A 180 day clock on 486k of gain, into a zone that expires in 14 months

7.34 yield on cost against a 7 cap exit is not a development spread, it's a rounding error. I've done deals at 60 basis points of spread and regretted every one of them, because the first change order eats it. Your $1.24M budget has to hold to the dollar for that number to survive.

Get the CPA letter before you decide anything, and make sure it addresses two separate things and not one. First, what happens to a 2026 investment in a tract that sunsets at the end of 2026, specifically whether the holding period keeps running on a tract that is no longer designated. Second, the reporting the fund itself owes now that the reporting requirements were expanded under the 2025 law. People treat self-certification as a form you file once and forget. It isn't, and the ongoing testing is where sloppy funds get hurt. How that applies to your facts is a question for your professional, in writing, on letterhead.

I would have spent four months modeling this and missed the December date, so I'm going to say the useful thing instead: your 180 days is the only hard constraint on the page. Everything else is an assumption you can revise.

@fathom is on the right thing. When I've looked at funds from the outside, the operator's answer on the 90% asset test timing and the working capital safe harbor plan told me more about the deal than the pro forma did. If you're your own fund you're also your own compliance department, and you're doing that on top of a gut rehab.

Paying $115k of tax and buying something ordinary that cash flows is allowed. Nobody hands out a prize for the more complicated version.

Your arithmetic checks. $138k on $1.88M is 7.34%. The inputs are where I'd argue.

40% opex on a 1920s brick building with 9 units and 2 commercial bays feels light to me. You've got two different tax and insurance treatments, common area utilities in an old building, and turnover on small apartments. I'd want to see 45% before I believed it, and at 45% your NOI is $126k and your yield on cost drops to 6.7%, which is below your exit cap. That single line item flips the deal from thin to underwater.

Also, $246k gross on 9 units and 2 bays means you're carrying about $1,900 a month per apartment plus retail. Is that a rent you can point to in comparable finished product within a few blocks, or is it a rent the building would command if the neighborhood does what the zone designation was supposed to make it do?

Dumb question I want to ask anyway. If the tract stops being designated at the end of 2026, does your building stop being in a zone for purposes of the ten year hold, or is it locked in at the time you invest? I genuinely don't know and it seems like the whole deal hangs on it.

@compass I asked the same thing last month and got told the designation status at the time the fund makes the investment is what matters, but I got told that by a person on the internet, so treat that the way you'd treat any other free answer. @thicket that's the exact sentence I'd want the CPA letter to contain.

Genuine question about the alternative you sketched. If you pay the tax and wait for the 2027 map, you're sitting on cash for a year with no gain to defer later, unless you generate one. That doesn't feel like a clean option to me, it feels like giving up the incentive entirely and calling it patience.

Nine vacant apartments plus retail lease up plus a 30 month construction clock is a full time job for two years. That's not a criticism, I just want to name it, because you wrote this like it's a capital allocation decision.

$1.24M on 8,400 feet with a new stack and new service in a 1920s building. Have you opened walls? Every time I've priced brick from that era, the surprise wasn't framing, it was the floor structure under the bathrooms and whatever the last three owners did to the electrical. My last one came in 19% over a budget I thought was conservative, and I'd had the building under contract for five weeks with an inspector in it twice.

The 30 month clock is what actually scares me here. Scope creep costs money on a normal job. On this one it costs money and it eats calendar against a deadline that has a tax consequence attached.

Exit cap matters less than you think on a ten year hold, and refinance proceeds matter more. Run the year three refi at 45% opex and whatever debt terms you actually get in writing, and tell me what comes out. If the building doesn't support returning a meaningful chunk of the $486k at stabilization, you have $486k locked in a single 8,400 foot building for a decade to protect a tax outcome. That concentration is the real cost, and it doesn't show up anywhere in your pro forma.

The 30 months goes faster than the number sounds. I had a project where the utility upgrade sat in a queue for five months and there was nothing anyone could do about it, no escalation, no permit expediter, nothing. Build the clock backward from the deadline with the utility in it and see how much slack you actually have.

$1.24M over 8,400 feet is $148 a foot for a full gut with new systems. In my market that's a number for a light rehab, not a gut, and I'd be at $190 to $230 depending on how much of the shell survives. If your market is genuinely cheaper, fine, but I'd want three real bids before I wired a gain into it. And check whether your improvement spend that counts toward the test lines up with what your contractor is calling hard cost, because soft costs and site work get argued about.

Ten years is a long time to be married to one building in one census tract. I've held land for longer, and land doesn't call me about a roof.

I had to read this three times. So the tax break only applies to the gain you put in, and the building itself still has to work on its own? That's clarifying, honestly, I thought the zone was the deal.

The documents piece nobody has priced yet. You need the fund entity formed and self-certified, an operating agreement that survives a ten year hold and a possible partner death or divorce, and a written working capital plan tied to the construction schedule if you want the safe harbor to hold. Whether your specific plan qualifies is a question for counsel, and it's a question you want answered before the wire, not after.

Budget real money and real weeks for this. I've watched people treat the entity as a formality and then discover at year four that the operating agreement has no mechanism for a capital call, which is when a thin deal turns into a lawsuit.

Following this because I understood maybe half of it, but the half I understood is that a good tax outcome on a bad building is still a bad building.

@ledger's opex point is the one I'd resolve first, because at 45% the decision makes itself and you save yourself the CPA letter argument. If it holds at 40% and @girder's cost per foot doesn't blow up, then you're really deciding whether you want to run a gut rehab and a compliance obligation at the same time for the next decade. I hit my own ceiling at three simultaneous projects and I wasn't carrying a 30 month deadline on any of them. Post the bids when you get them.