Building a home to sell

[Zach Bellm]

I live in Arizona and am considering buying a lot and building a home to immediately sell upon completion in my home town in Kansas. I found dirt cheap lots for sale, and they are located in the county outside of city limits. What this means, is that there is virtually no inspection fees and very low permit/impact fees. I'd literally be looking at about $6,500 total investment for the .25 acre lot and permit/impact fees. That's unheard of...

I need advice of someone more familiar with tax and business laws than me.

I have plans and building expertise, my grandfather would invest the capital for me to do this. I have family in the town I'm building who work construction so I'd be able to pay them as contractors for some of the work on the home and more importantly I'd have people to keep eyes on it for me in between trips back and forth.

My question: is there any way I can avoid capital gains on this investment build? If I start an LLC is it considered business income or a capital gain? To be considered income, to I have to be a registered contractor in Kansas and/or insured (if the contractors that actually perform the work are both of the above)? I know flipping homes as an LLC it's hard to avoid capital gains but does the fact that I'm building it make it any different? I don't really want to do a 1031 transfer because I will want to be able to pay my grandfather back his investment then use the proceeds to start another project without needing an investment support the next time...