SFH Flip in San Jose California

[Dan Yellowsky]

Good morning.  after a successful flip with a partner I am preparing to go solo on this next one.  (my partner on the last one took his profit and bought a house on Lake Tahoe and is investing up there now)

The plan is to buy a single family home in San Jose California for $750k. It is tiny - 900 sqft - then add 1000 square feet and sell it for $1.3m or so in about 9 months. Last year i did a similar project - a 1000 square foot house for $800k - added 1000sqft and sold for $1.6m. It sold 2 weeks after being listed.    I can do much of the construction and design work myself, and i plan on working 50 hours+ a week to get it done quick and right!

 So here is my plan

1. purchase price is $750k - purchase will be tenants in common between my 401k trust and my new LLC. the 401k trust will put in $200k cash, a hard money lender will loan $550k to the LLC and have a first mortgage on the property for 9% interest and 2 points.

2. i will lend the LLC $275k to finance construction pay interest on hard money loan, permits etc.. I will get permits, etc for all the work. The construction dollars will be paid to a contractor. All the work will be done by licensed contractors and their employees/workers. I know the contractors VERY well and will be their project manager for this project.

3. if all goes well in 9 months I will list the house with a real estate agent and sell it for $1.3m (maybe less maybe more - it just depends on the market)

Proceeds will be as follows;

$550k principal back to lender

$50k sales commission and closing costs etc.

$300k to me for my loan to the llc ($25k profit)

$350k goes back to my 401k - investment plus profit  ($150k profit)

$50k goes to my LLC as short term capital gains ($50k profit)

Any comments would be appreciated. My first two priorities are a simple business structure with reasonable liability protection.  I am less worried about wringing every penny of profit out of this deal...i am happy to have less risk and give up some profit.  

Thanks