Do The Numbers Work?

[Josh Gaddy]

First of all, I would like to say that I have learned so much in the short period of time that I have been on this forum. It is a great place to learn and connect. So thanks for that.

I have a possible deal that I would like to get some feedback on from some veterans. I found a 1942 brick 2400 sf single family home converted to a duplex in one of Charlotte's premier, established neighborhoods. I have spoken with the owner and she says she is interested in selling and that she would probably sell for around $725,000. The total rent roll is currently $2,200/mo. I am considering trying to get an option on the property and assigning the contract to a developer or investor to either build new construction or renovate the old structure back to single family and add an addition.

I would like to ask everyones opinion on whether my numbers are realistic for the addition from the investor/developers point of view.

-Acquisition cost $750,000
-legal 3,000
-survey 300
-renovation existing structure (very rough estimate) 100,000
-addition (2600 sf @ $100/sf) 260,000
-debt service (held for 1 year @ 10%) 113,500
-insurance 1,200
-architectural 2,000
-contingency 25,000

COST $1,255,450

comps in the area are selling from $325/sf (new construction) to $300/sf, so I will use the lesser.

Sales Price - 5000sf @ $300/sf $1,500,000
less broker fees 90,000
Net Sales Price 1,410,000

NET PROFIT $154,550

If the house sells for $315/sf, net profit goes to $225,050.

Are these number realistic? What issues should I look for? Is 12% return worth this type of endeavor for the investor/developer? I would really appreciate if all you experienced guys would poke some holes in this scenario for me. Thank you in advance for the advice. And once again, I have already learned so much from ya'll in just a few days. I look forward to learning much more.