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Comments on my proposed Real Estate / Business Venture

Old 04-05-2019, 08:18 AM
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I have a young relative (25) that I trust totally. He wants to start a tree farm. Landscape trees grown in pots (oaks, magnolia, cedar, etc). He has friends in the business, and lives in an area where this is common. I was willing to invest/loan $10,000 to help him get started. I would not be too upset if I lost it all. Not at a point in my life where I want to risk more than that on someone else's business though. Recently, we have come up with another alternative. I would purchase and own the land (20 acres, cleared pasture). Purchase price is $75,000. In North Florida. I would rent him the land for his tree farm business. First year rent-free, then maybe a year at low rent to cover taxes, and eventually taxes plus 10% of his profit. Taxes are very low.

He would pay to have well, septic, and electric installed immediately. He has the cash for this. Also, he would pay for any fences, irrigation, sheds or whatever. If he goes under, I would still own the land, plus any improvements. I would sell the land and split any profit with him. I would not be involved with day-to-day operations of the farm. Strictly the landlord. Seems like a low-risk investment for me. He owns a house with his mom just a mile from this site. He is a hard worker, and I really think he will succeed.
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Old 04-05-2019, 08:23 AM
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I'll probably be in the minority here, but why not! If you can afford it, go for it, pay it forward and help someone else out.

I like the idea of you being the landlord, free and/or low rent. Gives you a tangible asset down the road.

But I would spend some time with him and make sure his business plan is solid and his numbers are based on realistic expectations. Doing a tree farm may not have a payoff for many, many years so he'll potentially need some capital or other income along the way to get him through.
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Old 04-05-2019, 08:26 AM
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Just make sure EVERYTHING is clearly spelled out in terms of expectations and limits from both sides. The best way to end up with financial headaches and hassle is to go into business with family members.
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Old 04-05-2019, 08:30 AM
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Originally Posted by dev View Post
Just make sure EVERYTHING is clearly spelled out in terms of expectations and limits from both sides. The best way to end up with financial headaches and hassle is to go into business with family members.
I would go for it and this ^^^
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Old 04-05-2019, 08:36 AM
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Not at all any sort of expert but seems a little lopsided to me.

if you were fronting the cash for the property and then retaining ownership of that property, then you are acting only as a landlord- where does the 10% ownership/ profit sharing come from? What if he decides to vacate the property and lease or buy from somewhere else? You still get 10%?

if you are willing to invest that big why not invest the $75k to his company for capital for HIM to purchase the land, and then work an equity deal that works to both of your advantage. Canít you then also dictate control the sale of the land if he goes under and pay back your debt?
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Old 04-05-2019, 08:42 AM
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He would not be obligated to pay me 10% if he was no longer the tenant. Might also cap his annual payment to fair rental value. And, yes everything would be spelled out. And he would need to keep it insured. (as would I).
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Old 04-05-2019, 08:45 AM
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It would be a great opportunity for him.. I was in the same situation when I started my business and the help that I received was very nice, I wouldn't be where I am today without it.. The person that helped me allowed me to use his building, Rent Free, for the first year only if I agreed to not pay myself a salary and re-invest all profits back in the business for the same amount of time..
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Old 04-05-2019, 08:48 AM
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I would just end up with fair rental value, not 10% of the profits. Seems like a great way for you to end up with a nice piece of land, and also help a family member out. Keep it simple and manage expectations. I like your plan for the first two years. After year 2, run it like any landlord will. Not paying rent in the first year of business is huge.
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Old 04-05-2019, 09:00 AM
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Originally Posted by Fish Haid View Post
I have a young relative (25) that I trust totally. He wants to start a tree farm. Landscape trees grown in pots (oaks, magnolia, cedar, etc). He has friends in the business, and lives in an area where this is common. I was willing to invest/loan $10,000 to help him get started. I would not be too upset if I lost it all. Not at a point in my life where I want to risk more than that on someone else's business though. Recently, we have come up with another alternative. I would purchase and own the land (20 acres, cleared pasture). Purchase price is $75,000. In North Florida. I would rent him the land for his tree farm business. First year rent-free, then maybe a year at low rent to cover taxes, and eventually taxes plus 10% of his profit. Taxes are very low.

He would pay to have well, septic, and electric installed immediately. He has the cash for this. Also, he would pay for any fences, irrigation, sheds or whatever. If he goes under, I would still own the land, plus any improvements. I would sell the land and split any profit with him. I would not be involved with day-to-day operations of the farm. Strictly the landlord. Seems like a low-risk investment for me. He owns a house with his mom just a mile from this site. He is a hard worker, and I really think he will succeed.
Do not reinvent the wheel. Leave out the 10% profit (you do not even spell out which level of profit) and just charge him fmv rent. If he canít float the cash, then;

defer 24 months rent. After 24 months any distribution from the company must be matched dollar for dollar to the deferred rent until repaid in full.
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Old 04-05-2019, 09:09 AM
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Originally Posted by Jersus View Post


Do not reinvent the wheel. Leave out the 10% profit (you do not even spell out which level of profit) and just charge him fmv rent. If he canít float the cash, then;

defer 24 months rent. After 24 months any distribution from the company must be matched dollar for dollar to the deferred rent until repaid in full.
Good idea.

How to calculate rent on vacant land? X% of land value?

Well and septic - should I give him rent credit on that?
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Old 04-05-2019, 09:19 AM
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i like it

i would keep EVERYTHING IN WRITING. Especially if any changes.

I personally like the profit sharing as you are underwriting him to get started.
However, this can lead to bad feelings with family down the road and possible, white lies and outright lies of him fudging the books.

If you could escalate to market rent in a manner that allows him to blossom- great then what ever profit he shares is icing
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Old 04-05-2019, 09:36 AM
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Originally Posted by Fish Haid View Post
Good idea.

How to calculate rent on vacant land? X% of land value?

Well and septic - should I give him rent credit on that?
If you are looking for fair market rent, you could look at some local comps or what local farmers are paying. Aside from that, FMV rent should be enough to cover your carrying costs (i.e. actual or assumed mortgage costs, property taxes, insurance).
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Old 04-05-2019, 09:39 AM
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You will be a sharecropper. Nothing wrong with this.
We have entered into deals like this before with friends.

We had two rental properties we did a lease to own deal on. One worked out for the buyers very nicely. It allowed them to purchase a house on a 2 year ''installment'' plan. Deal was as long as the 24 monthly payments were made on time we would credit 90% of the payments towards their down payment. We set a sales price ahead of time so they knew what the purchase price would be in two years. They actually hit the market right and were about $30k in the plus at closing. We made about $25k on the deal when all was said and done.

Other house the people flaked at month 16, got divorced and moved on. We did great on that deal but the end was pretty stressful until they were out and we took back the house.

I would put something along the lines of this in the contract.
If you abandon the business all bets are off and the land and assets (trees) are mine to dispose of and profit or lose on.

If in 2 years he decides the business is not going to work out, then we can sell and split profit on that basis. Put a time limit on how long you will have the property listed waiting for a sale. Vacant land can take years to sell.

A good friend of mine had a large tree farm in Oveido,Fl.
He sold it straight up to another friend in the business. This was in 2007. 2008 the bottom falls out. Nobody's building and nobody is buying trees for the subdivisons.
Fast forward 5 years. Market starts to pick up. He is about the only farm in Florida with the right size oak trees that the developers want. He stuck it out and made a fortune!

Keep it as simple and direct as possible. This way everyone knows the rules and regs!
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Old 04-05-2019, 09:43 AM
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Originally Posted by Fish Haid View Post
I have a young relative (25) that I trust totally. He wants to start a tree farm. Landscape trees grown in pots (oaks, magnolia, cedar, etc). He has friends in the business, and lives in an area where this is common. I was willing to invest/loan $10,000 to help him get started. I would not be too upset if I lost it all. Not at a point in my life where I want to risk more than that on someone else's business though. Recently, we have come up with another alternative. I would purchase and own the land (20 acres, cleared pasture). Purchase price is $75,000. In North Florida. I would rent him the land for his tree farm business. First year rent-free, then maybe a year at low rent to cover taxes, and eventually taxes plus 10% of his profit. Taxes are very low.

He would pay to have well, septic, and electric installed immediately. He has the cash for this. Also, he would pay for any fences, irrigation, sheds or whatever. If he goes under, I would still own the land, plus any improvements. I would sell the land and split any profit with him. I would not be involved with day-to-day operations of the farm. Strictly the landlord. Seems like a low-risk investment for me. He owns a house with his mom just a mile from this site. He is a hard worker, and I really think he will succeed.
I think t's a great idea and would ignore a lot of the negative advice given here. At the end of the day if it fails you still own the land plus you get the improvements.
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Old 04-05-2019, 09:48 AM
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Originally Posted by Jersus View Post


Do not reinvent the wheel. Leave out the 10% profit (you do not even spell out which level of profit) and just charge him fmv rent. If he canít float the cash, then;

defer 24 months rent. After 24 months any distribution from the company must be matched dollar for dollar to the deferred rent until repaid in full.
It really is that easy.

Clean and unambiguous.

Big Al
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Old 04-05-2019, 09:52 AM
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Does Florida have some sort of tax breaks for land used for agricultural purposes? Do you get them if you rent the land to the grower? If there is some program you can take advantage of consider that you'll lose it if he shuts down or moves the business.
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Old 04-05-2019, 09:57 AM
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Originally Posted by drkptt View Post
Does Florida have some sort of tax breaks for land used for agricultural purposes? Do you get them if you rent the land to the grower? If there is some program you can take advantage of consider that you'll lose it if he shuts down or moves the business.
If you're zoned agricultural you get about a 75 to 80% reduction in property taxes (it varies by county) plus there are other benefits under the Florida Right to Farm Act.
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Old 04-05-2019, 10:01 AM
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Everything in writing
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Old 04-05-2019, 10:15 AM
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With somebody that young I would request a pro forma business plan as much for their benefit as for yours. Has he really thought through all the expenses involved and understand how much he will need in sales to pay not only the rent but the other expenses associated with the business? What is his "break even" point and when would he expect to reach it? This can be a sobering exercise but one that young entrepreneursoften forego.
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Old 04-05-2019, 10:20 AM
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Check comps on the land. $3750 an acre may be high? How long will it take for the trees to grow big enough? 2-3 years with no income? I know the older trees bring a lot more. Where will he sell them?

Does he know how to grow them? Extension office can help. Disease management and insect control? A deer clipped the tops off of 2 volunteer Japanese maples my wife was growing in pots under our deck.

20 acres is a lot of trees in pots. Maybe start smaller or rent. Crop insurance from weather? Is he quitting his day job? Hiring day labor to start? How will they be paid?

Not saying to not do it just putting some concerns out there.
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