Front and rear units
Our company took a hiatus from investing in 2011, but this year we are back at it again. With new partnerships and investors, we have picked up where we left off. We are excited about the projects in line for this year.
We spent the early part of the year doing our due diligence and researching different areas of the Los Angeles County to which to invest in. Our objective was to find residential properties under $200,000 with less than $50,000 in repair costs and with a resale value that would result in a project Internal Rate of Return (IRR) greater than 12%.
We found several of them in the area, but the competition from novice investors and speculators were driving the profit margins very thin. It took about 40-50 offers before we got one accepted. All-cash offers were everywhere with no contingencies to boot. All the sellers and their agents were running around with their noses in the air. I am not sure who said it was a buyer’s market, but they were dead wrong here in Southern California.
The front unit
**Here is a Property Analysis report for you to print out as a reference or to use to jot down any notes related to the project. **
The property was listed as a 2 separate units. The front unit was a 1 bedroom/1 bath, 714 sq ft building with its own driveway and garage. The second unit was similar except it was a 2 bedroom/ 1 bath and 676 sq ft. Both were in fairly good shape and were in need of cosmetic repairs plus some alterations to the floor plan.
The rear unit
In their current floor plan we felt it was not their best and highest use, so we planned to change the units into a 2 bedroom/ 1 bath and a 3 bedroom/ 1 bath. Also, because the both garages were in such deteriorated shape, they were scheduled for demolition. We would in turn, rebuild the front unit’s garage and construct a carport for the rear unit.
The property was acquired for $182,000 and renovation costs were estimated at $33/sq ft or $45,870. The repairs would take approximately 30 days to complete, and it was estimated that an escrow period would take another 30 days. Therefore, we began to market the property for resale 2 weeks after acquiring it with the intent to have it sold within one week of finishing the repairs.
Comparative market analysis of similar properties has predicted a resale value of $284,950. Taking this into consideration with the repair and acquisition costs, our proforma predicted an IRR of 15% which was equivalent to an IRR of 88.33% annually!
This project is currently under construction. Updated photos of the repairs will be added as it progresses.
