16 Spring Street #1 Investment Offering
PROPERTY - 16 SPRING STREET #1 SOMERVILLE, MA 02143 - Purchase price is $225,000. 1st floor 3 bedroom unit in a two family duplex house, converted to condominiums in 2007. Sold for $510,000 to the current owner who has defaulted and is now being sold as a short sale. The area is Spring Hill in central Somerville, close to Porter Square, Union Square and Harvard University. Many young professionals live in this area since West Somerville is too pricey and East Somerville is near the highway and less desirable. 1125 s.f. All renovated with sanded hardwood floors, stainless steel appliances and central air conditioning. There is a retaining wall in the rear of the property that would require $8,000 to repair and $2,000 could be used for paint and clean up to prepare the unit for resale. Prudential Prime Properties and Willard Realty Group, two local brokerages, conservatively priced this condo at $300,000. The most accurate price they each estimated was $325,000. Some condos with similar specs have sold as high as $370,000 in that area. One of our members who is very familiar with this area has toured the unit and taken photos (see below). Our potential partner, Beantown Company, has an offer in on the upstairs larger unit (about 1700 s.f.).
STRATEGY - Beantown Company of Boston, has paid a deposit of $10,000. A new entity is created between Beantown Company and Genesis Equities to partner on the property. Genesis Equities pays a deposit of $215,000 and we close in mid-August. Refinance the property and receive $175,000 back in less than 60 days, possibly in 40 days. All financing will be done through Beantown Company's portfolio. They have strong relationships with local banks- the same bank S. Zelman used for financing based on Beantown's referral. Our $40,000 deposit will remain on the property. Lease the unit until May 2012 for $2100 per month for a monthly income of $690 or $8,280.00 annually, an ROI of 16.5%. (see rental income analysis below) The rental price could easily be as high as $2400. Rent minus expenses will be paid out monthly. The property will be listed in May 2012 at market value, approximately $339,000 list price. A $325,000 sale price makes the total profit $72,030 after the return of our entire deposit (see projected return on investment below). Beantown Company will pay Genesis Equities a preferred return of 10% on all proceeds for contributing the initial down payment. The profit share after the preferred return is 50/50. Genesis Equities would profit $39,616, an ROI of 99% on our $40,000 one year investment after the refinance is complete. (see partnership profit distribution below). The total ROI is 57%+ including the initial deposit for two months. If the deposit money of $215,000 remained in the property for one year, we would own 91.49% of the property instead of 50% and eliminate the preferred return. The ROI would be 30.65% and our profits would rise to $65,893. Refinancing and recapturing $175,000 of the deposit funds will not only enhance our return, but also allow us to reinvest on a new project as soon as this fall.
RECOMMENDATION - The profit margin and ROI is attractive. The property is in great condition and in a desirable area. The long term deposit is a low amount that gives the opportunity to reinvest our initial contribution in 2-3 months. Potential partners don't come much more experienced, successful and reputable than Beantown Company. S.Zelman has known him for 15 years. Beantown Company does an excellent job managing rental units. This investment is of first priority. Requesting contribution of new funds of $215,000 due August 3rd to invest in this venture.
MAP - http://maps.google.com/maps?oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&um=1&ie=UTF-8&q=16+spring+st+somerville+ave&fb=1&gl=us&hq=ave&hnear=0x89e37730ab3cb89f:0x432d438190988ae1,16+Spring+St,+Somerville,+MA+02143&ei=rkYwTpG3OMfliALB19Er&sa=X&oi=local_group&ct=image&ved=0CAQQtgM
Projected Return On Investment
Rental Income = $8,280
Sales Revenue= $325,000
Total Revenue= $333,280
5% Agency Fee= $16,250
Closing Costs= $10,000
Loan Payoff= $175,000
Deposit Refund= $50,000
Total Expenses= $261,250
Total Profit= $333,280 - $261,250 = $72,030
Total Deposit= $50,000
Total Project ROI = $50,000 / $72,030 = 144.06%