E13: A Contest of Condo Investments: Office Conversion vs. Ground-Up

Cash Flow Fight Club

In this episode of the Cash Flow Fight Club podcast, Aaron Yassin and John Laine go head to head in a coast-to-coast real estate battle royale. Aaron pitches his ground-up condominium development model in New York City, while John shares his strategy of converting vacant offices into much-needed Tacoma, Washington housing through condo conversions. Who will be crowned the Cashflow Champion? Tune in to find out which model offers the most compelling risk/return profile for passive real estate investors!

Here are some power takeaways from today’s conversation:

[04:00] - Aaron’s real estate background

[09:00] - John’s real estate background

[13:14] - Investing considerations for office-to condo conversions

[23:42] - Investing considerations for ground-up condo construction

[39:56] - Real estate development risks and opportunities

[44:59] - Real estate investment risks and potential returns

Episode Highlights:

[13:14] Investment Considerations for Office-to-Condo Model

The office-to-condo model is an investment strategy where office buildings are converted into residential condominiums. This approach allows developers to capitalize on the growing demand for urban housing and repurpose underutilized office spaces. Here are some key points about the office-to-condo model:

1. Minimum Investment: The minimum investment for the office-to-condo model is typically around $100,000. This investment amount may vary depending on the specific project and location.
2. Accredited Investors: Developers usually prefer to work with accredited investors for such projects. Accredited investors are individuals or entities that meet certain financial criteria and are deemed to have a higher level of sophistication and understanding of investment risks.
3. Return on Investment: With the office-to-condo model, investors can expect a return of their capital within approximately 30 months. This timeline may vary based on project specifics.
4. Long-Term Cash Flow: One of the advantages of the office-to-condo model is the potential for a steady stream of cash flow over the long term. By acting as a "bank," developers can create a second mortgage income stream, doubling their profits. This cash flow can last for up to 30 years or as long as the investor holds the mortgage.

[23:42] Investment Considerations for Ground-Up Condominium Construction Model

The Ground-Up Condominium Construction model is a real estate investment strategy that involves constructing condominium buildings from scratch. Here are some key points about this model:

1. Higher Projected Returns: The Ground-Up Condominium Construction model offers higher projected returns compared to traditional value-add multifamily investments. Investors can expect returns in the range of 60-70% over a shorter hold period of 24-30 months. These returns are subject to market conditions and project-specific factors.
2. Design Optimization: With ground-up construction, developers have the opportunity to fully design the building to optimize functionality, sustainability, and aesthetics. This allows for greater control over the final product and can enhance the market appeal of the condominiums. However, there are inherent risks associated with obtaining approvals, demolition, and foundation work.
3. Exit Strategy: The exit strategy for the Ground-Up Condominium Construction model involves pre-selling individual condo units. This means that the project must be sufficiently completed before closing sales can take place. Pre-selling allows developers to secure buyers and ensure a smoother transition to the next phase of the project.
4. Minimum Investment and Returns: Passive investors can participate in this model with a minimum investment of $50,000. Depending on the specific project, annualized returns of 23-25% or higher can be expected.

Resources Mentioned:

Aaron Yassin’s website: www.DesignDrivesValue.com

John Laine on LinkedIn : https://www.linkedin.com/in/john-laine-ratracerescue