If I Had A Million Dollars...
Well, I do and here's what I'm doing with it
In the 90s, I was a bit of a music store rat. My high school job ushering at a movie theater meant a paycheck every two weeks for some money in my pocket to buy new music. Pittsford Plaza, the strip mall where my movie theater job was located, also had a bank and a music store, a sure recipe for trouble. In those days, I sometimes bought music simply because I wanted something new to listen to and I liked something about the album cover. It was this attitude that led me to buying anything from trip-hop jazz (because the cover art had mushrooms on it) to an album from a band with a name so ironically unironic, I had to have it (Barenaked Ladies).
The Barenaked Ladies had a super catchy earworm of a pop hit that has rattled around in my head since then: "If I Had A Million Dollars." While the song suggests all the things the singer would buy for his sweetheart were he a millionaire, it is a powerful aspirational mantra. Like the song, my aspiration is not for having the money—it is for what one can do with the money. The people it can help. There are so many buildings that have served their inhabitants with steadfast reliability that simply need to be appreciated again. On the other side of that equation are people and families in need of safe, high-quality, and affordable places to live. So, as you can imagine, the chorus of that song often rattles its way around my brain when I walk through some of these old properties. If you read the post "This is THE one! When a tour turns into an offer," you probably already have a good idea of where this is going.
More than 30 years on since hearing that song for the first time, its lyrics are no longer aspirational—they are realistic. So, how does one "spend" a couple million dollars in real estate? The answer: very carefully. (Obligatory dad joke) The real answer depends on your strategy. I for one have always been partial to arbitrage strategies, finding mispriced opportunities to unlock disproportionate returns. In the areas where we have been looking to invest (NY, CT, PA), the market tends to overestimate the cost of property improvements and construction projects. For this reason, seeking properties that require improvements disproportionate to their price tends to uncover great opportunities. Think of a house that costs $X but needs $X to $2X in renovations. For those of you that troll Reddit and r/WallStreetBets, think Roaring Kitty's DFV.
The simplest way to think about this strategy is like the difference between cooking your own dinner and going out to eat. When you go out to eat, someone else needs to make a profit to provide you a service. Similarly in real estate, if you buy a turnkey rental property, you are paying out the profit of the developer. There is another arbitrage opportunity if you work closely with an architect/project manager, you can act as your own general contractor and keep that margin too. I can get much better economic value for my time spent than a 9-to-5 job. The main difference is that jobs tend to pay out in significant cash with de minimis equity, and real estate tends to pay out with significant equity and de minimis cash. The rub is that the real estate equity tends to be much greater than job cash, but equity is illiquid, and people need to eat and make payments every month.
For those of you with a bit more of a finance background, a long-term value lever to consider is the arbitrage between the present value of avoided repair expenses that are "traded" for higher yield. In other words, the more expenses I can avoid, the bigger the property I can afford and the larger the perpetual revenue stream will be. Put simply, you can use sweat equity to reduce the price of a construction project but not the price of the property. Therefore, properties requiring very significant rehab are where this arbitrage hides.
Following this line of reasoning, you quickly find yourself asking, why not build new every time? Because of another pattern I observed over the years. Just like most people overestimate the cost of a rehab, they underestimate the value of unfinished or unbuilt spaces. Simply put, some buildings are priced purely on their rent roll. So, a building that is only 50% habitable is essentially priced such that the cost of the unimproved space is zero. That is the case with our current project.
So how are we strategically "spending" a million dollars? Here is our strategic framework for identifying acquisition targets: 50% property cost, 50% construction cost, at least 50% inhabited/habitable, at least 25% unimproved but habitable. This approach seeks to de-risk time-to-revenue by focusing on properties with existing cash flows, providing enough stability that a bank will lend against, and rehabbing spaces that already exist. Mortgages on unimproved land or vacant buildings are hard to come by and tend to be at rates 2-3x the 10-year treasury rate—damn expensive. But on the other side of that coin, if you are willing to house hack a 3- or 4-family house renovation, you can get a mortgage through the HUD 203(k) program to buy and rehab with a single 30-year fixed mortgage at market rates. That's a damn good deal.
Ultimately, that catchy 90s tune, "If I Had A Million Dollars," has evolved from a whimsical aspiration into a practical blueprint. It's no longer just about the fantasy of what money could buy, but the strategic reality of what it can build. Our approach isn't about chasing quick flips, but about the careful, almost artful, deployment of capital into properties where the market has misjudged the true cost of transformation. By embracing the arbitrage of sweat equity and recognizing the inherent value in overlooked, unimproved spaces, we're not just investing, we're actively creating the high-quality housing that's so desperately needed. It's a patient game, yes, but one where every calculated dollar spent on property and construction, every hour of avoided vendor expense, brings us closer to turning those lyrical dreams into tangible, impactful homes. So, while the song might still rattle around in my head, the melody now plays to the rhythm of hammers and the hum of happy tenants, a far more satisfying tune than any 90s pop hit.
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