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525 Sale of Logistics’ Real Property 1 – Part 2

 At that moment, Jae-Sik Moon entered Gun-Ho's office.

"President Moon is a good friend of mine, so please understand that we talk to each other in a very informal way."

"Oh, is that so? Well, let me give my offer to Mr. President Moon then. Let's make it 1.25 per pyung. Since President Gun-Ho Goo-the majority shareholder of that company-is here, let's just make the sales and purchase contract right here right now."

Jae-Sik responded after glancing at Gun-Ho's face, "Sir, that property was priced according to the fair market value in the area. I'm sure that you've done your homework researching the land price around the area already. Mr. Director, you have done your research on prices, haven't you?"

"Yes. According to my research, some lands in the same area are priced for 1.25 per pyung."

"Come on, Mr. Director, those lands are off the public road. Our property is right on the six-meter wide asphalt-paved road. It's hard to find a land in a pretty shape like that. Please keep it in mind that we initially placed that land on the market for 1.5 million won per pyung."

The cosmetic company's president said while crossing his legs again, "President Goo, what would you say?"

"Well, real estates have their own fair market prices. The market decides its prices. You are asking us to sell our land for less than its market price, are you?"

"Hmm, 1.3 million won per pyung... That would make the price 6.5 billion won since it's 5,000 pyung large..."

"That property is 5,080 pyung to be exact, and the price is 6,604 million won."

"Hmm."

Silence filled the air for a while.

Gun-Ho was the one who broke the silence.

"We actually didn't even want to buy the farmland in the first place. The adjacent farmland's owners made ridiculous complaints that our factory was leaking some oils or something which was not true at all. And, we had to go through convincing the owners and residents of the area, and we eventually resolved the issues by acquiring those farmlands. And President Moon here worked so hard to convert those farmlands into non-agricultural use land, and he flattened the land as well. To be honest with you, we spent a lot on making the land as it is right now."

"Hmm."

"So, this is what I can do for you."

"I'm listening."

"Sir, you are in the manufacturing field and so am I. As you know, you have to see a fit in a land for your specific business when you build your manufacturing company in a new location. In my opinion, that property is a perfect fit for a cosmetic factory. Let me be honest with you, sir. I mentioned that the exact price of the property is 6,604 million won. I will lower the price for you by 104 million won. If you pay 6.5 billion won, it's yours. I don't know what President Moon would think or whether he would blame me for this offer later, but I don't want to keep haggling over the price with you. Let's make the decision now. My final price for you is 6.5 billion won."

"6.5 billion won..."

"I need to pay for the capital gain taxes and all that, and I don't make money from this transaction considering all the relevant fees, taxes, and expenses."

"Well, okay. Let's do that."

Tommy Cosmetics' president extended his thick hand to Gun-Ho for a handshake.

Jae-Sik Moon took out a large envelope from his bag.

"Would you like to sign the sales and purchase contract right now?"

"No, but I will send our managing director to President Moon's office in Seonghwan City tomorrow morning."

"Sounds good."

Jae-Sik put the envelope back to his bag.

The cosmetic company's president said while standing up from his seat, "As a matter of fact, I've been passing this company several times. And whenever I passed it by, I was curious about the inside of this factory. It's so pretty outside. Since I'm here now, will it be okay for me to look around the factory?"

"Sure. I will show you around myself."

Gun-Ho took the cosmetic company's president to the rooftop first.

"We have our power transformer on this level. The water tank is downstairs."

"Is that building over there a production site? It looks like they are connected..."

"Right. These are two separate buildings, and they are connected"

"Was this factory designed in Korea?"

"Yes it was."

"Do you mind if I ask how much it cost you to build it per pyung?"

"Not at all. It cost me around 2 million won per pyung. Its total floor space is 2,000 pyung."

"Hmm, I see lots of ventilation systems. What is that one over there?"

"That's the final place for wastewater."

Gun-Ho showed every part of the factory to the cosmetic company's president, including the offices, the meeting rooms, the restaurant, the extruding production site, the molding production site, the hydraulic pressure room, the quality control room, the research center, the auditorium, the cleaning room, the product shipment office, etc.

"This factory is not even a pharmaceutical or cosmetic company, but it's extremely clean."

"I can't compare my factory with a pharmaceutical or cosmetic company for its cleanliness, but thank you for saying that."

The cosmetic company's president left, and President Jae-Sik Moon went back to his office in Seonghwan City. Gun-Ho was sitting in his office while thinking,

'I initially purchased that old auto repair shop for GH Logistics for 2 billion won. I then acquired the adjacent 1,500 pyung large farmland for 900 million won, and then the 2,600 large pyung landlocked property for 1 billion won. So, I spent 3.9 billion won on those lands only. Let's say I spent 4 billion won in total in purchasing those lands including the relevant taxes.

It then cost me 300 million won to convert those farmlands into a non-agricultural property. I spent another 60 million won to register them, and another 40 million won for other small expenses like fees and other taxes in the process. So, I spent 4.4 billion won in total for that entire land so far. If I sell it for 6.5 billion won now, I will make 2.1 billion won. How much capital gain tax would they impose me?

They would impose about half of what I would make since I've been holding that land for a quite short term, so I can't expect to enjoy the benefit given to those long-term property holders. Since it would be a transaction between two business entities, I won't be able to lower the tax rate either. Say, they would take 1 billion won as a tax. Then I would be left with 1.1 billion won. I had taken a loan to buy heavy equipment and freight trucks for the GH Logistics' business. It's about 720 million won. If I deduct that amount from the sales proceeds, then I would be left with 300 million won only, huh? Shoot. I will make some money from this transaction, but it's not much as I expected.

Well, I shouldn't think that way. I will make 300 million won in cash. It's not insignificant. And other than that, I'm still owning the transportation company-GH Logistics-with 27 vehicles. It's not bad at all. Haha. Well, let's feel grateful for what I make.

GH Logistics currently has several heavy equipments and more than five 25-ton dump trucks which are very expensive trucks. Moreover, it has semi-tractor-trailer trucks. The company is making 100 million won per month. If the labor cost for truck drivers is 60 million won and the insurance cost is 5 million won, along with another 5 million won for the rent and security, then it's generating net profits of 30 million won. My sister and her husband need to get paid, and I also have to consider the depreciation cost which would be about 15 million won. I will be left with 10 million won then. I think I can set my salary at 5 million won.

Well, let me see. Once Jae-Sik starts working in China, his salary there won't be enough, and I will have to pay him from here. It should be around 1.5 or 2 million won. Well, I should be satisfied with my salary of 5 million won then for now.'