Too big of a risk on a Napa valley flip

[Jackson Carr]

Hey all,

I have an off market opportunity in North bay San Francisco (Napa CA in particular) on a 6 plex and I need a little advise from some more experienced flippers than myself.  My experience has mainly been small flips 30-50k remodels, so this would be my largest and most extensive. What do you all think. I will try to be as in depth as possible.

Property is zoned for mix use of heavy commercial/residential. It has a 3/2, 2/1, 1/1 house on the site with a approximate 2000 sqft commercial building (currently being used as a 3 plex) on the .33 acre site right off the freeway in Napa.

Issues:

Structural- The 1/1 has cracking slab foundation. Haven't even brought anyone out too look at it yet. I am still trying to determine feasibility.

Roof- All four need new roofs with all units showing signs of water intrusion. 2 units have full ceiling cracks with sagging.

Aesthetics- Needs a complete makeover (lipstick on a pig). Floors, paint, kitchens, bathrooms.

One room has a pair of vice grips sticking out of the wall that have been plastered and painted in.

Permitting- Nightmare. Unpermitted add on bathrooms, garage bathrooms, electrical submetering area, 1 water line for 4 buildings, sewer, electrical, water.......... Etc.

The big question- Can the commercial building currently being used as a 3 plex stay that way? It is worth double the amount that way.

According to my GC- total rough cost between 100/sqft. This is in Napa and I wanted him to go conservative. I think he is in the ballpark considering pulling a water permit might make us have to go back to the street and upsize a line as an example of the financial Pandora's box we can open with every turn. Total being between 480k.

Comps/Cost- The cost of this will be about 1 million after closing costs. I am unsure of hard money costs on something this large and risky. I have the down payment though at 75% LTV. Then add the additional remodel costs. The comps are hard for this property due to the uniqueness of the situation. I have talked with multiple realtors who have came in around 1.8-2.0.

So total

Comp sale- (acquisition + remodel+ hard money) = Worth it?

1,800,000- (1,000,000+ 480,000+ 200,000?) =120,000

This all leaves some room for error, but not much.  For 120k profit I feel like I could do a few SFHs for

Thanks,

Jack

[Wes Blackwell]

@Jackson Carr

Here are some comps pulled off the MLS, all sold within the last year:

2131 Jefferson St,Napa, CA 94559
Listing #21626154
Sold for $825,000
6 Units
Gross Scheduled Income: $58,500
Gross Annual Yield: 7.09%
Days on Market: 9

492 Randolph St,Napa, CA 94559
Listing #21514768
Sold for $1,300,000
7 Units
No Income Data on MLS (but agent might know)
Days on Market: 303

1625 Silverado Trl,Napa, CA 94559
Listing #21528924
Sold for $1,600,000
5 Units
Gross Scheduled Income: $97,043.81
Gross Annual Yield: 6.07%
Days on Market: 111

196-Redwood & 2208 Carol Dr,Napa, CA 94558
Listing #21606790
Sold for $2,532,500
9 Units
Gross Scheduled Income: $143,520
Gross Annual Yield: 5.67%
Days on Market: 26

If you're off on the ARV by 6.67%, there goes your $120k in profit. And as you already stated it's completely feasible that it could get slurped up by some unforseen repair or permit expense.

Plus, look at how some of those properties above sat on the market for over 3 months, some as long nearly a year! That could increase your holding costs and eat into that profit as well.

An old investor I used to work with would say "the juice ain't worth the squeeze" and for $120k you might as well do some much less risk SFR flips that have a much bigger pool of buyers and will easily sell in a month or less. Too much risk, too many unknowns, too little profit.