Flipping Brownstones

[Rick Jones]

Hi Everyone,

I have been looking for information or stories about investors flipping multifamily houses like brownstones in major cities. These would represent much higher end flips compared to standard SFR but would yield much more also. For example buy a outdated brownstone for 1.7 million, renovate for 200-300k then sell individually or as one for millions in profit. The principles are largely the same though. Buy low, renovate and sell. Granted, larger down payments are needed but I would rather raise $200k for one large project down payment than have multiple smaller SFR projects ongoing.

Has anyone had experience with this?  I may expand my direct marketing to include Boston just to feel out the number of owners who might be motivated.

Thanks

Rick

[Richard C.]

Originally posted by @Rick Jones:

Hi Everyone,

I have been looking for information or stories about investors flipping multifamily houses like brownstones in major cities. These would represent much higher end flips compared to standard SFR but would yield much more also. For example buy a outdated brownstone for 1.7 million, renovate for 200-300k then sell individually or as one for millions in profit. The principles are largely the same though. Buy low, renovate and sell. Granted, larger down payments are needed but I would rather raise $200k for one large project down payment than have multiple smaller SFR projects ongoing.

Has anyone had experience with this?  I may expand my direct marketing to include Boston just to feel out the number of owners who might be motivated.

Thanks

Rick

 What makes you think you can add "millions" in value for a $200k rehab?

You can possibly add significant value if you can do condo conversions, but understand that doing so is not simple.

[Rick Jones]

Hi @Richard C.

Thanks for you questions. I fear I was not clear above. I am trying to think ahead and wondering about larger flips as opposed to the more conventional SFR flips.

The $200K, i mentioned, would be the down payment, plus costs, etc in order to secure a hard money/financing for a larger million dollar project.  I also did not mean to imply that it was simple.  Only that the key principles are the same.  I would rather have one large 1 million dollar flip going than 10 smaller, $100K flips, is all I meant.

I think brownstones may have an advantage because many of them are located in both dense and hot markets as opposed to searching for other larger projects like luxury homes in more rural areas.  A place like Boston has 10s of thousands of them.

Thanks again

Rick

[Account Closed]

Brownstones had been bought renovated and sold for years Most are well over a million dollars and had at least that much work put into them If you can find one below market and  purchase and renovate you stand to make a lot of money But you must have the means to do such a deal and the ability to afford the long process of fixing and selling these units .The holding costs on these pricey renovations can quickly send you to the poor house.This type of endeavor is meant for a well financed investor with large cash reserves  

[Richard C.]

I grew up in Boston.  There are not 10s of thousands of Brownstones.  There are not even 10s of hundreds.

But yes I take your point about scale.

The flip side is that if your one million dollar project goes sideways, you're in trouble, where if one of your 10 $100k projects goes sideways, you could be OK.

[Ann Bellamy]

And the cost of renovating with the additional Boston complications can turn your cash reserves into smoke.  What about when the city tells you that you can't put a dumpster out front, and that you have to walk all the demo materials down 3 flights and out the back and around the corner, and the back was iced in with frozen snow?  Can you just imagine trying to gut rehab a 3 unit in the North End with 4 feet of snow on those narrow streets, where cars don't get dug out til spring?  People do it, but they know the market, they have worked on projects in Boston already, they have great relationships with Boston-savvy contractors and know the inspectors personally.  They also have deep cash reserves. 

You will need way more than 200K to buy a place for 1.7 million with a 300K rehab. 

You need 15-30% of the purchase price down, points, and closing costs, and money to start the rehab because draws are funded in arrears.  And you'll need reserves in case you go over budget, and money to pay the monthly interest payment, the taxes, the insurance, the permits, the utilities, and the guy to shovel and plow if you are working in the winter.

I know you're thinking ahead Rick, and so these are some things to think about.  Ask Mark next time he is out at Walpole about construction in the city proper.  

[Clinton Holmes]

@Rick Jones

I definitely see your point about trying to maximize your focus for one large payday rather many smaller. It is a very Trump, Art of the Deal, way of thinking. 

To @Richard C. point though, the less diversified you are, the bigger the chance of going sideways. I'll take that one step further to say, if you're going to go for a big deal like this, make sure you know what you're doing. A big, expensive Brownstone rehab is not exactly something a newbie flipper wants to cut his teeth on. Do some of the smaller deals first and work way up. 

Btw - don't get disenchanted! The idea is about scale is right, I think you're just seeing some hesitation from the forum b/c these types of rehabs carry significant risk and are not suited to the everyday Joe. 

Good Luck!

Clinton

[Caleb Charles]

Hi Rick Jones great post! I've seen this done. Recently too. A friend of mine purchased a lower triplex on south end boston for $1.5M put $400k into and just sold it last week for $2.65M after two weeks on the market. Cash as well. Probably one of the best luxury flips I've seen since I've been in the business. As a few others mentioned he didn't have a dumpster and had to haul trash out everyday, and he worked with a skilled investor on permitting and the construction aspect of the project. He purchased it in Dec 2014 and just recently sold it. I've been thinking about the brownstones as well but they're pretty expensive and not to many to come by. The previous owner made out well. He purchased the building in the late 90s for $186k. Converted the floors into condos and sold the top two floor for $500k a piece and than the bottom triplex for $1.5M to my friend. Overall it was a great deal and as long as you know what your doing or have the help you should be fine. Good luck on your search!!

[Caleb Charles]

Hi Rick Jones great post! I've seen this done. Recently too. A friend of mine purchased a lower triplex on south end boston for $1.5M put $400k into and just sold it last week for $2.65M after two weeks on the market. Cash as well. Probably one of the best luxury flips I've seen since I've been in the business. As a few others mentioned he didn't have a dumpster and had to haul trash out everyday, and he worked with a skilled investor on permitting and the construction aspect of the project. He purchased it in Dec 2014 and just recently sold it. I've been thinking about the brownstones as well but they're pretty expensive and not to many to come by. The previous owner made out well. He purchased the building in the late 90s for $186k. Converted the floors into condos and sold the top two floor for $500k a piece and than the bottom triplex for $1.5M to my friend. Overall it was a great deal and as long as you know what your doing or have the help you should be fine. Also that was his first flip ever!! Keeping in mind he had the capital and partnered with a more skilled investor. Good luck on your search!!

[Rick Jones]

Good Morning Everyone,

@Richard C. @Ann Bellamy @Clinton Holmes @Account Closed

Sounds like a fantastic deal.  I am glad your friend had such a great experience.  I plan on creating an additional arm of marketing to a few selected areas with these sort of properties, to feel out the market for motivated sellers.  I am interested in learning for myself how saturated it may be from other investors similar efforts.  The relatively small cost of marketing is well worth it to gain some market feedback.  Even an investor without the capital or flipping ability would still profit from even wholesaling the deal.  A indirect benefit would be suffering through the details of contract negotiation, building contact with a condo conversion attorney, realistic timeline planning and other details of this sort of project.  

Thanks for the responses everyone

Rick

[Marlon Wilson]

Hi @Rick Jones!

Wish you succcess!

[Josh Parra]

Rick Jones Boston and it's surrounding neighborhoods can be really lucrative with the right deals. We have many luxury markets that don't typically have brownstones but are well worth the investment. Since the Boston area is full of multi-families or as some people call them, duplexes and triplexes, an investor can purchase these properties, in the right neighborhoods of course, renovate them and sell each unit off separately as a condo. Yes, you will be paying a premium, but as you mentioned, with the profit margins in the city, you can make much more and complete fewer projects. Now with that in mind you need take into consideration costs. With a good team you can expect to pay $110-$130 sqft for a rehab and $180-$200 sqft for new construction in the city. It's safe to say that in a typical condo conversion each unit will be at least 1000sqft. Also, if you plan on making any major changes to size, structure etc. you'll need to go through zoning which can take about a year before even getting approval, especially if it's new construction. In cases like this you usually make the purchase contingent on approval. On the other hand if the property is just getting gutted and rehabbed you can expect a 10-12 month project. Factor this in with your holding costs and it can get pretty expensive. If you have any questions about neighborhoods in the Boston area let me know, especially if you plan on marketing. We can let you know about how our numbers work so if you decide to wholesale, you can get the property under contract at the right price. It's super competitive here and homeowners know that they can get top dollar for their property. The good thing is there is a whole city full of hidden gems :)

[Troy W.]

I bought and flipped brownstone in Washington DC 2 years ago. It can be done. JUST make sure the numbers are right, the reno is superb and everything meets code. My story was I bought a brownstone for $600K, with $290k reno worth of work to make it at that a brilliant 2013 standards. Made this house a gem. 

 After real estate fees, house staging, closing on the sale and resale etc. Holding cost etc. After 2 1/2 months on the market it sold for $1.4MM...I still walked away with a substantial profit, cha ching...my first flipped DC brownstone over 180k....minus Uncle Sams cut ... (most investors forget this cost of doing business) and my wife's fee :).......it was well worth it to me...but others may not think so...time vs profit

I also wholesaled and a DC brownstone, which of course was much easier... the profit was really much less but in 2 months at closing I walked away with over 75k and my buyer when it was all said and done cleared $268k.

Wholesake  DC Brownstone deal: under contract for 400k

total 535k reno...

sold for $1.7MM.

Was on the market for 6 months.

This is not the TV show High end properties will last a lot longer on the market than a normal fix and flip.

[Rick Jones]

@Josh Parra   @Troy W.

Gents, 

Great responses and information.  This is exactly was I have been looking for.  Other people experiences and methods.  

Josh,

I really appreciate the general construction cost and zoning/building department lead times you have experienced in Boston. DFD, or probably better in Boston is, walking for dollars sounds like it could be high value activity but more time consuming. That being said I have seen a number of properties in Boston that I should follow through with and contact the owner.

It is good to know that you are operating currently in the Boston area.  I plan on marketing to some of the higher end projects, (needed capital wise), before I am actually ready to do a full scale flip myself.  The marketing feedback as far as what works and what doesn't is invaluable and a real advantage.  I have a call center set up that is more than capable to handle additional incoming calls and filter through the time wasters so I am excited to get started in this new area.

Troy,

I am originally from Northern VA and I love DC. Glad you had a good experience there. A simple fact is that the higher the value of the property the higher profit a flipper or wholesaler can expect all things being equal. These higher rewards are offset by larger barriers I am sure.

Thanks again guys

Rick 

[Troy W.]

Originally posted by @Rick Jones:

@Josh Parra   @Troy W.

Gents, 

Great responses and information.  This is exactly was I have been looking for.  Other people experiences and methods.  

Josh,

I really appreciate the general construction cost and zoning/building department lead times you have experienced in Boston. DFD, or probably better in Boston is, walking for dollars sounds like it could be high value activity but more time consuming. That being said I have seen a number of properties in Boston that I should follow through with and contact the owner.

It is good to know that you are operating currently in the Boston area.  I plan on marketing to some of the higher end projects, (needed capital wise), before I am actually ready to do a full scale flip myself.  The marketing feedback as far as what works and what doesn't is invaluable and a real advantage.  I have a call center set up that is more than capable to handle additional incoming calls and filter through the time wasters so I am excited to get started in this new area.

Troy,

I am originally from Northern VA and I love DC. Glad you had a good experience there. A simple fact is that the higher the value of the property the higher profit a flipper or wholesaler can expect all things being equal. These higher rewards are offset by larger barriers I am sure.

Thanks again guys

Rick 

 Thanks and indeed bro...you are telling the truth there!

[Ray Hurteau]

@Josh Parra is right about the costs.  We have converted multiple 3-families into condos and those numbers are spot on.

We've spoken to others who work in higher end markets (South End, Beacon Hill, Brookline, etc.) and the cost per sq ft can be much higher.

@Ann Bellamy brings up good points as well about dealing with the city.  We are working on a new construction project in South Boston which included demolishing a house and it's probably 3-5x longer waiting for approvals, meeting with city officials, getting utility/site work performed, etc than it is for the actual building of the house.  Getting to know the inspectors, never cutting corners, and hiring competent workers with relevant experience is the only way to go, otherwise it will cost you more in time and money.

@Rick Jones If you have the funding to do one of these projects, go for it, but the competition is stiff and in an area where values are mature and high, it will be tough to get a "below market" deal.  It can be done with direct mail, but it will take time.

I also feel your estimated numbers with regards to the down payment and rehab are too low - it's really crazy how expensive it is to work in the city.  150-200k might be enough to rehab one unit if you're in the dense/difficult areas and are putting in high end finishes to get top dollar.  Consider other markets near the city to gain some experience at lower rates - there are many up and coming areas or areas that are in the middle of a turn.  We have worked in Dorchester and it's a good balance of dealing with the dense city issues, but also at a reasonable price point (relative to Boston, still way above the national averages).

Hard money on a $1M+ deal... yikes, good luck.  If the hard money lender approves it, you either are putting 15%+ down or you really did get a good deal.  Run the numbers and just imagine how much more you could get with a commercial loan.  Or consider working with another experienced developer/investor to bring a deal to the table and some cash for a possible joint venture!  It would reduce the risk of unforeseen issue due to lack of local experience but also get you ramped up learning the process much faster.  Your profits might be the same as working with a hard money lender, but the lender isn't going to help you with the project. 

What kind of rehabs have you done before?  The details in your profile were high level.  Also, do you market in-house or out-source?  We tried both and prefer the latter.

[Rick Jones]

@Ray Hurteau

Hi Ray,

Thank you for your message.  I am not in a position to put my capital into one of these projects just yet and would not want to either before gathering more information for myself.  I do delight in strategizing and hearing from Boston investors and reading their comments.  I am curious how effective direct mail might be in the denser, high value areas.  For a larger project I would expect to send thousands of pieces across several months to generate actionable leads.  As we all know issues come up with sellers that create motivation and an opportunity for investors constantly.  We try to have our marketing land in their lap at that precise time to capture their interest.  The competition may be fierce but my thinking is simply if someone else can do it than why not me.

As far as hard numbers I apologize for bringing up the $200K initially.  I was just using a number and did not mean to divert our attention from the concepts I was trying to discuss.  Obviously the more expensive the acquisition, rehab, marketing, etc the more capital required.  This is least mysterious part of the equation to me.  That being said I agree with your comments, about working in less expensive areas and moving up.  I and i am doing exactly that.  I have been marketing to lower MA all the way up to Needham.  I have been slowly expanding and sending out more mail every month.  

Using commercial loans for these projects is an unknown area to me and I need to put some time into researching and speaking with local banks. Also even in the short time I have been doing this I have cultivated a significant pool of private investors through being passionate about REI and having a reliable track record. Point taken about using expensive HML and a potential partner.

My rehab experience is modest at this time. I am actually a full time Mech Engineer. I have purchased and renovated a 3 family house first, then purchased a 3 family and went through the process of adding a legal 4th unit. Both were successful and provide fantastic rental income. My latest project is in Walpole, MA. A small SFR that is being renovated for a quick sale. So far it is going well. The contractor I am using has the project ahead of schedule and under budget. I have two more, larger deals that are just about to go under contract that I am looking forward to getting started on.

I outsource all of my marketing which is basically buying a list, paying for mailing service and also paying for a 24/7 call center to handle all calls.  I may get better results in handling some of this myself but I am always trying to build systems that take me out of the loop so I can focus on high value actions.  When you say "in house" what do you mean?  Are you handling all incoming calls?  When I send out mail i get 100s of calls with most being junk.  I would not want to field all of these.

Thanks again

Rick

[Ray Hurteau]

@Rick Jones

Hey Rick, great post and thanks for sharing.  Also, congrats on the great work so far!!  You're definitely going to head in the right direction.  How comfortable are you with your overall team?  Do you have all the players for a rehab?  It definitely takes time and experience to build a good, reliable team, but it's great when you have it.

We used to do everything ourselves, mail and inbound calls.  We don't have a call center, but we have brought someone on board who is compensated for setting up appointments and when we close on a property.

Excellent work with the private investors - keep growing that and be sure to keep them safe by having conservative underwriting practices - it usually means saying no to many opportunities, but as you know, most calls are not going to lead to anything, hence the volume and consistency approach.

I think if you add properties to your list in the new markets you want to explore, you will get something - like you said, someone will get it, so why not you?  I agree 100%.

Best of luck on your current/upcoming projects and moving into the city!  If you have any specific questions, definitely don't hesitate to ask.  We are moving into new construction and continue to perform condo conversions in new boston markets.

[Mike Hurney]

@Rick Jones Hey fellow ME. I think the basics are: master the values in your market, arrange financing, get an accepted offer, then shop it for Buyers.