Making $175K in Instant Equity on Her First Real Estate Deal

Summary

This BiggerPockets podcast features new real estate investor Lacy, who despite high prices and low inventory in her expensive resort area market, made a smart first investment deal. With the help of her agent Sam, an Elite BiggerPockets agent, Lacy purchased land to custom build a large short-term rental home. Although it won't cash flow initially, Lacy enters the deal with substantial equity and knows the area needs more housing. This creative strategy allowed Lacy to invest locally by leveraging her skills, network, and research. She offers advice to new investors about starting small and finding trustworthy partners.

Takeaways

• 😊 Lacy was able to make her first real estate deal work in an expensive market with low inventory by being creative and building new construction.
• 😃 Sam helped connect Lacy to a builder, banker, and develop an investment strategy tailored to her goals and market.
• 🏠 The goal is to build a 2500-2800 sq ft, 4 bed 3 bath home for $750K-$850K on a $75K lot.
• 💰 The expected value upon completion is $1.1M-$1.2M, creating about $175K in instant equity.
• 💡 Rather than give up when existing homes didn't cash flow, Lacy pivoted strategies to new construction.
• 👷‍♂️ Ensuring the builder is trustworthy and understands investor goals is critical in new construction.
• 💸 Although it won't cash flow initially, Lacy is focused on long term wealth and equity growth.
• 🤝 Networking and surrounding yourself with experienced professionals is invaluable as a new investor.
• 📈 Lacy started small to build confidence before taking on a larger new construction project.
• 😊 Transparency about goals and finances helps agents like Sam develop an optimal investment strategy.

Q & A

What was Lacy's main goal or priority when starting her real estate investing journey?

Lacy's main priority was to educate herself through books, websites, and finding a knowledgeable agent who could provide advice and mentor her as a new investor. She wanted to leverage the equity in her current home to purchase investment properties.

Why did Lacy and Sam decide that buying existing property would not work for Lacy's goals?

After analyzing potential deals, they realized that with rising interest rates, none of the existing property deals would cash flow positively for Lacy. The rents would not cover the financing unless she put 50% or more down payment.

How did Lacy and Sam decide to pivot to purchasing land and constructing a new build?

Since the existing home deals would not work, they got creative and decided to leverage the ample land inventory available in the area, especially smaller lots. Combined with bringing in an experienced builder relocating to the area, new construction could make sense financially.

What are some of the risks or challenges with new construction that Lacy had to consider?

Some risks of new construction are longer timelines, more upfront costs, securing reliable contractors, supply chain issues, and the inability to work on the home in winter due to heavy snow. However, Lacy felt the risks were worth the potential reward.

What were the final deal terms for the purchase of the land?

The land was originally listed for $89,900 but Lacy negotiated the price down to $75,000 for a 0.6 acre lot. This gave her extra budget to construct the 2,500-2,800 sq ft single family home.

What is the plan for the new construction home once it is completed - sell or rent?

The initial plan is to rent out the home for short and mid-term stays. The large 4 bedroom design will accommodate families and vacationers well. Eventually Lacy may also sell it if needed.

How is Lacy financing the construction of this new home?

She is working with a local bank contact of Sam's to secure a commercial construction loan which will convert to a traditional 30-year fixed mortgage once the home is completed.

Does Lacy expect the property to cash flow or is it more of an appreciation play?

Lacy is not expecting the property to cash flow significantly. Her main goal is to build equity and appreciation over time as the market continues to strengthening in the resort area.

What has been the biggest challenge so far in pursuing this new construction deal?

The biggest challenge has been finding reliable partners - from locating the land, to securing financing, to vetting potential builders. Lacy credits the BiggerPockets agent marketplace with connecting her to the right local experts like Sam.

What has been the most valuable lesson Lacy has learned through this process so far?

Lacy's biggest takeaway is that you have to build relationships and trust with your partners. Taking care of people, being transparent, and focusing on win-win outcomes is what sets up successful deals.