JD and Dan return for another recent CT Homes case study. This particular San Diego property belonged to an HOA. JD and Dan explain the differences an HOA property may have compared to traditional homes, as well as the strategies CT Homes used to successfully complete the deal. Tune in to get the breakdown of the from acquisition, renovation, and all the way to the sale of the property.
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Hello, everyone. I’m JD Esajian and welcome to you guessed it the FortuneBuilders Real Estate Investing Show. Back at it today with a great episode. We’re coming at you with another live case study of a very recent deal in San Diego, California from CT Homes. I’m joined as always on these case studies by none other than Dan Wright. Daniel Wright the right stuff, right stuff baby right stuff, our Acquisitions Director here at CT Homes and we got a lot to cover.
Phrase of the Week
As always, we got to hit you with the phrase of the week, the Word of the Week, or the acronym of the Week. This week, ladies and gentlemen, hold on to your trousers. The phrase of the week is HOA. I’ll say that again, slower in case you didn’t catch it, HOA. That is directly related to the case study on the property that we’re going to cover today. Some of you may, of course, know what that acronym stands for. But we’re gonna get into all that and much, much, much more on this week’s show. So let’s get into it.
Aqcuriring the Property
Let’s start there on the acquisition side. This particular property, if you’re not watching this show, and listening, you should go back and watch the shows, but certainly, the case studies because there are a lot of visuals that you won’t catch listening, but you’ll get the intent of what the lessons are. This particular property is on Cape May Avenue, unit 101 in America’s Finest City. That’s not my name for it. That’s the nickname for San Diego on Cape May 5015, Cape May. Now the picture that we’re showing on the screen right now is of the front of the unit. It is a condo, one of 50 units, closer to 30. It was still quite a bit though.
30 units in this complex, but as with any piece of real estate, they’re the true value and one of the biggest driving forces of the value and how we determine value is where it’s located. So let’s start there. Dan, I know you’re intimately familiar with this part of town you used to live there it was your first purchase in San Diego when you moved here, and what a great purchase it was. It was a great purchase. It worked out and it has a condo also. So why don’t you talk a little bit about where Cape May is located for those of us watching or those of us listening so they can get a familiarity with the location.
The condo is it’s in a part of San Diego called Point Loma. Obviously that’s the bigger area but as we break it down a neighborhood it’s in Ocean Beach. It’s you know very bohemian style description. You get some hippies and very artistic people live there and you got a nice dog beach and restaurants and bars and just a whole scene. It’s very walkability.
Awesome walkability. When we saw this for the first time on the MLS, that’s the source that we use to acquire this property. You know, looking at us like, oh my gosh, this is two blocks from the sand. You’re two blocks from the restaurants. And you know, it’s that that part of OB like parking is a nightmare. And so when this had two parking spots as well, that was very attractive.
Let’s go ahead and talk about the renovation plan and as I have in the past and this time will be no different. I’ve got some photos here that we’re going to look at of what the condition of the property looked like when we walked in for the first time so as we’re scrolling through these pictures there’s Mr. Exotic as he’s known in office the acquisitions team. You got your popcorn ceilings, get your broken wall heater right there. You got your old school kitchen countertop with a tile I wouldn’t say that’s in terrible condition but it’s heavily dated and as Dan talked about there were some things that didn’t work namely I think you said the stove and then the heater which is going to cost money to fix of course which we have to factor in and gonna affect someone that’s getting financed being able to buy it.
Looking at those cabinets there you know when you look at them and like okay, you know these are salvageable. These aren’t that bad but you got to look at them they actually already resurfaced like 10 years ago with new like laminate so it was they were past its prime and you skip past it already but the fridge I wanted to point out I’ll go back to. It’s interesting. You know when you live close to the ocean when your fridge has rust on it. Gotta take the good for the bad.
When Dan Dan walked through this unit for the first time, he actually completed the repair estimator and came up with $45,000 950 square feet, two bedrooms, two baths. Obviously, you got one kitchen, and two bathrooms, which needed everything, or a lot of things in these bathrooms, I should say. Those were newer vanities and countertops so I did plan on keeping those. We need a new tub. Wow, there’s a lot of bathing done in that shower. A lot of sand has been washed off.
There are some things that could be salvaged from this property. We accounted for those in our scope of work again. $45,000. We estimated that we’re going to take about a month to complete the renovation and we actually originally had planned to put windows in. Where were maybe five windows in this or six windows? Something right around there. But because of the Architectural Review Committee timeline, we actually decided to eliminate the windows. And also we compare that against no other units in the building that had new windows.
When you’re unsure if you should do that or not. Look at what everybody else has. If everybody else has new windows, then there’s no way we would have made that decision. But nobody else had made that change. So as a team, we decided, if that’s an issue, when we go to sell, that money we budget for windows will credit the new buyer and they can do it since time is on their side, that’s a great way to handle it.
Selling the Property
We’ll talk about the profitability here as well. Reminder, we bought the home for our purchase price after commissions were brought back $605,000 We bought the condo on February 25 2022 with an original ARV of some 50. Through the renovation process, adding some things on the certification side, the low inventory in our marketplace and even lower inventory in this neighborhood for this kind off home allowed us to sell the home for a market value of 790,000. We ended up selling it for 795,400. We spent 45,000 Just a little bit over.
Our financing costs for the money that we borrowed were about 10,000 a little bit above that actually. Transactional costs, utility insurance, and commission’s closing costs was a touch over 30,000. We sold the home for 795,400 and we closed on the home and sold it to the new owners on May 13, 2022. That’s actually Deborah’s Birthday. Happy Birthday. We sold the home on Friday the 13th to a great new owner.
When you plug all those numbers in and close everything out in QuickBooks, this particular condo netted, our gross profit at CT Homes was $97,726.34. Now, not guaranteeing anyone that every deal is profitable, because there’s risk and everything that we do, but
“When you buy good real estate in good locations and apply good principles like we teach and talk about here at FortuneBuilders, and on this podcast, you can make money real estate.”
Dan, that’s good. Anything else you want to add as we sign off on this particular case study for Cape May? I do have one question. it’s not a trick question. The sales price, so you got the offer as 795,400 Was that countered? Or was that an organic offer that came in? And if it was organic did they explain why they added 400 at the end? Why is it such an odd number?
Good question. And that is not what they countered. That was the number that I presented to them. There are a lot of reasons why I picked a number that wasn’t just a round number. Some of this is because we study this and communication and negotiation by picking a specific number, in this case, 795,400. It shows the other person that you’re negotiating with that you put actual thought and detail into that decision. That number that you went back with which we did, the offer that we received was 770,000. That was their original offer.
Rather than go back and forth on paper with the buyer, I asked the agent to ask the buyer in lieu of receiving other offers which are coming, would you like me to talk to my partners because I have partners and get them to get your clients to take it off the market price? They said yes. And I said we can do that. Or we can wait to see what other offers come in which means they could pay even more. As a result that gets you multiple counters. If I get you an offer now, we don’t have any written offers, so it’d be your client’s property to take at that number. She said yes.
She was the gentleman who was representing the buyers. So I calculated the numbers. Part of the reason I came up with that number is that we also counted on the closing timeframe. So we were able to close the property a little faster, which saved us holding costs and utilities. So I factor all those things in and I came up with that number of 795,400 which was you know, not an exact number based on the reduction of costs and closing faster, but it showed them that I did put more thought into that particular number for that reason. That is why we came up with that number.
Dan as always, thanks for joining me on this case. JD, it’s always fun. You’re welcome, everyone watching, listening. Thank you very much for tuning in. Please give us feedback. Share this training. Go to FortuneBuilders show.com to get signed up for additional training. Let us know what you want to learn more about and as always, we’ll see you on the next podcast. Take care everyone.