Its seems like their current offering is new construction in Hudson County NJ, but as someone who invest post tax and looking for ability to depreciate and offset its own income not sure new construction is the right avenue for tax benefits of this type of passive investing.

The conversations are better as you're only talking with interested and engaged folks.On the flip side, it can be a cash grab, if the sponsor is lazy or the meetup has not gained traction in the local market.

Then if we have enough appreciation we would sell it and possibly re-investing in another larger building using a 1031 exchange to defer capital gain taxes.

Will be relevant to the recognization gain/loss later on. 

Depreciation elections are based on a whole list of items such as projected future passive income, current level of other earnings, anticipated exit date (if you've shared that), etc.Her reasoning of "more in professional fees" makes no sense. 

What really captivates me is the concept of passive income, of course,  land ownership has always been a goal for me personally, but while my expenses are low and my responsibilities minimal, I would like to set myself up for future success.

What is the best way for them to go about selling this property and will they have to pay capital gains tax?

@Josh July I'd say it depends on whether you want to be active or passive investor, and whether you want to deal with tenants or not.

They have a lot more to gain by being a good partner.One piece of advice that I would strongly encourage: Make sure that the JV agreement spells out who is responsible for what decisions.

In your case it appears that cost is lesser which means you'll be paying capital gains on at least $400k +/- in the future assuming values hold.