'zactly, 3% guaranteed to you the investor, once operational. 5-10% income projections - for them. You want to work the timing on that to avoid loaning without income for too long. Thereās a ton of upside for mercan - they get whatever cap gains on the property, and a pretty good chunk of the return. They could lose money if everything goes south but thatās a risk theyāre willing to take to get āfreeā capital. Thereās limited upside for you. Itās like any other trade - youāre paying for certainty with upside.
WRT bank loans, itās the same as weāve discussed for Rock Capital, or other deals. GV investors have their own complications but the moneyās far more flexible from their standpoint; donāt have to go keeping the bank happy and reporting every year and whatever, no covenants, etc. EOD itās something akin to a 3% corporate secured tax-advantaged bond.
Iāve talked to Mercan a fair bit and pawed the numbers. IMO, this whole thing comes off as a pretty fair deal both directions.
IMT is on the buyer, not the seller. Iāve looked at the contracts, they seem straight up. So Mercan is paying the IMT to get it back. Iām sure thatās baked into their calculations as well and part of why theyāre only giving you 3% (and 0% on the evora project - the Porto project has an IMT exemption; Evora does not).
In terms of tax treatment, youāll get straight line depreciation annually, then cap gain or loss at the end on your reduced basis. Further than that requires a longer explanation than I want to type up.
Mercan gives you a little sheet, basically Porto project, you come out such that the 3% pays for IMT and all your legal fees and net-net you come out flat after 5 years. Thatās not accounting for taxes on the income but you can work around that using sched-E deductions as I discussed. If you ignore the purely-GV costs and look at it as a standalone ābusinessā, figure you make ~1.5% year.
If you take this a little furtherā¦ you can buy CME EUR/USD 1-year at the money optionsā¦ for about 1.8%. So you can use the gains to hedge off your EUR/USD risk entirely - if the currency moves against you, you lose net nothing; if the currency moves in your favor, you keep the āgainsā, and re-hedge next year at the new level. I think if youāre clever, you can sell options against your option and cut your basis some more. Itās quite elegant. I need to buff and polish this some and discuss with someone smarter than I. This isnāt for everyone - you have to be comfortable trading futures options. But it removes everything but inflation risk. Which lately concerns me as much as currency risk. But every risk you can removeā¦
The funds are probably a better bet, if you trust them. Theyāre likely to keep up with inflation, and you can still play the currency hedge. But, everyoneās perception of risk is different.
