It may help if you give some details on the area, how much you are charging per room, utility costs, taxes, etc. 

If it's self-employment income, the net income on your tax returns from 2022 and 2023 will be averaged.

If don't do a 1031 exchange and decide to pay capital gains, I would have about $450k free of taxes (this accounts depreciation and other costs).

And in a 1031 exchange the tax payer has to stay the same. 

I am curious if the fees I am being presented are in line with market norms:lender app fee: $10,000Origination fee 1% ($20,000)Lender costs: shows a fixed amount at $10,000processing fee $895registration fee $10,000Title and escrow fees: $4,000 est.6.5% rate fixed at 10 yearsPrepayment Penalty: Yield Maintenance months 1-114 (1% minimum)Third Party ReportsApppraisal Required Engineering Required Environmental N/A Seismic Report N/A Market Study N/A Funded EscrowsReal Estate Taxes Required Prop/Liability Insurance Required Special Assessments N/A Ground Lease N/A Replacement Reserves N/A Required Repairs TBD Debt Service Reserve N/AWould love to hear your thoughts on this as well as what you think is appropriate fees for the freddie mac sbl program. 

So you’re going to have utilities, a year’s insurance, taxes, mortgage payments and then the rehab cost.

Here is my expected cost:Land: $475kAcquisition Costs (Environmental, Survey, Geotech, Traffic Study): $25kSoft Costs (Engineering, architect, impact fees, permit, legal, closing costs, taxes, interim interest): $300kSite Development Costs: (Earthwork, underground utilities, curb cuts, fencing, stormwater, paving, landscaping): $800k ($400k/acre)Subtotal before vertical costs: $1,600,000 ($80/SF). 

Assuming a 30% tax on the gain, I am ballparking that benefit to be a $480k tax shield for the children.However, the owners would prefer to sell now.  

If you own real estate in the LLC for 10+ years with no claims, you will certainly benefit from favorable insurance pricing, same would apply to operating any business under the LLC name.

Ensure you fully understand the tax consequences between LTR, STR, and flipping properties.