HK Ventures

It’s been 232 days since our last update so here goes:

The Federal Reserve has sure made things difficult by maintaining prolonged high interest rates along with the Treasury’s overprinting of money that created massive inflation on construction costs. Combined, those factors killed three projects we were in the process of developing. As a result, OZ fund is dead in the water. Waco project went belly up due to a partner who defrauded everyone else on the team out of several hundred thousand dollars when they realized the deal no longer penciled with higher construction costs.

What we do have left in real estate is our boutique hotel partnership and one residential property that are holding on by thread, requiring cash infusions monthly just to stay afloat with zero cash flow.

Watch trading was a dead end with zero profit, several thousand in losses. Turo was a dead end as cars depreciate so all rental income was lost when cars needed to be upgraded, sold at heavy losses, Currently HKV is in a holding pattern. We are in a war of atrition against mega corporations. Can we hold out long enough before a major repair puts the final nail in our coffin? Will taxes sink the ship? Or will the Fed relent and grant mercy so small businesses like us can flourish again? Only time can tell. Until then, we continue to wait, cautiously and patiently.

Caution to new developers: Be mindful of the reverter clause.

When buying a piece of land, beware any clause that sets a deadline for completion of your project. 24 months to complete construction is a standard set by many local governments, otherwise the land reverts back to public ownership. This is an ideal minimum time limit if all steps of the process go as planned, which is almost guaranteed to never happen in any development project, especially for someone who is just starting out.

Reverter clauses can be very lucrative for local governments. Such a nearly impossible stipulation almost guarantees the land will revert back to them, at which point they can reappraise at a higher value and sell the same plot yet again. Be cautious when working with cities that have reverter clauses, which can be found typically in either the deed or the Purchase and Sale Agreement (PSA). You must be extremely confident in your ability to complete construction within the two year period.

There are almost always delays somewhere along the way. Who could’ve predicted COVID and the economic fallout we are all still reeling from today?

We’re all familiar with the 1031 exchange for existing real estate, but what if you have land that you’d like to develop?

That’s where the tax code for a 721 Exchange comes into play. The owner deeds their land into a Limited Partner position and receives partnership shares equal to the fair market value of their land. This is a tax-free event like a 1031 Exchange. (Consult your CPA, I am not offering tax advice).

This is how I plan to turn my $175,000 OZ Growth Fund investment into $5.6 million over the next 10-14 years:

Step 1: Invest $175,000 into a new development project that offers at least a 2X return. Exit after 2-3 years with $350,000.

Step 2: Reinvest $350,000 into another project with at least a 2X return and exit after 2-3 years. Exit with $700,000.

Step 3: Reinvest $700,000 into another project with at least a 2X return and exit after 2-3 years. Exit with $1.4 million.

Step 5: Reinvest $1.4 million into another project with at least a 2X return and exit after 2-3 years. Exit with $2.8 million.

Step 4: Reinvest $2.8 million into another project with at least a 2X return and exit after 2-3 years. Cash out tax free with $5.6 million!

Who cares about 10X when you can 32X!!

We still have plenty of room in the fund so hit me up before it’s filled up.

Good times today learning from people much smarter than me, including the Mayor of Phoenix.