Flip Walk-Through: Small Ranch to Luxury Home ($179K Expected Profit!)

by | BiggerPockets.com

I’m super excited to share with you guys a project we’re in the middle of in New Jersey. This is an ENORMOUS house—it’s going to be a luxury home. We’re about three-quarters of the way done with the fix and flip.

I’m going to walk you through this property, while explaining three essential tips to bear in mind when flipping a higher-end property. I’ll also go over all the numbers involved in this deal.

Related: Flipping Houses: The Ultimate Step by Step Guide

You need to watch the video above if you have any desire to get involved in fixing and flipping luxury properties. We bought this one for $235,000—and it was a third of the size it is now. We’ve added a level—and lots of square footage—and I can’t wait for you to see this video tour.

But first, here are the things you HAVE to consider when taking on a project like this.

3 Tips for Successfully Flipping Luxury Homes

  1. Go higher on your finishes. With this type of property, you can’t go builder’s-grade, standard grade, el cheapo, anything. It has to be perceived as something that’s really nice. They have to look like finishes that fit in a luxury home. For instance, the front door we installed on this home is not a standard door. You’re not going to see it on a shelf at a big box home remodeling store. This one probably cost $700 to $800. If you’re wondering why we’d spend that much on a door, think about it! It’s the first thing you see when approaching the property. Light fixtures, sinks, appliances, floors, buyers looking at luxury properties are going to be considering all of these things. So, your choices need to be a bump up from what you might pick for standard properties.
  2. Create a “sizzle” factor. For these types of properties, there needs to be something that when you walk in the door, you go, “Wow! I wasn’t expecting that!” In other words, make it sizzle. And have a few of those throughout the home. In this instance, an open, double-high ceiling throughout the entire foyer of the house is one of those wow factors. This house also has two master bedrooms (one on the first floor) and an enormous master bedroom (on the back). These should knock people’s socks off and make the property unique.
  3. Add bonus spaces. This house has areas that could be used as a playroom, reading nook, or sitting room. Plus, it has a finished basement. Any other little square footage nooks and crannies are important to people who are considering luxury properties. You want them to feel the prosperity, to think, “This house has so much extra room! What are we going to do with all this space?!”

Property Specs

  • 3,500 square feet
  • 5 bedrooms/4.5 bathrooms
  • 2 master bedrooms
  • 1/2 bath on first floor, several upstairs
  • Finished basement

The Numbers

  • Projected Sale Price: $795,000
  • Purchase Price: $235,000
  • Construction Costs: $250,000
  • Sales Commission: $39,000
  • Selling Expenses: $15,000 (aka 2%)
  • Carrying Costs: $75,000
  • Projected Profit: $179,000

A profit of $179,000 for one year’s work?! It’s pretty amazing.

Before taking on a property like this though, make sure there are other homes in the area that are selling for similar prices. You want your final product to have been remodeled to be on par with the other homes in the neighborhood.

One other thing, I did this whole deal using other people’s money. You can do the same thing!

Watch the video above for more details about this luxury fix and flip and to find out how to raise capital to fund such a project. A great place to start is by reading my book Raising Private Capital, which is available on the BiggerPockets Bookstore. Get a 20% discount code to purchase it at the tail end of the video.

Do you have questions about this project? Or questions about how I funded it?

Ask me in a comment below. 

 

About Author

Matt Faircloth

Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

17 Comments

  1. Paul Merriwether

    Looks nice.

    The front door IMO for the price of the home you want doesn’t look like a luxury home entrance.
    I’m thinking double wood stained door with maybe side windows, cut glass etc SIZZLE!!!
    Price range $2 – $3,000!!! I’m sorry there is NOTHING exciting about the current front door!!!

    A large master bedroom downstairs with no full bath??? Guests must now go upstairs to shower?

    Maybe the new owners would prefer sleeping downstairs, and separating themselves from the kids. In-laws and guest can walk those stairs id they’re staying over.

    I for one would love to see the other homes in the area for a comparison. Your home should in many ways
    be very similar.

    Wishing you a fruitful and fast sale of this luxury home.

  2. Paul Merriwether

    Matt, now that I look at the home again … lots of very small windows. Not one single picture window showing
    off some type of view. Who ever buys it will feel closed in … with all the space. You mentioned BIG BOX stores …
    that is exactly what this home looks like … several big boxes piled up. It has no real style … zero class.

    I don’t like being this critical … but this home is lacking any type of elegance. Yes you have space … but that’s about all. UNLESS the other homes in the area are similar in style then you are good to go!!!

    Please show some of the other homes in the area you mentioned so we’ll know where you’re coming from.
    $800k is a lot for a home except if you live in high price areas yet the homes are normal homes in size !700 – 2300.

  3. Henry Lazerow

    Looks great!

    Few questions…

    How are closing costs 2%? Even if you act as the realtor won’t it be 2% close costs + 2.5% buyers agent commision for total 4.5%? Are closing costs on the buy already put into the sales price?

    • David Wright

      Luxury homes have different values depending on the area and part of a town. In Brentwood, TN a luxury home might start at $1,000,000 while in another neighborhood in Brentwood it might be $800,000 depending on homes there and most importantly their features. According to the Institute for Luxury Home Marketing, Nashville borders Brentwood, Luxury homes starting around $550,000 and Williamson County of which Brentwood is the most wealthy community at about $820,000 for the whole county.

      Luxury homes truly mean great style, high-end finishes, fixtures, and appliances. In Brentwood, not all $1,000,000 homes are luxury either because they may not have all the criteria matching a luxury home. A large block, 5,000 sqft house with no special design and features may still command $1,000,000 due to sheer size, but it is not a luxury home. Currently, some 4,500 sqft foot homes in Brentwood are $1,000,000 plus because of their superior custom design, styling, and features.

      • David Oberlander

        David, you forgot the first rule of real estate-Location,location,location. In fact Brentwood, TN is rated the wealthiest county is the US. Being a suburb of Nashville helps with all the country musicians and football players living there. And on Realtor.com right now there are 44 homes priced between $600K and $800K and I would buy anyone of those before I’d buy Matt’s house.

        Now, let’s price out Watts-the hood in central LA. Cheapest home there is $269,000 and the top price is $600K. (price right now on Realtor. 29 others inbetween) No, I don’t want any of those. The majority have bars on the windows and doors.

        Speaking of doors. Yes that one Matt shows is not a luxury upgrade. I have 4 proposals for the doors on my present project and none is below $850. I’am still looking for cheaper because it will be an entry level home. As much as he is putting into this house those front door and window openings should have been enlarged

        Right now, Matt’s house is showing nothing about higher end, sizzle, or even bonus spaces. He needs to post up when it’s done and then he can show us the sizzle.

  4. robert gravel

    Def not a high end home. Mid grade at best. But in NJ and NY mid grade is all you need in that price point.
    Exterior is really plain. Small windows, standard facia returns. No brick or cultured stone veneer, mid-grade doors, 2 car garage,
    I did a similar flip back in NY. $199 k to purchase $180 k build out to 2800 sq ft, Reno and costs. Sold for $650. Reno costs were low since I am a contractor.
    Here in SC I am building a mid grade 4000 sq ft + house with 3 car garage front and rear porches. 2 story foyer and great room, curved stairs and all vaulted ceilings upstairs. Maybe it will retail for $400k if I’m lucky.
    Robert

  5. J Henderson

    I work as a designer for a custom door shop called Good’s Millwork.
    You are right, that door would probably cost $600. However, I’m not sure that counts as a luxury door. We process several orders a day with main entry doors that approach $2000/unit. If you want real sizzle, that would be the route to go. We’re talking massive slabs of wood, sidelites, double doors, arched transoms, patterned or beveled glass, etc.

  6. Shannon S.

    Hi Matt, I think this video was awesome and agree completely with your comments about what it takes to sell in the higher end market. As a realtor and designer, one of the reasons my flips have been successful is that I know my target demographic and even at the lower end, my product is designed correctly. So I am on the same page with you when it comes to finishes and “wowing the buyer”.

    With that said, there are some misses here- doors, hardware (unless that is a temporary knob?), lack of natural light, and exterior treatment. Did you work with a designer on this home? One of the things that is frustrating to me is how infrequently I hear about the use of designers in a project, especially a higher end home. I suspect it is not only because of the assumed cost, but also because there aren’t a lot of designers targeting “flippers”. And yet- the flipper is the person who in many cases benefits the most from it. Spatial planning, understanding trends, color, finishes- these are the things that a good designer give you. Much like you wouldn’t do the plumbing if you didn’t have plumbing knowledge- I wonder why so many think they understand how to design a home. An architect also doesn’t qualify for this- so if you used an architect, they often do think about spatial and light, but they don’t pick finishes, colors, do interesting and beautiful kitchen and bath layouts, etc. (unless they are working with or as a designer). I could go on and on, but good design is crucial to maximizing your resale value. And a designer who understands investment will not only keep cost in mind, but make choices that appeal specifically to your target buyer. They also usually have trade discounts for finishes they can pass on – could be very helpful especially in the higher end segment. I am currently working with several investors on higher end projects, and they feel the cost is worth it, just as they understand the benefit of staging, professional photography, etc.

    Bottom line: a flip is a PRODUCT. You can either blend in with the other products, or design and market your product to stand out. Any real estate market is a presentation market, whether it is a “buyer” or “seller” market. Period. Best presentation wins.

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