New project: a live-in flip

10:55 PM James 0 Comments

A couple months ago, I wrote that saving for investment real estate is more important at 33 than saving for a 401k. This approach had allowed my wife and I to pay off six figures of student debt and turn a $50k nest egg into about $300k sitting in the bank. The only question was where to invest it.

Last month, we found our new project: a live-in-flip! Basic opportunity stats:
Purchase price: $540k
Down payment: 25%, or $140k
Renovation budget: $50k
Total investment: $190k
Holding period: 2 years (or longer)
Target sales price: $790k ($750k after sales fees)
IRR over 2-year holding period: 39%

Here's a little about the home:
- 1970s (asbestos and vinyl baby!) 2 bed 2 bath + bonus room + backyard
- townhome in a gated community with easygoing HOA
- next-door unit sold for $690k in November (more than comps out)
- excellent 10/10 school district (surrounding homes are NICE)
- super walkable neighborhood, 2 blocks from a 270 degree view of the ocean
- loud, busy street outside
- needs EVERYTHING: HVAC, floors, paint, doors, windows, kitchen and bathroom remodels (lots of fun to be had)

Possible scenarios after we fix it up:
1. Live in it for 2 years and sell - we get our money out and look for another project
2. Live in it for several years, enjoy the fantastic location, and walk our daughter 2 blocks to the best school in the county
3. Worst-case, the housing market has a correction and we make less money, but still turn a profit

Areas of concern:
1. Will all of our renovations be approved? The HOA approved our proposal. We just have to make sure the city is on board. So far, so good.
2. Will we stay within our $60k budget? Probably. We've interviewed 3-4 vendors for each major thing (carpentry, electrical, plumbing, kitchen and bathroom remodeling, flooring, painting, HVAC), so we have a good idea of the cost and the work involved.
3. Can we avoid a major screw-up? Good question. Some of #2 applies here, and we've weeded out sketchy vendors in our interviews. We're making very clear plans for the project, and sequencing each vendor to make each job run smoothly. We're basically managing the project and learning a lot along the way.
4. Will we drive ourselves crazy? The good thing is, we won't be living there while we do the renovation. That will save our sanity and also save time on the project. On the other hand, we're both very excited to do a good job and finish, so we can finally move in to a home where we're picking out EVERYTHING ourselves!

Next steps:
1. Close. Loan is getting funded tomorrow.
2. Start the renovation process, beginning with asbestos abatement.