Many of us have a dream of investing in Charleston real estate to create long-term equity and safety for future years. Doing so is the subject of many blogs, and has just as many ways to achieve success. However, the best way to beat the learning curve is by partnering with a local developer who has the skills and resources to turn an opportunity into an worthwhile investment. But how would such a relationship work?
For the purpose of simplicity, let us look at three different arrangements where we have real examples in Charleston SC:
1. Large Charleston Single in Elliotborough
This was a complete renovation of a 4-bed, historic home, and the addition of a 2-bed dependency to the rear yard. Purchase price was $200K (those were the days!), rebuild cost was approximately $350K and appraised value as of 2016 was $750K. The property is rented long-term at $6,400 per month, total representing a 14% gross return cash on cash.
This arrangement was between ourselves as investors and a local developer. We contributed 50% of the down payment and guaranteed the construction loan. We also provided funds for the developer for his contribution at 5% APR. So it's an arrangement where we became the bank in effect, and the developer did the entitlement and build. We gained useful knowledge in a rapidly developing Charleston real estate market, plus 50% of a good investment; and the developer was able to lever his position without incurring additional debt.
We've undertaken many such arrangements, often swapping equity once projects were completed to achieve 100% ownership of half the portfolio. This works well for small, simple deals and we have since offered similar services to our own clients.
2. Small Charleston Single in Elliotborough
This is the subject of an earlier blog and is similar to the example above. In this instance, we set up an LLC for the home with participants as shareholders in a joint venture arrangement. Equity contributed by owner was $100K, build cost was $400K, and our contribution was $100K. The appraised value upon completion was $750K, with estimated $120K of annual income, making a 20% return gross cash on cash.
The original owner has contributed a disused building in a good area with correct LB Zoning and a building plot to the rear yard. We will undertake to raise the funds, manage the build and the short-term rental once completed with the original owner as a silent partner, free of any ongoing debt.
3. Short-term rental investment on Folly Beach
This is a bigger project, more in line with a traditional private equity model and is probably the most appropriate model for larger deals. Highlights are $750K cash for the land and $1.6M construction loan for the build to create two, 4-bedroom vacation rental properties on a single plot on Folly Beach.
We will run the project from acquisition through final management. We have two investors as Limited Liability Partners seeing the first 8% return on their investment, but with no loan guarantees. We will receive 8% on any cash invested, plus 25% of anything over and above this. In three years, once stabilized, we will seek to refinance pulling near 100% of all cash out from the deal so thereafter we will receive 25% of the returns with the remainder going to those who contributed the initial cash (including us).
So there you have, in short order, three different ways to become involved in Charleston real estate investing regardless of your experience provided you have some free cash and good credit. If funds are tight, there are other ways to get a foot on the ladder, but that's the subject of another blog.
Note: All of the above are real examples from our own experience investing in Charleston real estate over the last 4 years. As we've had a hand in varying investment opportunities, whether it be downtown Charleston or on Folly Beach, our portfolio and experience continues to evolve. Have a look at some of our incredible before and after projects to see how we were able to find and tranform these investment opportunities ...
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