Then if the market is higher when you sell, acknowledge your higher profit as a
backed loan, because like it or not, that is what
gift, not an entitlement and stroke of genius.
normally sets the market price.
Plan your improvements in proportion to the relative price of the neighbor-
Exceptions are in temporary hot markets
hood. Nice consistent finish with Home Depot stainless appliances and prefab
like Silicon Valley where multiple offers
granite will be fine for median price houses and under. However, when you
are common and offers frequently ignore
get to 1.5x median and higher, design is critical. In either case, 80% of buyers
the appraisals because of cash buyers and
make up their mind if they want the house by the time
buyers who make offers with
they get through the front door, so curb appeal and
no appraisal contingencies. The
the feeling upon entry is king at any price. Put more
Silicon Valley Flip Example
problem is that when the market
money in the front than in the back. I always want
stalls, which it will, flippers
High-End High Added Value
my product to be the best on the market in its class.
will find themselves chasing
1429 Bent Dr. Campbell, CA
And if your agent tells you it is not necessary to stage
the quickly falling prices like
because others don’t, say that’s perfect and that is
rats jumping from a sinking
4 bed, 3 bath, 3000 Sq.Ft.
exactly why I am going to stage it. This is a high ROI
ship. The longer the project is,
Addition: 1200 Sq.Ft.
item.
the higher the risk due to the
Purchase Price: $550,000
Summary
increasing uncertainty of the
Purchase Closing: $1,177
Proceed cautiously and with expert partners,
future market.
Resale Price: $1,625,000
coaches, and consultants. Narrow down what and
Make sure the deal makes
Hold Time: 13 months
sense in the current market.
Resale Closing: $87,893
Rehab: $555,362
Debt Service: $108,511
Soft Costs: $19,272
Operating Costs: $10,986
Net Profit: $312,046
>
Flip Example
The example on this page was completed in
2013 in Campbell, Calif., in the heart of Silicon
Valley in a neighborhood that had some recent
sales that were three times higher than our
purchase price, an exceptional opportunity
indeed! I knew from 38 years of investing and
from experiencing my fourth real estate cycle
that I should not count on the appreciating
market, and indeed it penciled out with a good
profit with only a modest rehab, including up-
grading a non-compliant wing addition.
However, after significant analysis and consul-
tation with my broker, architect and contractor,
I decided to take a calculated risk and fully
leverage the project with a major high end
remodel, including scraping the non-compliant
addition and constructing a new master suite
wing.
Larger permitted projects always carry more
risks and this was no exception as we en-
countered two contractor changes, permit
challenges, and abuse of power from the
city inspectors, resulting in some budget and
schedule overruns. The good news is that the
high quality product was a perfect match for
the market and along with the leverage of the
appreciating market the project yielded 19 per-
cent of sales price profit, and 60 percent return
on the working capital. v