House Flip Information
VALUE-ADD + NEW CONSTRUCTION ADU
Single-family house flips offer the opportunity to get in and out of a deal quickly with a low minimum investment amount and the potential for high returns.
The goal of our flip investments is to quickly add as much value as possible to the property, then sell it immediately. This way, we can generate the highest annualized returns for our investors.
We complete extensive interior and exterior renovations of the main house. Then, to maximize the value of the property, we often build a brand new ADU (a small additional dwelling unit) next to the primary house. This effectively turns the single-family property into a property with two separate homes, instantly increasing the value substantially more than a traditional house flip project would.
We specialize in flipping distressed, low-end homes in up-and-coming areas. These types of properties often offer higher profit margins, more transformation potential, and greater buyer demand.
Single-family flips are our quickest projects, with timeframes ranging from just 6-12 months. This project type is ideal for investors who are looking for a short-term investment.
The benefits of investing in single-family house flips
Short terms.With the average flip taking 6-12 months, you can invest without tying up your capital for a long period. Flips can be a great way to diversify your portfolio with different investment timelines.
Impressive value-add potential with ADUs.By building a new dwelling unit on the lot, we instantly increase the property value and raise buyer demand.
Low minimum investment amounts.Investors can buy into these fixer-upper deals for as little as $10,000.
Deal-by-deal control.Our projects are offered on a deal-by-deal basis, which means that you have access to all property details and can choose exactly which property (or properties) you want to invest in.
Passive real estate ownership.With Gatsby, you can invest in equity (rather than just debt). This means you get an ownership stake in the underlying real estate, without putting any sweat equity into the project.
Our ADU (Additional Dwelling Unit) strategy
Properties with ADUs have been growing in popularity, particularly in sprawling urban markets with a shortage of homes, like Los Angeles. To capitalize on this demand, part of Gatsby’s proven house flip strategy often includes building an ADU on the property. This is one of the ways we can add so much value to a property in such a quick timeframe.
By building a new structure on the property from the ground up, we create two separate housing units. Not only does this help combat the housing shortage in a particular market, but it also makes the property easier to sell.
Here is what investors need to know about our ADU strategy.
What is an ADU?
An ADU (Accessory Dwelling Unit) is an additional unit built on a single-family property next to the primary house. ADUs can also be called guest homes, in-law suites, or casitas.
Why are ADUs so popular?
Properties with an ADU are in high demand because homebuyers can use the ADU to house family members or guests, or even rent out the unit for passive income. The median rental rate of an ADU in California is $2,000 per month, but this can be as much as $4,000 per month in high-value markets like Los Angeles. This is attractive to any buyer who wants to help offset their mortgage cost with passive rental income.
In a single-family flip, investors buy both the house and the lot. By building a second unit on the same lot, we basically get another house with “free” land. This maximizes the property value while increasing buyer demand because of the options they offer.
Who buys homes with ADUs?
Homes with ADUs are in demand by the following groups:
- Buyers who want to live in one unit and offset part of their mortgage payment with passive income from the rental of the ADU.
- Parents of young adults who want a separate living unit for their grown children.
- Multi-generational households with aging parents who still want some independence.
- Buyers who are new to the area and want to keep a guest house ready for their out-of-town visitors.
- Private investors who understand that they can get multiple streams of income as well as impressive appreciation on this type of residential property.
The process of a house flip investment
Choosing the right property
A flip investment starts with finding the right property. There are many factors our analysts consider, including purchase price, transformation potential, and a lot large enough to accommodate an Accessory Dwelling Unit (ADU).
Through the industry connections Gatsby has built over our years in the business, we can land deals that individual investors would not have access to. Our investment properties can come from our relationships with hundreds of local brokers, or from nontraditional sources, including off-market properties, foreclosures, probate courts, and auctions. And we partner with different developers across the country in order to offer additional opportunities and market diversification to investors.
Gatsby focuses on quality over quantity. We only target deals with the highest profitability potential. We analyze dozens of properties to find one property strong enough to meet our high standards. Our careful due diligence process is designed to mitigate any risk and ensure the most profitable returns possible.
The due diligence process includes:
- Exploring the neighborhood to get a feel for the surrounding area,
- Running comps to establish the fair market value compared to recent sales,
- Reviewing rental income and vacancy rates,
- Researching zoning codes to see what we can build,
- Projecting transformation and value-add potential,
- And estimating the cost-to-build and expected return on investment.
Securing the property
Once our offer on a property has been accepted, our experts complete the final round of due diligence work. This is when we make sure the title to the property is clear, there are no permit restrictions, and there are no structural defects.
When our real estate experts are satisfied that we have a winning property for our investors, we open the LLC in which the property will be held, secure any financing needed, complete all title and escrow documents, and successfully close the deal.
Renovating the existing house
Gatsby manages the renovation and building process from start to finish. The main house will go through extensive interior and exterior renovations. We often take the property down to the studs and start fresh to make it look like a brand-new home. Each house is unique, so we look for ways to add the most value based on the individual property’s needs. We may change the layout to create a more practical living space and/or upgrade the landscaping and hardscaping.
Building the ADU
Gatsby works with experienced architects and tailors the design of each ADU specifically and uniquely for each lot. We create the design keeping the style of the existing home in mind and maximizing the living space based on the lot layout and size. We also make sure gas and electricity are metered separately from the main house, making it easier to use the ADU as a rental.
We submit the ADU design plans to the city for permitting. While we wait for the approval, we will complete extensive renovations on the primary house, this way we’re ready to focus on the construction of the ADU as soon as permits are approved.
Because we have a proven system in place, we are able to complete builds in remarkable time. And because of the volume of projects we do, we can negotiate favorable labor and material costs.
Selling the Property
When the construction is complete, we take final photos of the property, list the property on the market for sale, and advertise it to qualified buyers.
Gatsby’s house flip projects take around 6-12 months. The timeline starts the day we open purchase escrow. Then we follow the process of purchasing the home, designing and permitting, renovating and building, and advertising the property for sale. The timeline ends the day we close escrow on the sale of the home. After the property has sold and escrow closed, we send the disbursements to investors within 10 business days.
Placing and tracking an investment
All investment opportunities are offered directly on the website under the tab “Invest” when clicking “View all investments.”
You can click on an investment project to view detailed information about each specific deal, including the property address, financial breakdown, estimated timeframe, investment strategy, area comps, and photos of the property. There is also an ROI calculator feature available for each project, which states the minimum and maximum investment available. You can enter an amount in this calculator to find your estimated target share in the property and estimated return.
Placing an investment is easy! You will be guided step-by-step to finalize your investment request on the website. When your investment has been placed, you will be given the wire transfer and ACH instructions. You will then have five business days to send the funds and secure your place in the investment.
Once the investment is active, you can track your investment from start to finish through the user-friendly online dashboard. You’ll be able to see the project’s progress bar as well as progress photos of the renovation and ADU construction. We also send email updates when the project moves from one status to another.
When a project is completed and sold, you will receive your disbursements via wire transfer. After receiving the funds, you can enjoy your proceeds or look for new investment opportunities to continue to grow!