OK, this story may seem a bit strange, but I'm going to include it on the RE boards, as it shows a LOT of things that can happen to a RE PLAN over time, even one that "pencils out".
2002: I sell the house I've been rehabbing for the past 7 years. I get back about $500K, after taxes.
My girlfriend and I decide that, to stay close to her family, one of the only ways we can figure out how to make a rich-dad style cashflowing RE business is to do a Bed & Breakfast Inn, since the income is so much greater than a SFH or apt rental property.
2003: Browsing the MLS online, I spy a small, 6 BR house listed for $500K in Old Town Napa.
It's about 3 blocks to restaurants and shops. We think downtown Napa is up and coming-- has excellent potential for growth.
We want to buy a house and convert it into a B&B. This is allowed in the town of Napa (and only if it's an historic house), but not in most other parts of the Napa Valley.
The things that make this particular house appealing (besides great location) are:
-Listing says "built in 1945", but it's clearly an 1800s Victorian (Napa requires all new B&Bs be in historic homes)
(this is a key factor, as others searching for Victorians for potential B&Bs don't see this house)
-It has 6 bedrooms, making it great potential for a B&B (don't have to convince the City to add BRs).
-It's cheap: $500K for an 1800 square foot house.
FYI: In 2003, a finished 6 room B&B is worth $1.5M.
So we buy it, for $475K.
It needs lots of work, but we would have done this anyway, even for a pristine house, to convert it over to a B&B (needs more bathrooms, and less common area, plus an innkeeper's quarters).
Turns out the house was built in the 1880s (perfect for an old style B&B), and when we look at the small historic cottage next door (also for sale), my girlfriend decides she'll buy that one and we'll use it to live in while we fix up the big house. This cottage (we buy it for $343K) has a big back yard, so by combining the two properties, we can build a bigger B&B, say 10 rooms.
By the end of the summer 2003, I've got the designs done and we're putting the work out to bid.
That's when things get interesting.
I want to make this a business venture (not do it as a self employed owner/builder), so I interview and hire a well-respected General Contractor (GC). He will supervise the construction and charge by the hour, as well as get a small percentage markup on the materials.
After weeks of stalling, the contractor tells me it's going to cost at least $1,000,000 to transform the two houses into a 10 room B&B, and that the process is estimated to take a year, 14 months, tops.
If you've ever worked on a RE rehab, you know that you need to double both numbers, unless you're really good and have crews that you've worked with before.
We didn't (I only had one really great guy who had helped me do my prior two rehabs).
So we figured it would take us 2-3 years for the conversion, and probably run about $1.5-1.8M if we were lucky.
So I started looking at being an owner-builder. I figured I could probably bring it in for 600K (meaning prob $1M) and do it in 12 mos (meaning 18 months).
**********
That's when we saw an existing B&B/Inn go up for sale about a mile away.
It was on the market for $1,650,000, and had 10 guest rooms.
Ten legal rooms would have made it worth about $2-2.5M-- turns out only 8 of the rooms were legal (hence the lower selling price).
We bought the inn for $1,375,000 in November of 2003.
Note that we were able to get a little over $1M in loans ($325K down), and we had an up and running B&B-- compared to waiting 2-3 years for our project houses, and spending MORE money to make that happen.
*********
Still, we planned to develop the 2 houses. Even if we spent $1M on the rehab, we'd still have a property worth $2.5M.
This really didn't leave us much room for profit, since we'd already paid $475 and $343K ($818K total) for the two houses:
$1M rehab (owner/builder) + $0.818M purchase price = $1.818M for a prop that would be worth $2.5M, tops.
(note: does not include carrying costs on house mortgages and construction loans, which would add another $200K by the time we were done)
********
As we worked on our new Inn (the existing B&B), we had to pour more time and money into it than we had imagined (heard that one before, eh?
).
Since we'd already fixed up the cottage across town (next to the 6 BR Victorian), we rented out the cottage as a vacation rental, to give us at least a little income on these two props.
By winter of 2004, we had pretty much finished the upgrades of the Inn, and were ready to start working on the 1800 square foot, 6 BR house.
Which is when I saw that a 7500 square foot 1880s Victorian, a block away from our current B&B, on the market for $1,650,000 . . .
(to be continued)
-Russ H.
2002: I sell the house I've been rehabbing for the past 7 years. I get back about $500K, after taxes.
My girlfriend and I decide that, to stay close to her family, one of the only ways we can figure out how to make a rich-dad style cashflowing RE business is to do a Bed & Breakfast Inn, since the income is so much greater than a SFH or apt rental property.
2003: Browsing the MLS online, I spy a small, 6 BR house listed for $500K in Old Town Napa.
It's about 3 blocks to restaurants and shops. We think downtown Napa is up and coming-- has excellent potential for growth.
We want to buy a house and convert it into a B&B. This is allowed in the town of Napa (and only if it's an historic house), but not in most other parts of the Napa Valley.
The things that make this particular house appealing (besides great location) are:
-Listing says "built in 1945", but it's clearly an 1800s Victorian (Napa requires all new B&Bs be in historic homes)
(this is a key factor, as others searching for Victorians for potential B&Bs don't see this house)
-It has 6 bedrooms, making it great potential for a B&B (don't have to convince the City to add BRs).
-It's cheap: $500K for an 1800 square foot house.
FYI: In 2003, a finished 6 room B&B is worth $1.5M.
So we buy it, for $475K.
It needs lots of work, but we would have done this anyway, even for a pristine house, to convert it over to a B&B (needs more bathrooms, and less common area, plus an innkeeper's quarters).
Turns out the house was built in the 1880s (perfect for an old style B&B), and when we look at the small historic cottage next door (also for sale), my girlfriend decides she'll buy that one and we'll use it to live in while we fix up the big house. This cottage (we buy it for $343K) has a big back yard, so by combining the two properties, we can build a bigger B&B, say 10 rooms.
By the end of the summer 2003, I've got the designs done and we're putting the work out to bid.
That's when things get interesting.
I want to make this a business venture (not do it as a self employed owner/builder), so I interview and hire a well-respected General Contractor (GC). He will supervise the construction and charge by the hour, as well as get a small percentage markup on the materials.
After weeks of stalling, the contractor tells me it's going to cost at least $1,000,000 to transform the two houses into a 10 room B&B, and that the process is estimated to take a year, 14 months, tops.
If you've ever worked on a RE rehab, you know that you need to double both numbers, unless you're really good and have crews that you've worked with before.
We didn't (I only had one really great guy who had helped me do my prior two rehabs).
So we figured it would take us 2-3 years for the conversion, and probably run about $1.5-1.8M if we were lucky.
So I started looking at being an owner-builder. I figured I could probably bring it in for 600K (meaning prob $1M) and do it in 12 mos (meaning 18 months).
**********
That's when we saw an existing B&B/Inn go up for sale about a mile away.
It was on the market for $1,650,000, and had 10 guest rooms.
Ten legal rooms would have made it worth about $2-2.5M-- turns out only 8 of the rooms were legal (hence the lower selling price).
We bought the inn for $1,375,000 in November of 2003.
Note that we were able to get a little over $1M in loans ($325K down), and we had an up and running B&B-- compared to waiting 2-3 years for our project houses, and spending MORE money to make that happen.
*********
Still, we planned to develop the 2 houses. Even if we spent $1M on the rehab, we'd still have a property worth $2.5M.
This really didn't leave us much room for profit, since we'd already paid $475 and $343K ($818K total) for the two houses:
$1M rehab (owner/builder) + $0.818M purchase price = $1.818M for a prop that would be worth $2.5M, tops.
(note: does not include carrying costs on house mortgages and construction loans, which would add another $200K by the time we were done)
********
As we worked on our new Inn (the existing B&B), we had to pour more time and money into it than we had imagined (heard that one before, eh?
). Since we'd already fixed up the cottage across town (next to the 6 BR Victorian), we rented out the cottage as a vacation rental, to give us at least a little income on these two props.
By winter of 2004, we had pretty much finished the upgrades of the Inn, and were ready to start working on the 1800 square foot, 6 BR house.
Which is when I saw that a 7500 square foot 1880s Victorian, a block away from our current B&B, on the market for $1,650,000 . . .
(to be continued)
-Russ H.
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