A sponsor showed his LPs 12.1%. After tax, they keep 8.8%.
A worked teardown of a mobile home park syndication, run through the CREDevSim engine. The pre-tax pitch and the number investors actually pocket are not the same number, and the gap is bigger, and lands differently, than most decks let on.
Kasing Ng, CPA, former Big 4 auditor
Skip the read, see the full sample PDF →
1. The number in the deck
Pre-tax, this is a strong deal, and the pitch is honest as far as it goes. LP internal rate of return of 12.1%, a 1.64x equity multiple over five years, debt-service coverage comfortably above breakeven. That is the number in the investor summary. It is also the number that stops at the sale line and never crosses into the LP's tax return.
2. The number LPs actually keep
Carry the same deal through tax at the investor level and the LP return lands at 8.8%, a 1.44x multiple. That is a 3.3-point drag on IRR between the pitch and the pocket. This LP sits in Texas, so the whole drag is federal; an investor in a high-tax state keeps less still. It is not a rounding error and it is not pessimism. It is the tax the pre-tax model simply does not carry.
3. Where the 3.3 points go
Most of the gap shows up in one place: the exit. The deal throws off about $912K of tax at sale; the LPs bear their 71% share of it, roughly $651K, and that is the number that drives the 8.8%. Of the LP share, about $627K is depreciation recapture, blended near 37%: the personal-property share is ordinary income at 40.8% (37% federal plus the 3.8% net investment income tax, with no state tax in Texas), and the 15-year land improvements come back as unrecaptured §1250 gain at 25%. Neither is the 20% long-term capital-gains rate most investors have in their heads. The remaining capital-gain tax on appreciation is about $24K. A pre-tax pro forma shows none of this, because it ends before the tax return begins.
About 96% of the exit tax is recapture, most of it at ordinary income rates, the part LPs never price when they assume a flat 20% on the sale.
4. The cost-seg twist most decks get backwards
Here is where the audit habit earns its keep. A mobile home park is an unusually good cost-segregation candidate: most of the basis is land improvements (roads, pads, utility lines) and park-owned homes, all with a tax life of 15 years or less, all eligible for 100% bonus depreciation. On paper this park throws off about a $1.7M first-year deduction. A cost-seg firm quotes you that number, and a fee to capture it.
For a passive limited partner, that deduction is worth a fraction of what it looks like on the quote, and the reason is who the buyer is.
Two things shrink it. First, the §469 passive-loss rules: a passive LP cannot use those accelerated losses against wages, a salary, or other outside income. The losses are suspended, they pile up, and they sit unused until the deal sells. Second, recapture: every dollar of depreciation you did take comes back at exit, at a rate set by the kind of property it was. Run this composite both ways. A passive LP who runs the study keeps 8.8% after tax; the same LP on straight-line keeps 8.3%. The study is worth about 0.5 of a point, roughly $16K in nominal after-tax dollars, so it only pays if the study costs less than about $44K. Now run the identical deal for a real estate professional who can use the losses in the year they land: 12.4% against 8.8%, and the study pays up to about $212K. Same property, same deduction, two completely different answers, because §469 status decides what the deduction is worth.
There is a second place the number goes wrong. About 85% of the short-life basis here is 15-year land improvements, the pads, roads, water, sewer and electric lines. Under §1250(b)(1) only the depreciation above the 15-year straight-line equivalent comes back as ordinary income at sale; the rest is unrecaptured gain at 25%, not ordinary at 40.8%. Most models carry the whole short-life bucket as §1245 personal property and overstate the ordinary recapture at exit. Getting that split right is real money on the exit line, and it is the kind of thing a study sheet never breaks out.
Cost seg still clearly pays in three cases: you are a real estate professional and can deduct the losses now, you hold long enough for the time value to outrun recapture, or you 1031 into the next deal and defer the recapture entirely. On a taxable sale this LP owes $651K; exchanged, the same exit is $0 and the basis carries forward. For a passive investor on a taxable flip it is half a point, not a windfall, and only if the fee is right. Nobody selling a cost-seg study shows you that half.
I do not broker the deal and I do not sell the cost-seg study, so the read does not change with whether you buy.
Every figure runs off an engine I wrote and can defend line by line, the way an auditor defends a number.
The exit-tax hit modeled up front for the raise, not discovered on a K-1 at sale.