All Forum Posts by: Richard Z.

Here need talk to building department for address change. depend on city, some are easy some are difficult.

BTW, in some Asian culture, 666 is super good lucky number. People will pay extra for that number!  not sure that help your case or not.

I will try to bring people in when you have finished your project.  Either using open house time, put a sign, or just spread word get people to see your project. Then you shall find somebody really like/love your house(could be floor plan, quality workmanship, and/or finish touch etc.) and they might be also looking for builder for their own projects. Those are the easiest prospects that you can develop some business.   

Another advantage of building for those clients is that they saw your finished product, if they like your floor plans, material selections, finish touches, it would be very easy to incorporate their project into your own project pipeline. You are more likely could use similar design, same vendors, and subcontractors so that it will not cause you much extra overhead to take care of their projects. It will help you to scale up by doing their projects. and same time you should be able to offer them better price than other typical design-builder companies - That could be your value adding advantage when you do design-build as a developer.

Just my 2 cents..  

Hi Bram, thanks for the comments.

Yes I've done deal like this. The one I had before there is no such longer holding period so I'd like to see how factor that in; the other thing is how much the managing fee is relatively fair from neutral viewpoint. I know by end a working deal for everyone is better than anything.

As for loan, I prefer stay clear and free for land. The time spent on entitlement could be longer if things change. It also takes longer here. and easier to get construction loan.

I will add a picture later and spent more time here and get to know more fellow investors.

thanks.

Hi BPers,

Haven’t been here for a while, so glad to see there are so much things going on here. I'm a flipper also done some new development work. Need some help for this deal structure?

It’s an infill land development deal in bay area. Good neighborhood.

I had it secured 12 months ago, it can be subdivided into 3 lots(takes about 1 year). The local single family house market has appreciated 10-15% over last 12 months.

The numbers are like this:

-Land: 2.65M

-Soft cost: 300k

-Public work and utilities: 210k

-Hard construction cost: 2.86M

Total before construction: 3.16M

-Construction loan: 2.86M

-Loan interest: 229k

Sell at 8.8M

-Selling cost (commission): 396k

-Gross profit: 8.8 – 3.16 - 2.86 - .229 - .396 = 2.15M

ROI 2.15/3.16 = 68%

Total project length is about 2 years. 12/12 for entitlement/construction

My role:

• I secured the land one year ago, put in 220k deposit and 30k for some prelim work and due diligence.
• I will raise all the money,
• I will manage from start to finish, I also have a GC license but will only charge a minimal project management fee.

How would you suggest to structure the deal between me and my passive money partners? Also how to factor in the land appreciation in this deal? I believe the land is appreciated 15% minimum for the time I hold; there is rarely any land/lot on market.

Thanks a lot.

Steven Hamilton II,

Thanks! That sounds very good.

For this particular project, if everything goes smooth, it will bring me about $150k-180k management fee and $250k-$400k distributive share. C-corp will help because the profit withholding?

--Richard

I need a business structure to reduce the SE tax and S-Corp income tax.

Can I invest capital in a development LLC as PASSIVE partner together with all other passive partners, then have my LLC S-corp as manager - I'm the manager of the LLC S-Corp. Will I still be considered as passive partner in this case?

The management fee will flow through to the S-Corp. In the S-Corp, I pay myself salary, SE and some dividend. All my passive income in development LLC will be avoiding SE tax and S-corp income tax(1.5% in CA). I don't want my S-Corp to hold the units as the 1.5% income tax on net income of S-Corp.

Does this make sense, any comments/suggestions?

J Scott,
Jeff Greenberg,

Thanks for the reminder of security regulation thing, but right now my operation mainly w/ friends and family members so it should be fine. As more passive investors pooling I do need be cautious about not crossing the line.

Jon Holdman,
My LLC CPA has been out of country these couple of days, I do want to get a few things clarified before he comes back.

Steven Hamilton II,

Thanks for the clarification!

Regarding the passive income from flipping, this question is raised up by my passive partners from time to time, so I really would like to get it clarified. In Fact, the CPA I work with did had put it into right category – Ordinary income per previous K-1 for passive partners.

As for the LLC partnership, I do keep it only to friends and family members I have prior relationship with or those who are "sophisticated investor". The LLC units are not allowed to be sold, transferred or assigned etc. per the operating agreement.

I do have one more question regarding the security thing, since the LLC is formed with all the partners at the very beginning, does that constitutes any sale of security?

-Richard

Its LLC entity, will issue K-1 for each partners.

Passive income for passive partners - Should it be categorized as ordinary income just as the active partner, or should be short term capital gain? The project is a flipping project.

Thanks,

Richard

Steven,

I meant to say the LLC was filed as partnership.

Seems in California it need pay 1.5% of state income tax for S-Corp. I need compare the LLC fee w/ the S-Corp state income tax..

Thanks again for all the suggestions!

--Richard

Thank you Steven,

I'm an agent. In this case I do can treat the LLC as a S-Corp. Is it possible/simple to treat the LLC as S-Corp? As we have file the first year tax as regular LLC w/ partners.

So for future projects, if I use another LLC B(treat as S-Corp) to own the share of partnership(regular LLC A), then how about the project management fee part, should I also use LLC B as manager to get the compensation as well?