I always confuse myself on whether distributions of operating cash flow (as opposed to distributions from a refinance) impact investment basis.
For example: You buy a $100m property with 60% debt, 40% equity. So your basis is obviously $100m. But if you received operating distributions totaling $3 million over the year, would you then say your basis is $97m (comprised of $60m debt and $37m equity)?
No, not typically, unless you were trying to be "creative" with your underwriting
No. Your operating cash flow has 0 impact on your basis
A refinance does not have an impact on your total 'cost basis' either
The refinacne would have an impact by reducing your 'equity basis'
if your equity basis decreases, your cash on cash returns increase, bc the denominator in the calc (equity basis) is now lower from the refinance
While I would generally say no to your question, I’ve seen firms count basis 7 ways to Sunday - basically there is no one method.
One firm I’ve worked for didn’t count refi proceeds to buying down equity and only looked at total basis plus annual reserves. So your basis ticked up annually.
Another firm only lowered basis when refi occurred.
And another firm lowers basis on refi and monthly with projected distribution.
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