Investment Info:
Single-family residence other investment.
Purchase price: $18,000
Cash invested: $497,000
Sale price: $846,000
These are three New Build homes right next to each other. The "Purchase price" was the land purchase and the cash invested was the construction costs. It breaks down to be about 6k per lot, and 165.6k per home. These numbers include everything, soft costs, tap fees (utilities), permit fees, etc.
What made you interested in investing in this type of deal?
I was traditionally a home flipper. The, I started looking at the numbers on new build properties and realized I could build these almost as fast as a flip and the profit margins were significantly more.
How did you find this deal and how did you negotiate it?
I was a private money lender on 3 New builds a year ago and that builder asked if I wanted to be a true partner on 4 more new builds. We found out we could subdivide those 4 lots into 7. These were the first 3 we completed.
How did you finance this deal?
I self financed the land and soft costs and used Lima One (institutional lender) to finance the construction.
How did you add value to the deal?
My mindset has always been to do a little extra than my competition. If my competition was putting in butcher block countertops, I was doing granite. Now, almost everyone does granite, but they do inserts for the bath and shower walls, so I'll do tile.
I feel that if the two properties were ever compared during a sale, or a rental, my property would be the preferred. In addition, I feel you get a more qualified buyer or renter if you use better materials.
What was the outcome?
It took about 3.5 months to build these 3 homes from when we broke ground. We got the properties under contract about 2 months before they were finished so the buyers could lock in their interest rates. At the time interest rates were climbing and we didn't know the peak. In addition, we were worried people would back out of the deal as a result of fear of the market correction. Ultimately we sold the properties for a good return.
Lessons learned? Challenges?
I could have done a better job of communicating with my partner on some of the decisions that were discussed throughout the process. I should have been more clear with the city on our intentions with the driveway designs. The material prices were at an all time high so it was a challenge to swallow that big pill while we were building. But, we made out well on the sale to capture some of the additional expenses.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
My partner and I split up the responsibilities very well. He handled everything in the field and I did everything in the office. It played very well to our strengths and ultimately made the deal a success. We both got out GC licenses at the same time but we used his for the construction of these 3. His wife Melanie Elliott sold the homes for us.
