Townhome Conversion - Indianapolis

[Evan Manship]

Have a very interesting scenario. My brother and I co-own a 4-unit building that we had originally planned to rehab through 203k financing (the property is fresh out of 1970 décor, built in 1910).

However, we have since decided that it may make more sense to pair with an investor who will front the cash to rehab the units, separate the 4 of them, and sell them as townhomes. The rehab quote we have received from our original contractor was about $35k per unit to renovate with low-medium grade touches. However, a local developer and flipper whom is a personal mentor of mine has said that his crew could complete the job for around $25k per unit. The investor is standing by on this joint venture deal.

Has anyone here gone through the townhome/condo conversion and attempted to sell them individually? My project manager (mentor above) understands the ins and outs of legal and zoning issues, but more along the lines of the investment itself -- what advice would you offer?

[Eric M.]

Not sure what you are asking. Sounds like you have people who know the legal side of seperating the PIN's etc. You have a JV investor standing by. What is the hold up? Make the deal.

JV deals can take any form you want them to take as long as it makes sense for you and the investor. Ask him what he wants (form of security, return %) and make a deal. If he is looking for a 20% return and your numbers indicate the deal will be a 30% IRR deal, then you need to give him 2/3 of the profits. If you can live with 1/3 then do it.

If the deal is a 50% IRR then you can offer him a 60/40 split. Just make him comfortable that his investment is secure and has a good shot at achieving his % goal and you are in.

My only opinion on anything you said is that I hate flippers who rehab with "low to medium" grade finishes.  Do the job right.  Low grade finishes are never "right" in my opinion.  Sure, you don't go luxury if the price point doesn't warrant.  But respect your buyer enough to give them good quality stuff.  You should be proud to go back to your rehabs in 2 years and see how they hold up.  Low grade won't hold up.