Join Me and See a $1.8 Million Dollar Deal in Real Estate
A Millionaire Real Estate Investor friend of mine recommended a good real estate deal to me a few weeks ago and I analyzed it to see if it was a good deal or not.
I’ve had people pitch money making ideas to me that involved selling chia seeds, blogging software, digital coupons, hopes and dreams, and so on. I’ve come to find Real Estate is easier for me to understand and make money from.
People need to live somewhere, and rent is something a lot of people are willing to pay. So when my real estate investor friend told me about this deal, I took it seriously and studied it.
Calculate Return on Investment
In order to analyze a deal and see if it’s a good deal, you need to understand what your Return on Investment will be. How much cash are you going to put down and how much return will you get on your cash?
You calculate that by dividing (The Amount Of Money You Make As Profit) By (The Amount of Money You Put Into The Investment).
ROI = Annual Profit / Money Invested
In addition, if you sell the property later, will you get a profit or a loss?
So is the cash flow positive every year and what is the ROI? When you sell, what is the ROI on profit per year?
I usually calculate ROI per year because that is the standard that most investments measure against. For instance, right now if you just put your money in U.S. Treasury bills you would make an annual ROI of 5.1% or so.
Here are the details:
5371 Kalanianaole Highway #B, Honolulu, HI 96821
4/3/2 Detached House with attached Japanese Tea House over natural spring water pond
Asking $1.8 Million Cash – Tear Down
Offer $1,600,000 Million Cash and intent to register Tea house as an Historic Landmark
11 Shareholders $170,000 per share
Money to Purchase – 1,600,000 + 70,000 costs = $1,670,000
Remainder to renovate main house $270,000
Apply for recognition as historic landmark and apply for funds to restore tea house.
https://www.nps.gov/orgs/1739/index.htm
INCOME After main house is renovated will rent for $5,000/month – $6,500/month
EXPENSES
$500/mo to $650/mo property manager
$235.60/mo to $306.28/mo GE Tax
$1,000/mo maintenance basic repairs
$338/mo (4,056/yr) property tax
$500/mo home/hurricane/flood insurance (estimate from Dion August AllState)
$1,000/mo renovations
TOTAL EXPENSES
$3,573.60/mo to $3,794.28/mo
TOTAL PROFIT FROM MAIN HOUSE
$1,426.40 to $2,705.72/mo
$17,116.80/year to $32,468.64
CASH FLOW ROI ON MAIN HOUSE
$17,116.80 / $1,870,000 = 0.01% ROI
$32,468.64 / $1,870,000 = 1.7% ROI
Tea House Rental / Extra House Rental
INCOME $3,000/month to $4,500/month
EXPENSES
$300/mo to $450/mo for property manager
$141.36/mo to $212.04/mo 4.712% GE Tax
$500/mo maintenance basic repairs
TOTAL EXPENSES $941.36/month to $1,162.04/mo
TOTAL PROFIT FROM TEA HOUSE/2nd HOUSE
$2,058.64/month to $3,337.96/month
$24,703.68 / $1,870,000 = 1.3%
$40,055.52 / $1,870,000 = 2.1%
Typical 4 week class in Japan goes for $118/student including taxes.
10 person class would gross $1,118 including taxes
Projection Based on Classes Taught at
Japanese School Secretariat General Incorporated Foundation Kyouan Urasenke Tokyo Branch
2-5-23
Ichigaya Kagacho, Shinjuku-ku, Tokyo 162-0062
EQUITY PROFIT PROJECTIONS (CAPITAL APPRECIATION)
Sell for $2.5 Million in 5 years
$530,000 profit over 5 years, $100,000 costs
$106,000/year
$106,000/1,870,000 = 5.7%
Sell for $3.5 Million in 10 years
$1,530,000 over 10 years, $100,000 costs
153,000/1,870,000 = 8.2%
Here’s property description
Conclusion
Usually good real estate deals are pretty competitive in Hawaii. A house like this probably got about 10 to 20 offers. This house is already under contract an no longer for sale, and it only accepted cash offers!
Since I didn’t have enough cash I created a shareholder scenario. I did not get enough shareholders this go around.
Considering the land area was 10,000 sq ft, if you split it in half with another family, $900,000 for a large house for each family in a great school district with a path to the ocean is cheap in Hawaii. After renovations you could easily refinance some cash out.
If you see a good deal you have to act fast. It’s good to practice learning how to analyze deals so when one comes along you can get in on it.
In addition, if your millionaire friends give you ideas on deals, and you want to be a millionaire like them, then take the deals seriously. Learn to analyze them and get yourself ready for the next great deal.