work and thought project for newbies. Please join in.

[Rich Weese]

It is always important to be able to analyze properties and potential acquisitions/sales. My belief is most of the profit is made on the buy. I have an opportunity in real life and want to throw it out there. There will be 2 choices on this "assignment" and it'll be a good opportunity for you to do some thinking and "paper trading". I already know what my decision will be, and I'll eventually tell you why. I want you to think for yourself first. Take this as fun.
Scenario- I bought a 64 lot subdivision in So. TX a little over a year ago and have posted the terms on BP.. I made a good deal because I had an exit strategy. I built some 4br rental homes to keep it flowing, AND convinced the City to allow me to gate the 2 entrances and make it a gated community. Values and prices of lots were more than doubled by going gated community with very little cost. I've sold a few lots and built a few presold homes. I just ramped up and have started 4 new Model homes, because the market is really strengthening.
I figured I could completely build it out in 3-5 years. Currently, I can make about 30K per home and that would hopefully increase as the time goes on.(1.5 million at present values GROSS)
Option 2- I just had a very heavy hitter in So. Tx make me a cash offer on all remaining lots. At his offer, I can double my money (600-700K profit) and 1031 to something else. He has a bank in his pocket and likes all the characteristics of this project- City, Schools, proximity to Mexico, price point etc.
Now, those are the choices . What do YOU choose and why. Don't be afraid to respond. Many things could be considered.
1. time value of $$
2. other money making vehicles
3. Etc.
Just jump in with your choice and why. Use all the points you can to back up your selection, kinda like a debate. Rich.

p.s. I'm sitting at a hotel on Ft. Lauderdale Beach and bored for the afternoon, hence the posts!! Tomorrow, back home.

[Account Closed]

Ill give it a try as well. Feel free to pick this apart. I dont mind being told that I am wrong as long as I learn from it.

I have read this over a few times and I think I would sell to the developer for the 700k and 1031 that into a larger investment.

This is my reasoning.

Lets say you can build it out in 3 years and get 1.5 million. Then you have to pay capital gains taxes on all of those profits (est. 25% of 1.5 million) leaves you with 1.125 million after 3 years.

If you have a qualified buyer and can sell quickly for 700k you can 1031 that into another investment. Using the 700k as 20% downpayment gives you a investment property worth 3.5 million. Assuming you can find a property that has at least a 10 Cap Rate ( Im sure with your experience this would be no problem) that gives you a NOI of 350k a year. Mortgage on 2.8 million at 6.5% 30 years is $212,376. This gives you a $137,624 a year of cashflow.

3 years of cashflow from this investment = $412,872
(Not to mention tax benifits)
Total equity in the property after 3 years = 1.015 million
3 years of appreciation (assuming a minimal 3%/yr) $315,000
Downpayment of $700,000

After a quick review and running these numbers I think that selling now and using a 1031 exchange into a profitable investment property would be the way to go. I also think that rolling your profits into a larger investment property would make for a much more passive investment then building out 50 or so lots. Escpecially since it seems like you enjoy traveling. Also if it took you 5 years to build out all the lots, the 1031 would put you much farther ahead. Just my opinion though.

Brady