One of our investment partners called me over the weekend with a curious but common question. He was surprised to get a note in the mail from the manager of a limited liability company where he is a member.  The note detailed for George the fact that the rental property he and the 3 other members owned was not performing and the members each had to pay $3,700 for expenses for the year to date that were not met by the income stream.  How could this happen?, George wondered. 

I told George that it was quite straight forward actually.  His group of 4 people own a property.  A manager was put in charge of making sure that all the bills for the property were paid in a timely manner.  For example, the mortgage needs to be paid, taxes, insurance, homeowner fees, and on-going maintenance (lawn care, painting, etc). 

George said everyone contributed $10,000 when they bought the property two years ago.  I advised George that these funds were already spent, per the manager’s letter, and the manager was building the reserve back up for the coming months.  The manager was making a “cash call” to the members for the necessary funds to continue to run the rental property (business) in a proper manner. 

It is always important to realize that when unusual or difficult events take place (fire, hurricane, vacancies, etc.) that affect your property that is held in a partnership, you are likely to get a “cash call” to stabilize the economics of the property.  On the other hand, when all goes well and there are profits to be distributed as cash flow exceeds income, or when the property is sold, then the manager will send George and the other member partner’s money according to their ownership interests.

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