Recently I had a conversation with a client with regard to a condo-hotel unit that he purchased, pre-construction, at a resort which is nearing completion.
The reason for his call, being an investor, was to basically get my opinion on what he should do with his unit. It was clear that his first thought was to put the unit up for re-sale when it closed. As our conversation progressed, I offered him some other options to consider with regard to his investment.
Some of his options are:
- Price the unit VERY aggressively and to try to line up a buyer prior to closing. Since what he owns is basically an option to purchase, and he has owned that option for more than two years, the profits would be taxed on a long-term capital gains basis. That would allow my client to sell quickly, for a lower price, and limit his exposure and holding costs.
- Knowing that he has an extremely desirable unit, close on the unit, wait a specified time period (less than one year) and then sell at a much higher price. Since he now took title to the asset, his profit would be taxed on a short-term capital gain basis.
- Close on the unit, sign a management contract with the hotel operator and put the unit in the hotel pool and sell at a later date, past the one-year period of owning the asset. His profit would then be taxed on a long-term capital gain basis. There are some draw-backs to this option:
a. When he sells the unit, the management contract stays in effect with the unit, so if the new buyer is NOT an investor and doesn’t want the unit in the hotel pool, that unit would not be an option for the new buyer.
b. The hotel operator has the right of first refusal on the unit when the owner decides to sell.
After we went through all of the above, and he was processing the information, he paused and said ‘you know, Kevin you are really acting more as an advisor, and not like a typical salesman, and I’m really impressed’. I responded by saying that I don’t think or operate like a salesman, and it wouldn’t be my objective to ‘set you up’ for a quick commission. My goal is always to serve the client, and being compensated, now or much later when the time is BEST for the client, is the reward for a job well done.
I appreciated his remarks very much. It’s just how I am. But it’s nice when someone notices.