Question of the day - inspired by James Clear's 3-2-1 Newsletter
Imagine your life as a book. What title would you give to the current chapter?
Mine: Don't Call it a Comeback.
☀️
Livin' La Vida Luna y Luca
The cutest.
Project Silver Spring
It didn't take long for the team behind Project Washington to run it back.
Last Friday (3/15/24), my friend (& esteemed custom home builder), David, filled me in on an opportunity in Short Hills, NJ.
It was an estate sale getting ready to go to market.
We toured the property that same Friday afternoon. Before leaving, we asked the seller's agent, "What's the don't go to market number?"
She said they were going to list the property at $1.2M, but the children of the deceased are expecting something in the $1.3's.
We rushed home, reran our numbers, and sent an offer of $1.35M as-is with one contingency: tank sweep only.
The listing agent said another $25K would get it done.
I've heard that line before 🤦♂️ .
So instead of conceding another $25K, we structured it as an incentive. We'd throw in another $25K if they accepted by our artificially imposed deadline.
It worked. They accepted our offer by 5pm the following Monday.
The Numbers:
Let's quickly run through the numbers here.
We'll start with three buckets of expenses and end with our expected After Repair Value.
Acquisition:
The acquisition costs come out to $1.425M
I don't know what kind of spell David has on his Hard Money Lender, but I'll take zero origination points any day of the week, twice on Sunday.
Cost to Build:
We expect to spend $750K on the build (labor & material only).
This number is kind of conservative. We plan to build 4,250sf above grade and finish the basement, which is ~1,000sf.
The total livable floor area will be 5,250sf. Assuming a construction cost of $135/sf, that puts our budget at $710K (5,250*135).
You can call the additional $40K a contingency budget.
I call it an unfair advantage.
A friend is wrapping up a similar project down the street (more on her later). I asked her what she spent and she told me: $750K. Good enough for me.
The interest portion ($150K) is based on the following table.
Our interest rate is 11.65%.
This project will take 12 months to complete.
We'll be paying on the purchase money loan for the entire year, draw 1 for 3/4 of the year, draw 2 for 6 months, draw 3 for 90 days, and the final draw will get us to the sale (~45 days).
Cost of Sale:
The last expense bucket is the cost of sale, which we project to be $180K.
With the recent National Association of Realtors (NAR) Settlement Agreement, I'm not exactly sure how to price agency commissions. I'm looking forward to seeing how the new comp structure for agents plays out in practice.
Comps:
We spent a lot of time thinking about our After Repair Value here.
The seller's agent believes our After Repair Value would be in the $2.6M range because of a recently sold comp down the street.
However, this home leaves much to be desired. It's on a significantly smaller lot and the design is not that appealing.
We're building to a much higher spec.
I like this comp. We're on a little bit of a smaller lot, but this was an addition+renovation (like we're doing) and this home also has a side yard set-back issue on the second floor.
This is another addition+renovation comp I like. Similar lot size to ours, but we plan on having 6 beds, 6.5 baths.
This house is my favorite comp!
It's the project my friend, Shivangi, is about to finish.
We have the same lot size and plan on building to the same specifications.
On the night of our offer being accepted, I called Shivangi to get the tea on everything Short Hills.
She spent an hour+ just pouring into me. I took 2 pages of notes and feel extremely confident going into this project after learning from her experience.
Oh, yeah. I forgot to mention she rejected an offer well over $3M before her house was complete. 🤑
After Repair Value
All of that to say, I expect our After Repair Value to be $2.95M.
It's a reach.
But I also know what David and I are capable of. After what we were able to accomplish on Project Washington, I know we will build the shit out of this house. 💪 😤
Get Involved:
The cash requirement to fund this deal is $650K. *Gulp
I'm keeping half of it for myself and looking for a private money lender to take the other half.
If you're interested in participating, please shoot me a text, reply to this email, or schedule a call with me by clicking here.
