It’s been an interesting 4 months since I moved to SF and started my new job at a FANG company. I’ve been thinking about real estate investing daily, every morning starts by checking my Realtor.com app in my top two markets to analyze deals and monitor price trends. During that time I did attempt to make a couple offers but I was being pretty tepid overall. Yesterday, however, I took out a $75k unsecured loan from SoFi with an 8% interest rate before to do renovations on a property I haven’t yet closed on. The same day I started looking for how much I could potentially pull out of my ski condo with a HELOC to ramp up my cash pool so I can manage multiple renovation projects at once.
In short, I decided to get off my ass.
Earlier this week I put in an $25k cash offer on a badly beaten up duplex in a nicer neighborhood in an Upstate NY city. It’s going to take $50-60k of work from what I’ve heard but I have not personally stepped foot into the property. As with most of my properties I will buy it sight unseen and likely never step inside the property myself.
Above are pictures provided by the Seller, so you know this is the prettiest part of the house. It’s totally fucked.
Let’s run through my initial assumptions on this property.
- $25k cash offer + $5k commission to wholesaler + $3k closing costs = $33k all-in.
- Value as property sits today I’d estimate ~$40k.
- $75k loan from SoFi at 7.9% interest
- 4 months worth of renovation work
- $50-60k total cost
- Items that need complete replacement: roof, plumbing, electrical, light fixtures, interior walls, chimneys, back porch, every window, basically anything that isn’t the foundation or structure of the home.
- Goal is to turn the 1bd/1ba units into 2bd/1ba to increase their rental potential while we have the place ripped up
- $150k ARV (After Rehab Value)
- 2x 2bd/1ba units in better than average condition for the area. Each rents for $1,100/mo without needing to do Section 8
- Monthly expenses will run $1,600 all-in including management, vacancies, maintenance, PITI (principle, interest, taxes, insurance).
- ~$110k cash total into the project (after construction overages, financing charges).
- Cash out refinance at 75% LTV (loan to value) @ 5.3% interest rate results in $112k cash back. We now have a $2,000 profit, $40k gain in net worth, and a property that puts $7,200 tax-free income in our pocket every year while the tenants pay down the mortgage.
- This investment that I now have zero dollars into, will likely be worth $300k+ in 30 years when it is fully paid for. Add in the rents accumulated over that time and I expect that for zero committed capital I will have made a total of $500k off this investment over 30 years.
- Total time spent on my end to manage this entire project: 15 hours spread over 4 months.
As you can see from these numbers this new strategy could be a lot more profitable than my previous “save up to buy 1-2 multi family properties a year” strategy. I believe that I will be able to do the same thing in the midwest, an area that I have spent the sum total of 2 days during a roadtrip in. I’m confident that I am at a point where I can analyze deals, assemble teams, and execute from afar with minimal personal involvement in a strategy that will result in 3+ “free” properties getting delivered to my portfolio every year thanks to the credit markets the hard work of the people I’ll work with.
It won’t all be rosy, I can promise you that the numbers above are too rosy. This is my first flip that I will be doing from afar. Construction will go over time and budget. Tenants will be harder to come by than I initially imagined. Banks will think I’m too leveraged to do a cash out refi at the end. There will be times that this will be extremely stressful, but dear god am I excited.