Additional Costs in a Group Land Buy

Extra fees? Hidden fees? Monthly fees?

Additional Costs in a Group Land Buy

After you've bought a share of membership interest in an RTTL Land Association LLC, you might be wondering if there are any additional costs that you should be aware of. We'll try to break this down in a way that is easy to understand.

Three things to be aware of:

1. Share Transfer Fee

2. Annual Operating Budgets

3. Income Tax

We always to try to simplify and consolidate payments so that there are as few as possible.

1. Share Transfer Fee

This one-time fee, paid right after you sign a Purchase Agreement, varies between approximately $150 and $360 depending on your situation. This includes the cost of a criminal background check as is required to join the LLC. It also covers administrative work to change the LLC's records, record you as a member, and perform other important onboarding tasks. The specific fee for your situation can be found in the LLC Operating Agreement or by asking an LLC board member. This fee is in addition to the price you paid to obtain the membership interest in the LLC.

2. Annual Operating Budgets

Nothing for the first couple years:

For the first (usually) 1-2 years of operation of an RTTL Land Association, the LLC members will typically not have to make any contributions to the LLC, aside from their initial share purchase. ("membership interest" in LLC lingo.) The initial development of common elements on the land (e.g. access roads) is funded by the capital contributions that were taken in when forming the LLC or when new owners buy in.

Small monthly cost from then on:

(Think of it like an HOA fee but without the annoying Karens)

This can be approximately $30-$50 per month for a typical minimum share, but it varies based on the specific property and the number of members. We try to keep it as low as possible and it's voted on by the members each year. It may be higher for Land Associations that are formed in high-cost areas, e.g. when zoning compliance is a considerable cost.

The monthly amount is used to support important things like road maintenance, trash pickup, annual dues to RTTL, property taxes, and overhead costs for maintaining the LLC.

The LLC operating agreement requires that the membership vote on an "annual operating budget" at the end of each year. A budget that receives 75% positive votes will be considered approved, and all members are subject to the "Mandatory Additional Contribution" which will be counted as a capital contribution in the LLC accounting. In accounting terms, this will affect the member's basis in the LLC, which is a good thing. Check your individual Land Association's operating agreement for details.

3. Income Tax

An RTTL Land Association is considered a pass-through entity in the eyes of the IRS. This means that a small profit or loss will be passed onto each member annually via an IRS Schedule K-1 form. This is generally negligible and shouldn't have a significant impact on your personal income taxes. Be sure to consult your tax professional for advice.

In Summary

When you sign a purchase agreement for membership interest in an RTTL Land Association, you will pay a small fee for the share transfer process and a criminal background check.

A newly formed RTTL Land Association will typically have no mandatory contributions for the first year or two, following which an annual operating budget will be passed yearly by the members. There will be a monthly fee for each member which is considered a capital contribution.

Tax considerations should be negligible but it is still worth noting that you will receive a K-1 each year with a small profit or loss that is passed on from the LLC.