Strategy for Building Vacant land Portfolio

[Jeremy Stamper]

Let’s say I have $1m and purchase 100 distressed, vacant, non-income producing properties for $10k each. Suppose each one is assessed for $20k each and I put all 100 properties on the market for $20k each. The total assessed value of all properties is $2m and I’m paying 1% ($20k per year) in property taxes.

Suppose that in year one, I sell 5% of my inventory (5 properties) for my asking price of 2x what I paid (The other properties just sit there). The sales yield $100k (5x$20k). But I need to pay $20k in property taxes on all my properties out of that $100k, so I’m left with $80k (assume I have no other expenses.)

What I’d like to do is take that $80k and purchase 8 additional properties that are assessed/arguably worth $160k, same formula as before. So at the beginning of year 2, after these acquisitions, my inventory would be 103 properties.

My questions are these (a) what are the flaws in this strategy, and (b) how are my gains taxed & are there strategies for limiting that tax amount so I can reinvest more of it in additional properties?

Thanks and I’m looking forward to participating in this forum :)