Educate. Partner. Invest.
FAQs
Get answers to common questions about investing with TCI.
What type of accounts can I invest through?
We currently support personal investment accounts, joint accounts, and certain entity accounts (Trusts, Limited Liability Companies, Limited Partnerships, C Corporations, and S Corporations). For more information on IRA accounts, see below.
Can I Invest through my IRA?
Yes, you can invest through your IRA. If you currently have a self-directed IRA, please check with your current custodian to ensure that they will allow you to place your investment with Titanium Capital.
What is a K-1?
As a partner in the LLC that purchases the businesses, you will receive a K-1. A K-1 is a tax form used by partnerships to provide investors with detailed information on their share of a partnership’s taxable income. Partnerships are generally not subject to federal or state income tax, but instead issue a K-1 to each investor to report his or her share of the partnership’s income, gains, losses, deductions and credits. The K-1s are provided to investors on an annual basis so that each investor can include K-1 amounts on his or her tax return.
Am I an accredited Investor?
An accredited investor, in the context of a natural person, includes anyone who:
- earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
On the income test, the person must satisfy the thresholds for the three years consistently either alone or with a spouse, and cannot, for example, satisfy one year based on individual income and the next two years based on joint income with a spouse. The only exception is if a person is married within this period, in which case the person may satisfy the threshold on the basis of joint income for the years during which the person was married and on the basis of individual income for the other years.
In addition, entities such as banks, partnerships, corporations, nonprofits and trusts may be accredited investors. Of the entities that would be considered accredited investors and depending on your circumstances, the following may be relevant to you:
- any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person, OR
- any entity in which all of the equity owners are accredited investors.
In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.
Do I need to be an accredited investor to invest?
No. We currently have investment opportunities that are open to accredited and non-accredited investors. Please register here to view our current offerings.
How Frequently are distributions made?
Distributions are planned quarterly.
What exactly are the funds used for?
Investor funds are used for the total acquisition cost of the business. This includes but is not limited to the actual purchase price of the business, acquisition fees, legal and transaction costs, capital expenditures as well as operating capital, and reserves.
Can I visit the business?
Yes. Investors are allowed to visit the business before you invest and throughout the duration of the investment.
Key Terms
Accredited Investor
An accredited investor is a person that can invest in securities (i.e. invest in an business syndication as a limited partner) by satisfying one of the requirements regarding income or net worth. The current requirements to qualify are an annual income of $200,000 or $300,000 for joint income for the last two years with expectation of earning the same or higher or a net worth exceeding $1 million either individually or jointly with a spouse.
Sophisticated Investor
A sophisticated investor is a person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.
Business Syndication
A business syndication is a temporary professional financial services alliance formed for the purpose of handling a business acquisition (in our case a manufacturing company) that would be hard or impossible for the entities involved to handle individually, which allows companies to pool their resources and share risks and returns. In regards to businesses, a syndication is typically a partnership between general partners (i.e. the syndicator) and the limited partners (i.e. the investors) to acquire, manage and sell the business while sharing in the profits.
Cash-On-Cash (COC)
The cash-on-cash (CoC) return is the rate of return, expressed as a percentage, based on the cash flow and the equity investment. CoC return is calculated by dividing the cash flow by the initial investment.
For example, if $2,500,000 is invested in a machine shop and the net profit is $222,500, the cash on cash return is 8.9%.
This is applied to your individual investment as well. If you are getting a preferred return of 8% on a $500,000 investment that means you will earn $40,000 a year on your money. However, if there is profit after your preferred return that gets added to the COC return as well.
For example, if you earn $40,000 a year, PLUS you earn another 5,000 in profit that means you will net $45,000 a year which when divided by your initial $500,000 investment that means that you will earn an even 9% COC return.Sale Proceeds
The sales proceeds are the profit collected at the sale of the business.
For example, here is a how the sales proceeds is calculated for a manufacturing company purchased at $12,500,000 and sold after a five year value-add business plan:Exit NOI $1,125,713 Exit Cap Rate 5.9% Exit Price $19,079,881 Closing Costs ($191,836) Remaining Debt ($10,615,905) Sales Proceeds $8,272,140 Internal Rate of Return (IRR)
The internal rate of return (IRR) is the rate, expressed as a percentage, needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal pay down) to equal the equity investment. IRR is one of the main factors the passive investor should focus on when qualifying a deal.
A very simple example is let’s say that you invest $100. The investment has cash flow of $10 in year 1, and $40 in year 2. At the end of year 2, the investment is liquidated and the $100 is returned.
The total profit is $50 ($10 year 1 + $40 year 2).
Simple division would say that the return is 50% ($50/100). But since time value of money (two years in this example) impacts return, the IRR is actually only 23.43%.
If we had received the $50 cash flow and $100 investment returned all in year 1, then yes, the IRR would be 50%. But because we had to “spread” the cash flow over two years, the return percentage is negatively impacted.
The timing of when cash flow is received has a significant and direct impact on the calculated return. In other words, the sooner you receive the cash, the higher the IRR will be.
Passive Investing in US Manufacturing
Enjoy passive income for safe manufacturing deals without the hassle of opperations.
