Good morning. after a successful flip with a partner I am preparing to go solo on this next one. (my partner on the last one took his profit and bought a house on Lake Tahoe and is investing up there now)
The plan is to buy a single family home in San Jose California for $750k. It is tiny - 900 sqft - then add 1000 square feet and sell it for $1.3m or so in about 9 months. Last year i did a similar project - a 1000 square foot house for $800k - added 1000sqft and sold for $1.6m. It sold 2 weeks after being listed. I can do much of the construction and design work myself, and i plan on working 50 hours+ a week to get it done quick and right!
So here is my plan
1. purchase price is $750k - purchase will be tenants in common between my 401k trust and my new LLC. the 401k trust will put in $200k cash, a hard money lender will loan $550k to the LLC and have a first mortgage on the property for 9% interest and 2 points.
2. i will lend the LLC $275k to finance construction pay interest on hard money loan, permits etc.. I will get permits, etc for all the work. The construction dollars will be paid to a contractor. All the work will be done by licensed contractors and their employees/workers. I know the contractors VERY well and will be their project manager for this project.
3. if all goes well in 9 months I will list the house with a real estate agent and sell it for $1.3m (maybe less maybe more - it just depends on the market)
Proceeds will be as follows;
$550k principal back to lender
$50k sales commission and closing costs etc.
$300k to me for my loan to the llc ($25k profit)
$350k goes back to my 401k - investment plus profit ($150k profit)
$50k goes to my LLC as short term capital gains ($50k profit)
Any comments would be appreciated. My first two priorities are a simple business structure with reasonable liability protection. I am less worried about wringing every penny of profit out of this deal...i am happy to have less risk and give up some profit.
Great job on the first deal. Sounds like you on your way to great deal. Very inspirational. Keep it up!
Sounds like you have a winning formula. When doing high end flips, be sure you have a back up strategy in case the market turns on you due to circumstance beyond your control. I've seen people got wiped out in 2007-2008 when the market turned on them.
I wish you the best of luck.
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