Bethesda Deal Analysis
Hi everyone,
This is my first post on BP ever.
Goal: Rental Investments that beat stock market ROI @ 10% (my IRR). I am an options trader, decent with numbers and get 20% cash on cash with non-directional, non-speculative options trading with consistency for the last 5+ years.
Deal: This is the current property under contract:
https://www.redfin.com/MD/Bethesda/9825-Old-George...
The property has appraised for $835k as a tear down in the recent past, so purchase price seems like a good deal. The property is actually 4 beds 2.5 baths in the main unit, a basement with a 1 BD/1BA (no walk-out) and studio w/1BA above garage.
Strategy Analysis:
Plan A - Subdivision:
Sub-divide Lot (may need a variance application with Montgomery county). I have a developer partner currently verifying the feasibility. If Plan A works out, this deal is a no brainer. Property lot is 12,500 sq, ft and sub-division is feasible. Developer partner and I would split costs of rehab and flip in this case.
Plan B - McMansion:
Reclaim 2000 sq ft from the backyard, which as we see from pics is pretty large. Estimated cost: $200k. Flipped purchase price $1.2-1.4MM per recently sold comps.
Plan C - Buy & Hold:
This is the scenario I need help with. Let's say the lot can't be sub-divided, and I don't want to invest another $200k. What is the ROI in that case, and can it beat the stock market?
Cost of Acquisition: $70K down payment + 15K upgrades (max) = $85k
Monthly Payment: $4600
Cap Ex + Property Management: $700/mo with long term renters for main unit
Total conservative cash-out monthly: $5200
Rental Income: Main unit rented for $3200/mo (it has for many years) and a studio above the garage (never rented) can rent for $1200/mo. With upgrades we think we can get $3400/mo for main unit. Total conservative rent: $4500. Could be as high as $4600 in this area based on actual rent comps.
Cash flow: -$700/month
With the historical appreciation for this property in Bethesda being 0.8%, I created a spreadsheet to compare profits from both approaches.
It seems the stock market approach overtakes this real estate deal on year 7 even if I assume no cap-ex and breakeven MoM. So realistically, holding this property post 6 years may not be feasible. Perhaps it back to plan B in that case. Is this the right way to think about this deal? Also, why invest another $200k when you can likely buy other properties in cheaper areas?
How do you all compare your IRR with a property like this? Do seasoned RE investors stay away from high-priced locations such as Bethesda? And focus only on properties that cash flow +ve and have appreciation upside only?
If so, how do you find such deals in the DC metro area without going into areas like Baltimore where getting shot at is the price of admission?
Appreciate any feedback. Thanks in advance.
Bodhi Tree
Spreadsheet comparing the Stock Returns with 7% to RE investment on this property (it adds the principal gained from rent to appreciation of 0.8%)
| 9825 Old Georgetown Road | |||||||||||||
|
Base Plan - Stocks (assumes 7% return with stocks) | Plan C - Long Term Rentals (Assumes no cap-ex & break even) | |||||||||||
| Total Profit (Stocks) | Total Profit (Col H + K) | Appreciation on Price YoY with 0.8% | |||||||||||
| Principal Invested | $100,000.00 | $701,220.00 | (Loan Amount) | Interest | Principal | Balance | $780,000.00 | Profit (appreciation) | |||||
| 1 | $107,000.00 | $7,000.00 | $11,466.00 | $17,039 | $5,226 | $695,994 | $786,240.00 | $6,240.00 | |||||
| 2 | $114,490.00 | $14,490.00 | $23,370.92 | $33,690 | $10,841 | $685,153 | $792,529.92 | $12,529.92 | |||||
| 3 | $122,504.30 | $22,504.30 | $30,252.16 | $33,149 | $11,382 | $673,771 | $798,870.16 | $18,870.16 | |||||
| 4 | $131,079.60 | $31,079.60 | $37,210.12 | $32,582 | $11,949 | $661,821 | $805,261.12 | $25,261.12 | |||||
| 5 | $140,255.17 | $40,255.17 | $44,248.21 | $31,986 | $12,545 | $649,276 | $811,703.21 | $31,703.21 | |||||
| stock returns overtake RE | 6 | $150,073.04 | $50,073.04 | $51,366.84 | $31,361 | $13,170 | $636,106 | $818,196.84 | $38,196.84 | ||||
| 7 | $160,578.15 | $60,578.15 | $58,569.41 | $30,704 | $13,827 | $622,279 | $824,742.41 | $44,742.41 | |||||
| 8 | $171,818.62 | $71,818.62 | $65,856.35 | $30,015 | $14,516 | $607,763 | $831,340.35 | $51,340.35 | |||||
| 9 | $183,845.92 | $83,845.92 | $73,231.07 | $29,291 | $15,240 | $592,522 | $837,991.07 | $57,991.07 | |||||
| 10 | $196,715.14 | $96,715.14 | $80,695.00 | $28,531 | $16,000 | $576,523 | $844,695.00 | $64,695.00 | |||||
| 11 | $210,485.20 | $110,485.20 | $88,250.56 | $27,733 | $16,798 | $559,725 | $851,452.56 | $71,452.56 | |||||
| 12 | $225,219.16 | $125,219.16 | $95,899.18 | $26,896 | $17,635 | $542,090 | $858,264.18 | $78,264.18 | |||||
| 13 | $240,984.50 | $140,984.50 | $103,644.29 | $26,017 | $18,514 | $523,576 | $865,130.29 | $85,130.29 | |||||
| 14 | $257,853.42 | $157,853.42 | $111,488.34 | $25,094 | $19,437 | $504,139 | $872,051.34 | $92,051.34 | |||||
| 15 | $275,903.15 | $175,903.15 | $119,433.75 | $24,125 | $20,406 | $483,733 | $879,027.75 | $99,027.75 | |||||
| 16 | $295,216.37 | $195,216.37 | $127,482.97 | $23,107 | $21,423 | $462,309 | $886,059.97 | $106,059.97 | |||||
| 17 | $315,881.52 | $215,881.52 | $135,640.45 | $22,039 | $22,492 | $439,818 | $893,148.45 | $113,148.45 | |||||
| 18 | $337,993.23 | $237,993.23 | $143,906.64 | $20,918 | $23,613 | $416,205 | $900,293.64 | $120,293.64 | |||||
| 19 | $361,652.75 | $261,652.75 | $152,285.99 | $19,741 | $24,790 | $391,415 | $907,495.99 | $127,495.99 | |||||
| 20 | $386,968.45 | $286,968.45 | $160,781.95 | $18,505 | $26,026 | $365,389 | $914,755.95 | $134,755.95 | |||||
| 21 | $414,056.24 | $314,056.24 | $169,397.00 | $17,208 | $27,323 | $338,066 | $922,074.00 | $142,074.00 | |||||
| 22 | $443,040.17 | $343,040.17 | $178,136.59 | $15,845 | $28,686 | $309,380 | $929,450.59 | $149,450.59 | |||||
| 23 | $474,052.99 | $374,052.99 | $187,002.20 | $14,415 | $30,116 | $279,264 | $936,886.20 | $156,886.20 | |||||
| 24 | $507,236.70 | $407,236.70 | $195,998.29 | $12,914 | $31,617 | $247,647 | $944,381.29 | $164,381.29 | |||||
| 25 | $542,743.26 | $442,743.26 | $205,129.34 | $11,338 | $33,193 | $214,454 | $951,936.34 | $171,936.34 | |||||
| 26 | $580,735.29 | $480,735.29 | $214,399.83 | $9,683 | $34,848 | $179,606 | $959,551.83 | $179,551.83 | |||||
| 27 | $621,386.76 | $521,386.76 | $223,813.24 | $7,946 | $36,585 | $143,021 | $967,228.24 | $187,228.24 | |||||
| 28 | $664,883.84 | $564,883.84 | $233,375.07 | $6,122 | $38,409 | $104,611 | $974,966.07 | $194,966.07 | |||||
| 29 | $711,425.70 | $611,425.70 | $243,089.80 | $4,207 | $40,324 | $64,287 | $982,765.80 | $202,765.80 | |||||
| 30 | $761,225.50 | $661,225.50 | $252,962.92 | $2,196 | $42,335 | $21,952 | $990,627.92 | $210,627.92 | |||||
| $313 | $21,952 | $0 |
