High End SF Bay Area Flip - Risk-Return Opinions
I am negotiating the purchase of a well located home on the SF peninsula. As it stands, it is a 2BR 1.5BA, 1,020SF home on a 5,000 SF lot. It is currently a rental that needs some TLC.
Purchase price will be approx. $867,000
Construction of a 4BR 2.5BA 3,000 SF home will run $750k ($250/SF)
Breakout of $750k construction is as follows:
$100k - soft costs (architect, permits, etc)
$400k - Contractor - shell only
$200k - finishes
$50k - landscaping
All in costs pre-financing $1,617,000
Financing
Local Private bank will finance 60% of as complete value ($2MM) -or- 80% of total project cost.
Loan of $1.2MM at 5.5% + 1% loan fee.
Financing cost over 12 months $50k
Required skin in game (down payment) - $417k
Post Construction Sale $2MM
(less) $1.617 Acquisition/construction costs
(less) $50k financing
(less) $100k sales commission @5%
equals $233k pre-tax profit
Cash-on-Cash Return = 56%
After tax profit = $150k
Assuming 35% income tax / Total ROI = 36%
Would you do this deal?
Sticker shock aside, take a zero off if you need to relate, is there enough profit for the risk taken?
Most Popular Reply
Hear hear. I saw the massive gains of my real estate holdings in 2012-2014, and I was wondering....how long would it take me to make this kind of money if I owned 100 doors and made $100/door? The answer is ..... a long long time.
The rent increase was incredible too. We're talking about $300- $700/door in a couple of years. Gotta feel it for the renters. However, the tech workers are making a lot of money here though so I don't feel bad charging them. It's just the blue collar workers that you have to feel for. I have more than a handful properties that are a good $300 - $500 below market rents, but I leave them alone. Their rents are even cheaper than what @J. Martin is charging his renters in Oakland. Gotta let others live. I've gotten more than my fair share. Don't be greedy. :0)