them. So that's even a new thing for 40 years down the road. Now it's a new thing for them going, oh, oh, right, you had to do your returns. Yeah. Okay. So it's a big, you know, circle of learning experience just across deals and investors and things like that. And you know what, quite frankly, when you're working with people, you should be able to hear stories like this. Right. You should be here, not just be hearing all the good news.
Right.
You want to hear the good news and.
Yeah. And the bad news and the bad news.
Sometimes we learned a lesson and right now all of our investors are really hoping they're gonna get their K1 in time so they don't have to file an extension. We are too, but we're gonna keep that from happening.
Yeah, there's typically not anything to learn on good news. Bad news is. There's always something to learn from bad news.
Although I think the good news says do that again.
Yeah. And I have to tell you, I can't wait to see the first K1 because for how long it takes these guys to do it, this thing's got to be like a book, you know, it's got to be like 300 pages or something. Anyway, lots of numbers. Lots of numbers. Well, we hope that you enjoyed this episode. We do like to try to keep these as short as possible. Make sure if you're watching on YouTube, you're subscribing. Make sure you've given us reviews, comment, questions, requests, anything you can do. Make sure you're joining our investor club right here at our website, freedomcapitalinvestments. Com. Join the investor club. But we're also on Facebook and LinkedIn and all the other social whatever those things are. So we always like to end all of our episodes with invest smart, Live happy.
Bye, everybody.
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