Sponsor's model says 3 months to contract, their own appendix says 14 months DOM

Question

Looking at a luxury flip as a passive investor. Deck says $2.6M acquisition, $700k renovation budget, $4.2M target resale. Debt at 65 percent of cost, 12 month term with one 6 month extension. Their model runs 5 months of renovation and 3 months to a signed contract, so 8 months, call it 10 with the closing tail. All-in monthly carry they show at $31k.

Only two sales above $4M have closed in that submarket in the past year. Their own market study, buried in the appendix, gives average days on market above $3.5M as 14 months. That directly contradicts the 3 month marketing assumption in the model.

At 14 months instead of 10, that's roughly $124k of extra carry plus extension fees, which moves the equity return from interesting to thin. What I want to know is what an LP can do about that beyond declining. Has anyone seen an interest reserve sized to the appendix number rather than the model number, or a structure where extension period carry comes out of the sponsor's promote?

mikeoconnell7 · Answer

Can't help on the promote question, but 5 months for a $700k scope at that finish level is aggressive. Long lead items alone eat 4 to 5 months if anything is custom, and high-end punch lists after substantial completion routinely run 6 to 8 weeks because the buyer's agent walks the house with a list and the seller fixes all of it. If their 5 months becomes 7, you're paying carry before the marketing clock even starts, and their 14 month figure is measured from listing.

aliyah_b · Answer

What I don't understand is why the model and the appendix disagree at all. Is that normal in these decks, or is it the thing you walk away from? I'm nowhere near writing LP checks, but I'd want the sponsor to explain that gap in writing before anything else got discussed.

Sponsor's model says 3 months to contract, their own appendix says 14 months DOM

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