Hey all, I have a potential opportunity to make a play at a condo with upcoming redevelopment. The HOA community has already selected the developer after a very thorough RFP process, and have worked diligently up front to make the process as painless for the community and for the future developer as possible. 90% of the community have voted for the measures the HOA BOD has introduced during the process, and I don't foresee that changing. Basically, it would be very surprising if this does not end up as a foregone deal within the next few weeks (I think they are meeting to finalize at the end of September). I assume the buyout will occur within the next 3 years (and likely much sooner).
Here are the numbers are a 2 Bed 1 Bath within the community:
Current purchase price: $165k
Developer buyout price: $225k
Buying Costs: $5500
Make Ready to Rent: $2500
Selling Costs: $2500
Rental Estimate: $1600/month
Vacancy Rate: 8.3%
Monthly HOA: $673 (covers all utilities and exterior maintenance)
Yearly Insurance $650
Yearly RET: $1800
Total NOI would be about $520/month (no mortgage there).
My plan would be to take on a buddy of mine as an investor. I would take out a mortgage for 80% of the purchase price, and he would front the money for the down payment, buying closing costs, and make ready costs ($41k total). He would get an 8% preferred rate of return on his money with no future payout when I sell.
For me, the mortgage would be about $710 a month (30 year at 5%) and his preferred rate of $275, for a total burden of $985/month. With NOI at $520, that means I am coming out of pocket $450 or so per month.
By the end of the 3 year period, the following numbers are germane:
Sale Price $225,171
Mortgage Balance $(126,220)
Investor Balance: $(41,000)
Selling Costs $(2,500)
Buying Costs $(5,783)
Make Ready $(2,500)
Mortgage/Investor Payments $(35,466.40)
Rental Revenue $52,819
Total realized gain: $31,000.
So for $5400/year out of pocket expenses (NOI - Payments) I am realizing $10,000 return. This is a 50%+ cash on cash return for me for the next 3 years.
I welcome critique of this plan.