Need some advice please. - Posted by Tom
Posted by Tom on July 01, 2002 at 22:45:27:
I have stumbled onto a GREAT deal, but I am in a bit of a bind, and I was hoping someone here might help me out. I need a little advice on how I should structure and finance it.
Here is the deal I found:
Owner of 21 condos is looking to retire. He has already purchased beach-front property in Mexico and an RV to live in. The condos are situated on the side of a mountain overlooking a golf course with mountains all around. There is a ski resort about 2 miles away and a large casino about 5 miles away.
The owner is currently renting out the condos on a nightly/weekly basis for $149 - $179/night. He has also sold 300 timeshares to the property that bring in $325/year each.
He is asking $3.5 million for the property. If we buy it at that price, financing at 6% over 30 years with 20% down, the ROI on this business would be an amazing 3%. heh
In my conversation with the seller, I am convinced he would accept a little under $3 million for his property. He agreed to disolve the time-share and nightly/weekly rental business, leaving us with 21 fully furnished condos in great shape.
I started to discuss the resale prospects of the property with him, and later my real estate agent, and found that these condos will sell for $180k-$220k each(9 condos have attached over-sized garages); so, assuming worst case scenario, we could sell these for $3.78 million. Getting better.
Now these condos are situated on a little over 3 acres, all zoned R3(multi-family). The previous owner started to build 12 more condos on this land, but he ran out of money after the foundations were laid and the property was baught by the current owner after being foreclosed on. Athough these condos were barely started, and the foundations most likely need to be replaced, he was able to connect the property to all necessary utilities.
After reviewing the plans, I found that the property has more than enough room for a total of 51(21 existing) condos, an office (for property management) or a small house, and a large single family home. The newer condos that are being built across the road from this place are being sold for $220k - $270k, and sold very quickly (ie. before they are built).
Now, here is my plan (this is where I need advice):
Purchase the property for $3 million, putting 20% down, at 7%, financing over 30 years. Monthly payments will be $17026.99 PITI.
Sell the existing 21 condos and use the proceeds to pay off most of the financing and start construction on the next 30 condos.
When the first block of six condos is completed, sell them off (worst case of $220k each, $1.32 million). Sell the next block of six for another $1.32 million. As the rest of the 18 condos are completed, lease them out at (worst case) $1200/month.
By the time the last condo is completed, all construction costs and financing will have been paid off.
To sum up, the sale of the condos, 33 of them, comes out to $6.42 million. It will take $2,567,227.68 to pay off the financing, assuming it takes a year to sell these off (not likely). This leaves us with $3,852,772.32 to apply toward the first years taxes, insurance and construction costs. Any cash left over lines our pockets.
We will have 18 condos leased out at a minimum of $1,200/month for a total of $259,200/year. Assuming 40% for taxes, insurance, maintenance and management costs, we would have $155,520/year positive cash-flow. Assuming we put $600k as a down payment for financing, this gives us a 25.92% ROI. Very nice.
OK guys and gals. I know there is probably a better way to structure this deal. Anyone have any suggestions?
P.S. All this is dependant on me finding a partner that can come up with the $600k