I get this question all the time… “what type of deals and/or property are you looking for”
So I thought I’d break it down for you…
The quick and easy response I usually give people is – “a good deal for us is anything that makes money!”
The next question is – “how much money or profit do you need to make?”
This is a tougher one to answer because that depends on a lot of things…
The deal size
Where it’s located
Time to market
As a value-add investor/developer, we search for properties that are in need of improvement or repair, are distressed in some way, or have sellers that don’t want to go through a normal retail-sale transaction process.
So we’re interested in land, homes and condos that can be purchased, remodeled and sold for a profit….it’s that simple.
That being said, we do have a ‘sweet spot’ and that’s what I thought I would outline in this article.
In the Bay Area, we have focused primarily on single family homes that can be purchased for $600k – $1.2m, and sold for $1m – $2m. This is not to say we wouldn’t purchase deals for more or less than these numbers (had a recent purchase at $400k, and sold another one for $5.6m), but this is where we see the most active buyers who will appreciate (and pay for) the improvements we deliver. The buyer profile we see a lot are two professionals working in or around Silicon Valley, and can afford these price ranges.
The projects that have performed the best are the ones that need to be reconfigured (have a functionally obsolete floor plan) and can support the adding of cost effective square footage – usually in the form of additional bedrooms or baths, and 2nd or 3rd living areas. The big caveat on adding square footage is the city that the property is located (cities like Daly City, Los Gatos, San Mateo, Lafayette can be brutal to get permits!), and whether the current floor plan lends itself to cost effectively (our magic word) adding square footage.
Here’s an example of one that had the old school/cut-up floor plan in the living area…, so we really opened it up to maximize a more modern flow…
On this one we also added a master bedroom out the back and an additional bedroom in the front. The lot supported more square footage, but going up (adding a 2nd story) was not cost effective, and going out more than we did would have taken too much of the back yard.
When we analyzed this deal, we looked at doing an…
As-is remodel (not adding square footage) – in this case it limited our ability to make a profit, since most buyers won’t pay enough for a small 2 bedroom home.
Adding out with additional square footage but keeping it a single story – this turned out to be the best/highest profit option.
Going up with a 2nd story and adding max square footage – due to additional costs and time needed, this option would not work.
In most cases, adding a 2nd story is too costly because you have to rebuild half the house to support the weight (reinforce walls, add foundation and footing, etc) and tie-in, not to mention a completely new roof.
So back to the question – What are we looking for??
Here’s a list of the types of deals we typically buy…
Major damage like foundation, mold, fire, etc
In original condition or dated with poor layout and functionally obsolete
Small homes on big lots that don’t fit most buyers, like families
Probate or some form of trustee sale
Divorce situation, where they need to sell fast or don’t want to deal with listing the property
Hoarder homes, heavy drug users, elderly, etc that cannot or don’t want to show property
Short sale and foreclosures
We also like multi-family and land!
…so if you come across bare land that can be developed, a house that needs to be scrapped or an apartment building that has value-add potential, bring it to us.
If you have any questions be sure to send me email or call me to discuss.