All Forum Posts by: Jim Macedon

Are you sure you're talking about Austin?  I shopped a duplex plan and a 4plex plan around for about a year and the best deal I was offered was $132/sq ft.  And that was rental finishes.  I must have talked to every builder in Austin over that stretch.  If you know a builder in Austin that will build for $70/sq ft, I'd give my left arm to meet him.

Thanks for all your input. Really appreciate your willingness to share your knowledge. Is there a rule of thumb for construction cost vs sale price? Like sales price must be 50% more than construction costs or something like that? Or is every situation unique?

Does a developer have to be a GC to make money? My understanding was that they usually aren't.

Okay, but even with understated design fees, it still loses a million dollars.  That's more of my focus here.

Sorry, I thought it would be clear from what I said and the numbers.  My point is that when I run numbers, I get nowhere close to profitability.  Yet development is going on like crazy all around my area.  And from what I understand, it is ludicrously profitable.  So I'm wondering where the problem lies.

I put a piece of land under option and went through the whole process of getting quotes for everything for a 36 unit condo project.  Below are the numbers I came up with.  I have no idea how to make money in development now.  What am I doing wrong? (Sorry, I'm sure the formatting will get screwed up when I copy and paste this.)

Yeah, it's the age old question, if you need experience to get a loan, how do you get experience?  I've developed somewhat of a relationship with a local bank.  Built a 4plex.  Now I'm trying to do a small condo community on 2 acres.  Hopefully that's not too big of a jump for the bank. 

I have some people who may possibly want to invest and I have a pretty decent amount to throw in.  I just really don't want to give 70% of the profits to someone for doing nothing.  But I guess that's just the way this game is played. 

The bank will lend you 80% on a development. You can either put up the remaining 20% yourself or bring in investors.

If you can't or don't want to put up the money yourself and you can't find or don't want equity partners, what are your other options? I know there are mezzanine loans, but to be honest, I don't fully understand them.

Do you utilize your CPA all year round or just during tax time?  I did have a CPA do my taxes for several years, but it still felt like I was doing all the work myself and submitting it to her.  She never really seemed to have any advice or knowledge to share.  This past year I decided to just do it myself on Turbo Tax and see what happened.  Turbo Tax actually found several deductions for me that my CPA wasn't claiming.

I guess just wrong CPA....  Just wondering what your level of interaction is with yours though and what they charge for that interaction.

Okay, that's what I thought, but I have not been able to find that chart.

Well, put me in the camp of no longer accepting two year leases.  The problem, as I've learned recently, is that the lease really only binds the landlord.  The tenant can still leave whenever he wants.

One of my tenants who still has 8 months left on a 2 year lease emailed me the other day to say that she got married, she has a house under contract, and she's moving out November 30th.  "Sorry, I know this is early, but this is what is best for my family."  I responded, congratulated her on her wedding, and politely explained that unless she is the victim of domestic abuse or is a member of the armed services with official orders, she is contractually obligated to pay rent until the end of the lease.  However, I would love to work with her and if she could pay through January to give me at least some opportunity to market after the holidays, I'd waive February through June.  She has not responded, and my wife and I came to the obvious conclusion that she's probably just going to leave November 30th and there really isn't anything I can do about it.  Am I really going to hunt her down and sue her?  No.  Therefore, 2 year leases are worthless for the landlord.

Okay, so to clarify so I am 100% sure what you're saying:

Say my basis is $100,000

I spent $5,000 on a cap ex, say a new roof.

I just add $5000 to my $100,000 basis to create a new basis of $105,000 and my depreciation is now $105,000 / 27.5 = $3818, correct?

Or do you itemize it somehow on the tax return:

$100,000 / 27.5

and

$5,000 / 27.5

And lastly, you have to depreciate everything based on 27.5 years?  I think in the commercial world you can depreciate things based on some chart that lists how long something is "supposed" to last.  Like you could depreciate carpet over 5 years or whatever.  

If you have to just divide by 27.5, wouldn't that highly discourage you from improving your property if you're, say, 25 years into owning it?