Have you ever thought about the money that is made in land development and construction? Have you excluded this as a possibility for you because you do not have the capital investment available or you don’t have the necessary knowledge and experience that is required? There is an alternative that can allow you to reap the profits that are being made through land development and construction.
Limited Liability Companies (LLC’s) have been formed by individuals with backgrounds in finance and real estate development. These LLC’s then raise the start up capital in the form of Private Equity. Private equity is the money used for the initial purchase of a property, by the LLC. This money comes from various investors and is controlled by the managers of the LLC. This money allows the LLC to leverage the land adequately to obtain bank financing for the development and construction. The investors (known as members) receive a profit when the units are sold and the project is closed out. The return can be substantial. Key Benefits may include:
Short term investment, could be as quick as 24 Months
Upwards of 50% (ROI) Return on Investment: This is the percentage of profit made on an investor’s principle. For example; If an investor invested $100,000 and made $50,000, their ROI would be 50%.
Preferred Return (not always offered but a nice perk): A form of profit returned to investors ahead of the .LLC managers. This is usually based on an annual rate and can be paid monthly. For example; If an investor invests $100,000 into a project where a 7.5% preferred return is being offered, that investor will receive $7,500 annually or $625 monthly as long as the investors principle investment is outstanding.
Tax Advantages: An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. The LLC owner's liability is generally limited to the amount of money, which the person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as a corporation's shareholders. LLC’s allow for pass-through taxation. This means that earnings of an LLC are taxed only once. The earnings of an LLC are treated like the earnings from a partnership, sole proprietorships and most S corporations.
All investments include potential risks. The important factor is that each investor must be financially stable and able to bear the economic risk. An investment in an LLC should be considered a speculative investment. There is no guarantee that the LLC will be able to develop the property or earn a profit from its sale. There is no assurance that a member's capital contribution will be returned. Each potential member is encouraged to individually evaluate the risks and benefits of the investment and to make an investment decision based on his or her own evaluation. Each potential member is advised and encouraged to obtain independent counsel regarding the legal, financial, and tax consequences of the investment before investing.