Investor · NH · Member since 2016 · 134 posts · 61 votes
Remember that late 80s/early 90s song? I'm guessing the Barenaked Ladies meant "tax free" million. So, if you pay for an entitlement phase of a development (apartments, townhouses, single-family homes) and then you have the opportunity to sell the approved land to large syndicator/developer and cash out $1M (taxed as ordinary income?), else stay in deal as part of General Partnership/Sponsor team...am wondering....
a) how much is that normally taxed? (added to W2 or net business income?)
b) if you own 50% at end of land permitting stage, what is a good percentage of ownership to ask for in a long-term syndication? (I can't find my Gene Trowbridge Syndication book at the moment)
c) any other good strategies to recoup entitlement funds, but still generate income? (i.e. maybe sell off one of the three components, but stay in the rest?)
@Jim Froehlich you should definitely sell. This will be taxed as a capital gain either short term if you owned the land for less than a year or long term if over a year.
A development like this is risky and will take years to generate profits. I wouldn’t think you will earn much on the investment if you stay in the deal. You can easily double the million in year otherwise. It’s all about time value of money.
Your strategy for turning 1MM into 2MM within a year would be a great thread. Would love a look inside your brain on that one, if you find the time.
@Jim Froehlich you should definitely sell. This will be taxed as a capital gain either short term if you owned the land for less than a year or long term if over a year.
A development like this is risky and will take years to generate profits. I wouldn’t think you will earn much on the investment if you stay in the deal. You can easily double the million in year otherwise. It’s all about time value of money.
A lot depends on your current personal situation and long term plans. It sounds like you're a W-2 employee. So if you held the land for less than a year and decide to sell it now, obviously as you'll be taxed at your ordinary income tax rate which can be quite painful for W-2 employee especially in a higher tax bracket.
The alternative you're proposing of holding it and potentially only selling a half is a much better one.
The good percentage is what you and your partners agree to. It also depends as to whether you're going to be involved in the project at all.
Last but not least, you don't have to sell the land, you can always consider leasing it out for long term.
@Jim Froehlich you should definitely sell. This will be taxed as a capital gain either short term if you owned the land for less than a year or long term if over a year.
A development like this is risky and will take years to generate profits. I wouldn’t think you will earn much on the investment if you stay in the deal. You can easily double the million in year otherwise. It’s all about time value of money.
Your strategy for turning 1MM into 2MM within a year would be a great thread. Would love a look inside your brain on that one, if you find the time.