It is taxed at your marginal rate up to a max rate of 25%.

@Brandon KompYou may be exposed to depreciation recapture and capital gains tax upon the sale of an investment property.Capital gains tax rates are 0%, 15% or 20% depending on your overall tax bracket.You may also be hit with an additional 3.8% net investment income tax depending on your bracket.Depreciation recapture is taxed at a maximum tax rate of 25%.If your marginal tax rate is 37% - the depreciation recapture will be taxed at 25%if your marginal tax rate is 12% - the depreciation recapture will be taxed at 12%

Delays and extra fees/inspections can really kill a projects profit margins fast.

I am pretty sure they will need a better margin down the line if they wanted to stay in this game. 

Profit margins on flips have been between 30k to 80k pre tax.

I'm not familiar with the Hawaiian STVR market but I'm concerned that your occupancy margin is too slim - if you need 50% occupancy just to break even, and only project 65%, that's not a lot of room for error.  

But because the profit margin was so wide, it seemed worth it to keep working on the property.

One, since you brought it up, is the ability to find properties cheap enough (which requires a big skill in either negotiating or identifying deals others don't notice) that you can put the money into the rehab and your margins and the total price to the investor not be more than what it can appraise for.

@Johnny Thompson yes, when you sell the shares, you'll pay short term capital gains at your marginal rate. 

I always have my investors do at least a 7-10 day inspection period just in case we need to re-negotiate on the price after the contractor reviews the property.Once my contractor looks at the property they can kinda tell me what they think is going on with the property and also give me an estimate on re-hab costs we like to make sure the numbers make sense there is a certain profit margin we need to make on every deal.