I'd mentioned before that we were considering selling our duplex/renovation project that we purchased in 2011. Well, today the sale closed, and the wire transfer is on it's way from the title company.
End result: our initial investment of just under $50k has grown to just over $100k in about 27 months.
This was a new type of purchase for us. We purchased it as a "slow-flip". We bought it at a bargain price - short sale, somewhat distressed, with the plan to fix up/resell at a profit. But the market at the time wasn't good for flipping, so we looked for a property with good rental prospects to hold until the market changed. We thought that might be 3-5 years. But, this summer, the market where we bought was going gang-busters, so we did the comps, and sold it to take the profits ahead of our original schedule.
Here are the quick numbers (we co-owned with friends, so half is ours):
Purchase price in 2011: $235k
Up front investment - $98k - downpayment, renovation, initial expenses
Sale price 9/2/2013: $379k
Our proceeds after all costs covered: $189k
I don't have the exact figures in front of me, but we made somewhere close to $13,000 net on rent minus expenses over 27 months (rented for 24 of those months)
Not considering taxes, this nets just over $200k or 100% return on initial investment - or about 40% annualized return.
We put in 5-6 full weekends renovating the place with our friends, while taking turns watching each other's kids. It definitely wasn't all passive income. The first summer we were so exhausted we wondered if we'd made a bad decision, but things calmed down and it was pretty smooth from then on other than the typical minor hiccups.
We didn't end up doing a 1031 exchange. Our partners want their cash now, and it seemed too daunting with the co-ownership issues. So, we're giving uncle Sam his share...
The biggest factor in this working well was flexibility. We had a Plan A (renovate/resell), and Plan B (rent/hold) until we could realize plan A. Our goal was to always be looking for when A would be profitable, but keep B as the fallback. A single-family home with a converted basement "apartment" allowed us to access the single-family market, and also use it as a multifamily rental for decent cashflow.
We didn't meet the 1% rule - $235k purchase price plus about $40k in renovations gave us $275k total purchase price and our rent was $2250 per month total (1450 up, 800 down), yielding a monthly rent of 0.8% of the purchase price (all expenses covered by tenant, low taxes, no HOA, no management fees). Our return from the rent came to about 6% per year, but the plan was to make the real money on the value added by renovation, and fortunately a rising market.
If someone can tell me how to post photos, I will share some before/after pics of the renovation next week (I won't have access the computer they are stored on until then). Since I've mentioned the low-cost Chinese granite/cabinets a few time, I want to show them off.