Payment by Real Estate

[craigbowman]

I quoting a project for a Real Estate developer who is currently building a subtiantial residential condo development in the city. The list of features he wants is substantial and I can see from the project charter I'm working on that the numbers are likely to come in about ten times higher than what he is likely expecting to hear.

I know he is really pumped about the project and I don't want the sticker shock to sour him from getting started. So I was thinking about taking partial payment in the form of one of his unsold condo units. As they won't be finished construction until Sept. of 2007, I thought him not having to reach so deep into his working capital might be a good way to keep the project I'm hoping to get from going South and I would have the option of flipping the property in the meantime as Real Estate in this area continues to go nuts.

Does this idea make sense or have I finally lost those last few gears?

 

[Owen]

I don't know how expensive this project is, but I'd be all over a condo in exchange for production services!

 

[scannon]

I did the same thing for a mountain lot in a resort in North Georgia. I got the value at the pre-construction pricing. When the models go up they raise the price $20,000. I agreed to flip the lot back through the developer. This way I get my price for the video plus some profit for waiting for payment. He takes a commission reselling or has to buy it back at the appreciated price and bump the price up as the demand for the lots grows.

Banks require developers to have a min 70% of units sold before financing condos. Giving you a unit in lieu of payment helps him and you have the possibility of a gain over your fee. If you can wait for a portion of your fee this could be winner for you.

Be advised though that the IRS considers the value of the transaction as "payment-in-kind" and you will potentially owe tax on the value just as you would if you were paid cash. The tax is assesed for the tax year in which you receive the payment-in-kind. If you have expenses to offset the income your can reduce the potential tax liability. Just discuss this with a competent CPA so your not surprised later.

S Cannon