I’m in a quandry (sp)… I have folks stop by asking about my lofts wanting to purchase… but my plan all along was to have them apartments for 5 yrs then look at converting to condo ( federal enterprize zone so i can sell after 5yr with zero capital gains which i lose if i condo it now) I have always hated residental rental… but then i’ve never had anything that would be considered “upper end rental”
a few points… with loan payments and expenses I could operate at 50% and still make money….
make it condo… and I could keep my unit and bank enough that the interest on equity money would be more than i could make/clear with it 100% full…
anyone have any experience setting up a condo association? Best i can tell from information on the net is… rules, regs, fees, power of… ect are wide open to who ever sets it up and writes it…
there really would be no design changes in the units… just the difference in the sign that says “for sale” or “for lease”
another option would be to sell some and keep some… but again sell any and i’d lose the no capital gains deal (maybe have to consult with cpa on that part)… selling I’ll also lose my tax freeze which only has a few years left anyway… but still a consideration….
I really do not know what the market will bear for these units… but low end for this type deal is… $150sf with most being around $200sf… i’ll finish these out for under $50sf not counting my labor….
I’m not real good at give’n up control and with what i’ve invested of myself… so even after selling off units I’d still feel it was my building… which i could see cause’n problems… I could picture even selling off my unit… but not sure there is a market for a 15000sf unit… or a buyer for same…
thanks in advance for any input or thoughts… the pictures in my minds eye are usually pretty clear… but i’m get’n foggy on this one
p
Replies
I am too tired this evening to answer, but i can tell you I am planning a trip to Memphis between now and spring.
Where is it?
I suspect you could do quite well on the large unit in a good size city, especially if there is a view.
Your third line pretty much answers it for me... condo, sell your unit whole or redesign and start the next one!
Stick to your 5 year plan and do rent to own for the best tenants.
Best to you and yours, Chris.
Some say I know too much.
First you want to talk to some tax people.
You are actually manufacturing a product, but holding it for 5 years before selling.
Your business is realestate, in many forms, and income derived from that is ordinary income.
I am not sure what happens if you hold it for 5 years before selling it. Don't know if that converts all of the income to capital gains or if you only get capital gains on the gain in value from when you finish it to when you sell.
Then you are uses special enterprise area rules.
Now this kind of coversion of labor (ordinary income) to capital gains are done all the time. However, they are typically much lower level and more of a randon business. What I am talking about is some one that buys rental property and then maybe up in 10% or less to get ready to rent and then might sell 2, 5, 10 years later.
I would start talking to a tax specialist NOW.
But LT capital gains, by it'self, are not that high and don't completely focus on eliminating them.
One way that you might have your cake and eat too is to structure some kind of rent with option to buy.
Basically what you would be doing would be to have the terms of the sale set now, but closing in 5 years. With certain amount of the "rent" to go into escrow.
This scheme MIGHT also help determine how much of the sales proceeds are treated as capital gains and how much as ordinary income.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
In federally declared "enterprize zones" if you make an investment in real estate put in improvements that exceed the purchase price of the property and then hold the property for 5 yrs (but less than 9yrs) any capital gains are tax free... zero zip.... thats the carrot at the end of the stick... They place this there to encourage development in these areas and to make them stable by having those invested stay for awhile (vs flip'n)... I will already receive a federal investment tax credit for 20% of the value of all improvments....
The real issues here are....
I'll need to convert my construction loan to a long term loan... and i'm just not sure I want to go through that process,
I've worked 5-7 days a week since i was 15... and it's one thing to build this but looks like if rental... I'll have just built myself another job.... ( kinda like buy'n more work)
the personal side is... I'm pretty invested in this project... I know no family of 4 needs 15k sf... but this was to be my "pay back" place... designed to have parties, charity/political events.... with aging parents and with friends with aging parents... It was pictured in my minds eye as the holiday gathering place... my 3yo comes to work with me some days so that he can work on his bedroom.... (as a side note my wife as always stated that she does not want to live downtown) build it and they will come :)
you guys are the only ones I've even mentioned this too... but it's on my mind pretty constant... hard to sort out the personal/business side of this thing... and as some have witnessed... I keep everything... everything i have I can tell you where it came from and who was with me when i got it... ect.... to me.. everything holds a story...
now in my mind i have to find the value that could buy all that....
thanks for the input... I hate to call my CPA this time of year but... he's a good guy and pretty broad in his experience beyond just being a cpa... we'll see what he says...
as a side note.... how far in advance of your U & O can you start pre leaseing?
thanks for your thoughts guys...
p
"if you make an investment in real estate put in improvements that exceed the purchase price of the property and then hold the property for 5 yrs (but less than 9yrs) any capital gains are tax free... zero zip.."Yes, but that is based on ponytl investment company buing the building and hiring ponytl construction company to make the improvements.Ponytl investments has only put money into this.Ponytl construction has done the work and make income (aftr expenses) and that is ordinary income.Ponytl investments would get the capital gains exclusion.Ponytl construction pays ordinary income taxes plus SE taxes.It might have to be structured that setup separate LLC, but this is just speculation." I know no family of 4 needs 15k sf.."I have no idea what size this is, but are you talking about the whole building or would there be other units beside this?.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
as the developer... ponytl dba as ponytl investments... I as sole owner would be the person not to be taxed... ponytl owns the building and was developer and holds tile to same... there is no ponytl construction... and that being the case there are no monies paid to or due.... so if ponylt holds the property for 5 yrs and then sells it... pony pays no capital gains on monies made... this is basicly a large diy project... I'm not a contrator as i only build for me... my projects, my designs, my investment, my land....
there are 20 units total.... one unit i built to be owner occupied and that one unit has 15,000+ sf (2600 is garage/shop)...
so there are 19 units that are planned rental units... and my unit... sizes range from 700sf to 1650sf 8 ground floor units, 1 carriage house w/ loft, and 10 upper units all with lofts, and then my unit... and a common area roof top deck with a pretty good view of the mississippi river the bridge ect...
there will also be Federal tax credits to be claimed at completion... which amount to 20% of monies spent on renovation (not the original cost of the building).. these are transferable and from what i understand have over 95% cash value...
all these things add up to make it more complex than it should be...
p
"all these things add up to make it more complex than it should be..."The gumberment does not give those things for "free".I am from the gumberment and I am here to """""help"""""" you."there is no ponytl construction... and that being the case there are no monies paid to or due.... so if ponylt holds the property for 5 yrs and then sells it... pony pays no capital gains on monies made... this is basicly a large diy project... I'm not a contrator as i only build for me.."Yes, but the gumberment might treat it like there is one.As I said those rules are setup for people just making investments. So it depends on where all of the comma are in the rules and the CPA needs to look it..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Another angle is how much will the property and locations value escalate in a longer time frame.
Rental property means you make your money back and keep gaining in your equity.
On a side note I got an idea for that white building on the corner do you know how much they want for it and how much basement space there is?
ANDYSZ2WHY DO I HAVE TO EXPLAIN TO FRIENDS AND FAMILY THAT BEING A SOLE PROPRIETOR IS A REAL JOB?
REMODELER/PUNCHOUT SPECIALIST
Nice quandry! I think we all would like to be backed into a corner like that lol!
I think you are answering your own questions; you just have to listen to yourself. You've stated that you've never liked residential rentals and you've also said that you don't like giving up control. Put the two together and the answer is this: after you get a few of these rented out, you'll lose control and be working for your tenants.
You've said before that your is NNN landlording and this won't be anything like that. Those tenants will be calling you to unplug their toilets lol!
This is a very good deal either way. If you stay in for the five years, it would be a three run homer...or maybe a grand slam. If you stay in for only the first year, building and selling, you'll still be hitting a homer...and you can take your money and do it again somewhere else.
My vote is to sell and move on, even though the tax savings are impressive if you stay.
Follow your heart. You dont like landlording and you won't be happy knowing that you could have made a nice score without that headache.
blue
"...if you just do what you think is best testing those limits... it's pretty easy to find exactly where the line is...."
From the best of TauntonU.
i read all the posts and i too hear you answering yourself, you do not want to be a landlord so why should you do something you don't want to do?
because the financial reward may be very great indeed, i am of the opinion that real estate will be slow for a coupla years in general. i am also of the opinion that the fluxuations in the real estate market have become more pronounced going right along with the world becoming a smaller place and information traveling so fast.
never before has it been so true that the worst thing to do is follow, and the reason is this, there are more of us with the same information at the same time. as soon as things begin to cool off everybody gets out to wait and see and that in itself gets things cooling off even faster. same thing will happen when it gets hot again, the next upswing in real estate will have very impressive percentage gains for a few - several years, but the gains in the first two will be staggering as all the money jumps back in. there may be some false starts or swings within the swing but overall...
i think there is a chance it could be a very financially rewarding position to be in if you are selling in five years, two years after the market started to get hot again.
i know you don't want to be a landord as do you, but being one for five years is the cost of rolling the dice. if you can look back and not be bummed you didn't roll the dice when exactly as i laid it out comes to pass you should sell. if you don't sell hire me to manage the property and cut me in, i am great at keeping things flowing smoothly just read this response!
I'd say half the profit is the joy of doing it. You can do it again if you want to.
Take the money and run.
There's a 15,00SF ego somewhere in Memphis looking to meet you.
Joe H
Lots of factors affect being a landlord. Quality of tenants is a big one. Another is the quality of the building.
I've been through it with an older building before. Most of my headaches came from pre-existing conditions caused by age and use. But i'm sure my experiences would've been different with a new/renovated building.
You could always sell within the next 5 years if you changed your mind. But if you have a good product, i'd say being a landlord wouldn't be the problem you're imagining right now. And five years can go be pretty fast.
thanks for the input... I'm really up in the air on this deal... I started being a residental landlord @ 17... and really 99% of any problems i had were self induced... I'm all commerical now... which is alot better fit for me... i have one lone duplex still that because of it's location and less than market rent stays rented with pretty long term people... best was when a guy & his girlfriend each had a side for over 5 yrs...
the only thing old on this place is the shell... so as far as chase'n problems I'll know everything and where it's at... where it came from how we installed it...
rents here are pretty steady @ $1 a sf and sales are 160.00 to 250.00 sf most quoted price is $200sf
so i'm looking at about 19k mo @ 100% rented (this counts my unit as zero income) at that with debt service, insurance, maint... ect... I'm doubtful I'd clear 7-8k month
to sell all the units not counting my unit total sales price
@ 175.00 sf = 3,325,000
-1,000,000.00 loan
= 2,325,000.00
-500k pfi
1,825,000 x .72 = aprox 1,314,000 after taxes
should have a 150k to 225k investment tax credit to offset some of this... so best case i have 1.5 clear and my unit.... which i have no clue on the value of...
I do know it's a pretty slow sales market right now... so my figures could be high for what the market will bear today...
thanks for you guys input...
p
Sell them as Condos and apoint yourself president of the condo association. Then treat everyone as tenants.
Think ya used enough dynamite there, Butch?
can i do that?
You can in my world. I don't know why you can't in yours.LOL
Seriously. Why coulcn't you? What's the worse thing that can happen? Everyone think your a Di@k head? That's a good thing.
Think ya used enough dynamite there, Butch?