The idea of BuilderPartner started in March of 2017. It was the start of Spring and I was excited to take on another real estate construction project. I enjoy spending the long summer days working on construction projects. So, I started my search for my next target property. I was looking for a complete reconstruction job, not just a quick flip. I want to rebuild the existing house from the studs up and do a complete re-design of the house. The right property location is the single most important decision any real estate investor makes.
I’m always surprised to see newly constructed homes selling for over one million dollars, literally built alongside a main road or on the service road leading up to the Parkway. When you see a new, million-dollar home built that close to the highway, that’s an indication that better building lots are just not available.
So, that’s the reason why I believe a better approach is to invest in an older home in a great location and to completely rebuild that house. The ideal location is away from the highway, not in a flood zone, not on a busy street, not even two houses in from the main road, but deep in the pocket of a well-established neighborhood in a great town in Northern New Jersey. That’s the target property I’m looking to invest my time and money in.
In order to find the right property I had to expand my search using some of the available online resources, like the New Jersey Multiple listing service, Zillow and Auction.com. Even with these excellent resources, it’s still a challenge to find just the right property to invest in. Finding the right property is a process that can take a long time. I’ve spent months building up and maintaining my spreadsheet of target properties that I believe are worthy of investment. Every week I add some new properties and lose some to sales. I’m usually watching about one hundred properties at any given time. That is 100 out of the roughly 4,543 single family homes available for sale in my focus area. That may sound like a lot, but that’s only 4 months inventory.
An important part of my plan is to get the best possible deal; in order to do that effectively I prefer to make a cash offer. That lets the seller and the real estate agent know that I’m committed to closing the deal. I believe the value of a cash deal and the ability to close in less than thirty days is worth anywhere from 5% to 10% of the selling price. That’s a 5 to 10 percent increase in the rate of return on the investment, which is very significant.
So yes, I could purchase a property with 20% down. But by doing that, I’d have to involve a hard money lender, and I’d have to pay hard money interest rates and points. As a career Mortgage Banker I’ve seen too many enthusiastic investors jump head first into complex projects without fully comprehending how loan costs and carrying costs can eat up profits and take the project underwater.
Consider this point. Why pay 16% to the lender (that’s 12% interest rate plus 4% points upfront). How much profit is left in the deal after paying that much interest? Maybe 5%. As an investor, I’m happy to earn that 16% that’s going to the Lender. That’s why I knew I wanted partners in the deal, not lenders in the deal. That realization is what led me to form BuilderPartner. I would rather earn 21% on my investment along with my Partners, than 5% after paying Interest and fees to the bank.
As I put this business together to bring the concept of BuilderPartner to life I kept one thought at the forefront of my attention, and that is to make investing in real estate easy for someone to get involved in. Because right now it’s not.
Someone who has the financial means to purchase a half a million-dollar property and another $150,000 for renovations, may simply not have the time and resources to devote to a project of this magnitude. It takes serious dedication to find the properties, negotiate the deal, manage the project, handle the accounting, insurance, and legal filings. Not to mention hiring an architect, file permits, managing construction activities to completion, passing inspections and then finally marketing and selling the property at a profit.
We all see these projects happening in our towns and neighborhoods, but how do we get involved? I’d like to make BuilderPartner the solution to that problem.
Last Summer my wife and I were spending a day at the New Jersey Shore with some family. Our cousin Ken had just recently retired as a project manager with over thirty-years of experience in residential and commercial projects. When Ken learned about the BuilderPartner business plan, he loved the idea and immediately agreed to join us as Project Manager. His responsibility will include managing all aspects of the construction projects, which includes everything involved with construction related activities from safety concerns, to managing costs
In the last year I visited several construction sites in the area to meet with over 50 builders and contractors. Builders are very busy right now and even have their next projects lined up. Most were still happy to discuss their projects and take me through the finer details of their work.
I heard very good things about a certain builder, as a young man he came up in this business working with his father who was also a builder. I reached out to him and was able to make an appointment to meet up the next morning at the location where he was working. I immediately recognized that Jesse Johnstone was extraordinary fellow. His crew was professional, polite and hard working. The carpentry throughout the house was top quality. At that time
Jesse was working for an investor who was renovating and selling these homes in the Livingston area. I was impressed to learn that the properties Jesse was working on were already presold.
As a member of BuilderPartner, Jesse works on a wholesale basis to help sell our homes at a market competitive price. By working with Jesse on multiple projects, we can expect to save 20% on construction costs compared to what a retail General Contractor would charge.
Now we have developed a very specific reconstruction plan designed to add value to our properties and generate maximum profits. We will select the best possible candidates for our specific construction plan.
The plan for the "Empire Fund", is the purchase of five single story ranch style homes in the best towns and neighborhoods in Northern New Jersey. The properties will undergo a complete renovation of the existing floor space. We will raise the ceiling height to nine feet, remove the roof and add a second level of about 1,200 square feet. In the remaining area we will create a vaulted ceiling over the living room. The home will feature an open floor plan with ample molding, a tray ceiling, and a beautiful modern kitchen that will include high end appliances and a multi-functional island. This is a popular style in new construction and this is what new home buyers are looking for.
Construction costs to add the new level are approximately $125 per sq. ft. Now the selling price per sq. foot in these areas are from $350 to $375 per sq. ft. Therefore, the profit is coming from the net $225 profit per sq. foot added to the property. The quick math calculation on that is added 1,200 square feet x $225 profit per foot = $270,000 dollars. This is where our gross margin on the project is coming from.
The complete renovation performed on the original structure is about a break even. The original home is purchased at about $300 per sq. ft. The cost for renovation on the existing sq. footage is $60 per sq. ft, plus another $20,000 for high end kitchen appliances. So, again the existing structure renovation is basically a break even and the profit is derived by adding that second level. This specific plan will be turning Ranch style homes into new Modern Colonials. That’s the value add plan that is what differentiates BuilderPartner from any other Real Estate Investor in the market.