hi from PA.
i have been rehabing working class SFH’s for 3 years now .which is about 100-200k in my market. it has gone well . i have always been interested in higher priced homes , but havnt found much info on the subject. i assume they are harder to sell since less people can afford this price range .the houses i buy now i do one at a time and pay cash . rehab and then resell . however i can not afford to buy a million dollar home and sit on it till it sells. im in the procces of learning all i can about creative ways to buy and feel im ready to get started doing so in working class , what i am most concerned about is selling a luxury home . my thinking is the higher priced home ,hopfully can lead to higher profits per deal . any advice on this subject is very much appreciated . thank you
hi from PA.
I think your analysis is right…higher values equal higher profits and, naturally, higher risks.
If you do not have the capital to buy a high-end fixer, you could possibly borrow the money from a bank. Then what you would need is a financial partner to carry the debt and pay all the soft costs while you hold the property. I bet you could find someone to do this and take half the profit.
You’d still make more money, and you’d have less risk in the deal.
Eventually you will have enough capital to carry these larger deals on your own.
If you already have $100K to $200K liquid, then you can do these higher-end houses on your own. A good banking relationship will be the key, but again, if you have that kind of coin sitting around, my guess is that you know your banker already.
You’ve nailed the biggest risk here, though, and that is that these higher end houses do take a while to sell in many cases.
buyer pool is smaller - BUT - you’ll find that a larger percentage of them understand the process much better and are putting down more money. the people buying 1 million and up homes have excellent income and (for the most part) understand the value of their dollar.
they still don’t know jack about real estate, but they’ve got cash and when they’re interest is spiked on the home, BANG. they want what they want, when they want it.
i would say, check out what’s under contract. try to find items that seem to be a continual theme in the homes that are MOVING. for instance, contemporaries seem to be lagging in my market, especially in certain areas. and colonials are like hot cakes, the rich are eating them up.
i’d say, near the water, big colonial that needs work (maybe even an estate sale with older folks who haven’t updated in a long time), in a nice established neighbhorhood with kids and a good school district would be very appealing.
keep it simple. but remember, you’re catering to another type of buyer. your “working class” approach will not help you here. you’re going to have to be educated on what appeals to high end buyers - vanities, granite, marble, flooring, lighting, landscape - we’re talking forget home depot Kohler products - you’ve got to know the high end stuff where a bathroom is going to cost 30k to redo…not 1350.
you could easily implement a 100k rehab (and go over by 50k)…heck the landscape alone on my friends house was 40k…3 times in three years!!! lol his wife is nuts.
anyhow - what ever you do - make sure you’ve got the right mindset. you’ve got to be comfortable with spending BIG money to make the BIG profit. that includes USING A GOOD REAL ESTATE AGENT TO MARKET AND SELL THE PROPERTY. do NOT go in thinking you’ll be able to put up a sign and sell it on your own. if you want to do that, get your brokers license and start your own high end luxury real estate brokerage. otherwise, eat the 50k in compensation and look at it as part of your variable expenses.
I’m not trying to discourage you, but where I am, people who play with high end homes pay CASH. if the home sells for $1MM, and many of the new ones in our area are in the hi 900;s, they can and will pay cash for it, and I mean ALL CASH, sometimes they come in suitacases, if nothing more than to get a better price. After all, there’s no mortgage contingency, and you can close more quickly and easily.
I had a property that I sold a few years back for $500,000 and few of the buyers at the time made offers contingent on me taking from $100K sutiacase full of cash or $200K. Two tenants of mine came up with a “creative offer” to put nothing down.
I frankly told them “I love you guys, but business is business, and a suitcase with $200K beats a creative offer any day”.
A contractor bought a mutli, next to one of my rentals for $1.1MM. Both he and the seller that I knew for many years told me that he paid $600K down, taking a $500K mortgage. I knew it was no BS. He told the seller if the bank has problem with 600K down,he’ll put 800K down. He said he can do better, close to $1MM down, but couldn’t see why anyone would have a problem with $800K down on $1.1MM.
He said if he scrounges up $1MM, he can get the other $100K form a friend.
OK, so if I want to play in the same sandbox as one of these guys and I don’t have $800K to offer, and I want to tie it up for nothing, and flip it. Hard to do, as someone with $800K of cash to play with can outdo you everyday of the week.
It’s true that HIGH END properties are the only ones moving UP in the NYC RE market this year. I went thru the last RE downturn here (1986 to 1993), and it’s a very dangerous game to play “creatively” or with debt. High end properties can be volatile, and it can go from $1.1MM to $1MM just like that.
Worked with a fella whose brother in law played with high end properties in the late 80’s. It can be profitable in an up market. He was caught in the down market for a few years, can’t hold on, and lost his shirt. High end properties cannot cash flow as a rule, and you will lose your shirt trying to rent it out as an exit strategy.
I think as you move into the high end, the risk to reward (profit) goes up (you take on more risk with a smaller incremental return). I’ve done a number rehabs both low end and pretty nice stuff. As you move up the food-chain, as mentioned, the number of buyers becomes much smaller. Also, it become a bit more of guessing game as to which value-add items will catch buyers eyes. Also, people become a LOT more picky about the colors, fixtures, the color of the granite in the kitchen, etc, etc.
In the middle and upper end markets in times like these, if you have a house listed for 90 days you might get 1 or 2 half way serious buyers and if you miss out on one of their key criteria, then be stuck with the property. Lower end stuff is usually first or second time home buyer and they have basic criteria like number of bedrooms, sq footage, etc. They are not going to turn down a good solid property that meets their needs and price becuase you installed the $99 toilets from Lowes instead of some $600 custom order model with brass handles and a rectangular bowel that they saw on their last trip to Paris.
thanks everyone for your addvice .
maybe ill start by contacting the realtors in my area that market themselfs as luxry home specialist and try to get some info out of them.
Don’t forget that they are biased, they’ll tell you anything they can to get a listing in many cases. They might tell you that luxury homes are moving briskly when they really aren’t.
rich you mkae a good point. i will keep that in mind , thanks
Rich does have a good point, BUT, any agent that tells you “anything” can usually be spotted very easily with about 2 hours worth of “work” on your part -
INTERVIEW multiple agents.
you’re bound to run into more than one that keeps it real with you because they don’t have time to waste trying to “get a listing.”
i’m on a very successful realty team and i can tell you this - of course we’re vying for people’s listings - it’s our business - but none of us lie to our customers to get anything. it just doesn’t make any sense.
now the word “lie” is a relative term. i might “talk some smack” to get their attention and eventually their business, but that comes with the territory.
if i tell them that the market is moving and yeah, you should sell now because you’ll get top dollar and they find out that the market’s dead and it’s a terrible time to sell - i look like a complete idiot and that person will eliminate me from ever using me or WORSE YET, they will NOT REFER ME TO THEIR FRIENDS AND ASSOCIATES.
that’s a killer to any business.
so, i say if you can’t spot the moron telling you complete lies - then you are a bigger moron.
as a realtor i EXPECT a spanish inquisition. do i sweat it out sometimes? ya damn right i do, but that’s the game. that’s how i get better at what i do.
if i lie, chances are, sooner or later, i’ll be out of business.