What would be your maximum purchase price.

Question

I am looking at a duplex in SF, list price is just under a million. This will go over asking and probably by at least 15-20% maybe more.

this property needs 500k worth of work. plus or minus 100K. 8-10 months turn around time

Exit strategy would be to split the duplex into 2 TIC units.

One unit could re-sell for 1.1-1.2 MIL the other 900k-1.0 MIL.

On the low end re-sale could be 2MIL and high side costs 600K assume another 200K in soft costs (closing, carrying, permitting, plans, etc)

On the high side resale 2.2MIL with low estimate on costs 400K and still assume 200K in soft costs.

Would anyone pay over 1.2MIL?

Steve Vaughan · Answer

Sounds like a huge spec play that could bankrupt someone if it doesn't work out perfectly. I never put myself all in on a deal, but that's just me.  Next!

Karen Margrave · Answer

@David Schach

No easy answers to your question, as there's not enough information. The biggest question is, what is your experience and financial position?

If you aren't experienced and needing to convert to a condo, it can eat up more time than you are planning, meaning paying high interest for an unknown period of time. In order for Hard Money to make sense, you have to have a great profit margin, and a somewhat known time frame.

You might want to find a partner.

Maybe someone else from the bay area, San Francisco can weigh in?

J. M.  can weigh in and tag some other S.F. investors? Good luck!

David Schach · Answer

Yeah, vacant duplex, which in my estimation adds a 10-20% premium on the value in SF. Basically you are prepaying for less headaches when trying to remove tenants either via OMI or Ellis Act. both of which have potentials to reduce the resale value on the exit via TIC sales.

I agree with your thinking. My numbers for me personally put the purchase price right around 1.1MIL, anything north of 1.2MIL scares me, because at 1.3MIL a slight hiccup in both directions, costs rise, prices fall and your easily upside down.

And, lastly. I am tending to think it will go to an owner occupant with enough stomach and cash for a nice remodel and then sell off one unit or rent it out. At 3500 a month in rent thats a nice dent in your PITI payments.

J. Martin · Answer

@David Schach,

If I could only ask one question...

IS IT VACANT?

If so, great start! So let's say about $700K in pre-financing costs. Would someone pay $1.2MM for it, with a $100K-$300K gross estimated profit at purchase..? I wouldn't be surprised, especially if its in a nice neighborhood. Why? I think most SF investors are expecting to ride another 8-10% up (for better or worse), which would be almost another $200K in profit. So that's looking at about $300K - $500K in gross profit w/ appreciation. And possibly more if people really love them when inventory happens to be low.. ;)

I'm not saying including the appreciation is a great way to make the estimate. But I believe that the highest bidder will probably be using that estimate. Or it could be an owner-occupant buyer who's just going to fix it up and live in it, and don't have a flipper's transaction and financing costs..

Radhika M. · Answer

@David Schach I think Karen has some great questions. Have you done this type of deal before? Have you done TIC conversion in the city before.  If for what ever reason the TIC conversion does not what will the resale value be as a duplex?

If this is your first one partnering with some one who has done this before may be good.

@Amit. M may be someone who can help.

David Schach · Answer

Looking into funding options now, most likely hard money lender in SF.

Rents would be in 3500-4500 range per unit.

Zlatan Omeragic · Answer

@David Schach

What options do you have as far as funding?

I also second the question, how much rent can the units bring (if it's needed)?

Dan L. · Answer

Hey David, what did this duplex end up selling for? What's the address?

David Schach · Answer

The condo conversion is the second step in SF. First step is forming a legal TIC and selling off TIC units. After 1 year of TIC occupancy its on condo fast track, strictly because its a duplex. Large MFR buildings have many restrictions about TIC to condo conversion. And there is a moratorium on condo conversion until 2024.

Karen Margrave · Answer

@David Schach  What is your experience level? How confident are you that the estimates are correct, and where did they come from? Have you personally gone over and looked at the property? How did you arrive at the values of the completed project?

It's impossible to tell someone else what they should offer on a property, as there are too many variables. Everyone brings different things to the table, and they all factor in.

I have no clue what the process with the City is to get the condos to the point where you can sell them, and if you are dealing with hard money, that's something that you have to be pretty sure of.

Sorry I wasn't of any help.

What would be your maximum purchase price.

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