Here’s a worthwhile strategy
Got some cash and looking for a strategy? Here’s one I like but don’t do myself:
- Buy a REO single family home on a 6,000 sq. ft. lot zoned R3 or RD1.5 all cash for maybe $300k
- Rip it down
- Build 4,000 sq ft fourplex made up of 4 2 bed / 2 bath units, for $600k
- Lease out three units for $2,300 / month (leaving last unit for owner-occupier)
- Sell for 11x annual fully-leased gross rents ($9,200 month x 12 months x 11 grm) = $1.2MM
- Buyer buys using 5% down FHA loan, putting down $60k and borrowing the rest
- You net $300k pre-tax on a $900k investment
Or do the above, but lease out all four units, then re-finance at a $1.2MM valuation with 70% LTV loan, allowing you to hold onto the asset while getting out $840k of your $900k investment. Then rinse and repeat.
You could probably go from being somewhat rich to very rich by doing one of these a year for 10 years. No need to thank me.
P.S.: I need to thank new reader Jeff P., who asked me if I had any interesting ideas yesterday while we were having coffeee. This was the one I came up with.