Northgate Town Homes - Buy, Build, Hold, Sell

[Augustus Bukowski]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $85,000

Cash invested: $60,000

Sale price: $715,000

We bought 2 unit lots for 85,000 using 60 K cash on hand and 25 K credit card cash advance. We then permitted the site using cash on hand over the next few months. We built 2 town homes for about $120/sqft and had a total project cost of around $337,000. We held the completed town homes as rental property generating cash flow for about 2 years prior to selling both for $357,500. We sold the asset to utilize the funds for another project.

What made you interested in investing in this type of deal?

I was a mortgage lender at the time and realized the people making big money in real estate were builders. This land was the cheapest land on the market and was already subdivided to accommodate 2 town homes. The way I ran the numbers, it looked like there was absolutely no way to lose on this project so wanted to proceed as my first real estate investment.

How did you find this deal and how did you negotiate it?

This property was sitting on the MLS for I believe around 6 months. I negotiated a longer closing to complete my du-diligence on the property and save up enough money to buy it.

How did you finance this deal?

I used 60 K cash savings and 25 K cash advance from one of my credit cards. I used all of the money I had, not a dollar left over.

How did you add value to the deal?

We build 2 1,050 sqft town homes.

What was the outcome?

We about tripled the total cash invested into the project and paid long term capital gains tax. We doubled the total project cost at exit.

Lessons learned? Challenges?

When purchasing a project that already has plans, take the time to review the design and determine if you could make the build better. Many times developers will do anything it takes to get a permit ready and sometimes the choices they make don't result in the best building. At the end of the day when you build the property you are the one stuck selling it or owning it.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?