Partnering with a local small business owner, we purchased a 2-unit townhome property in the City Park Neighborhood in Denver. The property was purchased for just under $300,000 in 2006 from a financial institution who had foreclosed on the property. The property was not habitable at the time of purchase which presented some challenges in obtaining financing. The investment strategy from the beginning was to renovate and sell.
The property improvements were made with an eye on future buyers and keeping the costs down. Inspections of competing properties in the area were made to determine what types of renovations would give us a competitive advantage. Quality, but not top of the line finishes were selected based on this analysis. For example existing floors were refinished instead of installing new, granite tile instead of slab granite was used for counter tops, and historically appropriate but not expensive tile was used in the bathroom. The original property improvement budget was just over $52,000. When all was said and done, the actual costs amounted to $59,944.
Sales and the Unexpected
The north side of the duplex was finished and put on the market. After a couple months the property, the smaller one bedroom unit, sold for $170,000 ($220/sf). Our projected sale price for this side was $165,000. Renovations to the the south side unit were completed and put on the market in the summer of 2007. After over six months sitting on the market the property still had not sold. The market had taken a downturn during this period with the first signs of the subprime mortgage crisis looming. At this point, we made the decision to rent the property and wait out the storm. A combination of a good buy and favorable financing allowed the property to operate at a positive cash flow. In 2010, we successfully negotiated a loan modification with the mortgage holder on the property. The lender wrote down the principal of the loan by over $43,000 and reduced the interest rate by almost 4 points. The owner is now in the position of being able to make a good return renting the property and waiting for the market to improve before contemplating a sale. Because the flexibility to rent the property was built into our initial strategy, we were able to deal with a declining market and make money where others may have been stuck and forced to sell at a loss.
Radford Investment Properties is a Denver-based, privately owned, investment real estate firm. Our brokers specialize in helping investors acquire property investments and increase their value through smart management and renovation.