Denver Flip Not Selling - Options?

28 Replies

Hello! Thanks in advance for reading, this is my first flip as the owner in 10 years (many more as a broker).

Due to a number of hurdles, my flip in South Denver (University Hills) took a 2.5 months longer than planned and about 10k over budget. October 1 kicks in the 7th month with our hard money loan and the mortgage goes way up. It has only been on the market 12 days but the Denver market has cooled slightly and I'm starting to look at my options (and feeling a bit scared.) 

The remodel is absolutely beautiful! We converted the 1 car garage into a primary bedroom suite, upgrading it from a 2/1 to a 3 bedroom 2 bath. Because of building codes that we didn't know about, we were un-able to get permitting to build a new garage or carport. This has been the biggest feedback issue from the people who have seen the house...they want a garage.

I need to payoff the Hard money lender -$500k

Originally the ARV was (appraised) $670k but its cooled and is more like $625

I used the rental calculator - $2500

I do not want to pay Nov. 1 mortgage with the increased interest, so if we don't have an offer by Oct. 1 I'm thinking we should rent. Unfortunately, to re-fi at 75% of the amount of the value of the home, the numbers don't seem to work. 

Any suggestions?? Thank you SO much!!! 

Have you checked Zillow rents to see if the $2500 seems accurate? We have 5 rentals further south in Castle Rock and able to get around $2800 (although they do have 2 car garages). 

Also, if you can get assessed value around 666k you could refi at 75%.

Thanks Jimmy! I really appreciate your response. 6 months ago we could have gotten $666k, but the comps I am seeing are below that now, unfortunately. Therein lies my problem. Yes to Zillow...The house is only 1204 square feet, so the $2500 seems accurate for rent. 

Have you looked into doing the furnished monthly rental thing?  You would have to come up with the funds to furnish, but you could probably get more than with a traditional rental.  A quick look on Furnished Finder shows a couple in that area listed closer to $3000/mo.

Alternatively, have you gotten bids from any iBuyers?  I've seen them pay more than the market was offering.

I’d second Kevin’s post. See what Zillow/Opendoor/offerpad, etc will pay. If it’s way lower. Then if you owe $500k and you think it’s worth $625, lost it for $575k. Either you’ll get a boatload if interest, maybe even multiple offers, or you’ll learn the value is somewhere below that. Then You’ll be out from under this loan, and you’ll learn for free that garages and time lines are important. If you truly think the Denver market is going down there’s no reason to hold a property there. 

That is a great idea Kevin. Thank you! I'm not familiar with ibuyer, but I will look into right away. If the appraisal doesn't come in like it did 6 months ago, I won' t able to re-fi unless I can find a lender that will do something better than 75% of the value of the home. 

Have you noticed things slowing down in Denver in the past month?

Ha, true! I have definitely learned how important time lines are and many other lessons. 

Just to be clear, I do not thing that the Denver market is going down. It has just cooled, slowed a bit. It could be the season. But the average DOM is 11 days, I'm on day 12. My main market, the Vail Valley, really slows this time of year too. 

Thank you!

@Jamie Salyer IS there an opportunity to use the property as a STR for a while? You would have to furnish it but because of the higher return of STRs, at least the money stress would be eased.

Unfortunately the RE game is not a sure thing. Back when I used to flip, I would occasionally lose money on a deal, even with me (a GC) as the owner.....the project takes longer, markets dip a little....oooops. Sell and move on is sometimes the answer, go make money on the next deal.....

Bruce Woodruff, thank you so much for that encouragement. Cut my losses and and to bigger and better pastures. :)

I think STR would work by the re-fi is looking tricky because I'm not longer at 75%

Tough question. Even if the city would grant you an exception for the front setback to build a carport, that's more time and money. If you need it to cash flow then furnished short term rental is your best bet; people pay top dollar (over market) for places that are this nice! And you have a better chance to keep it prestine than long term rental.

In my market inventory will start to dwindle soon, sellers are waiting for spring, so the quality of the inventory will go down, which gives you an edge.

I would probably keep it on the market the way you have it until you find that one buyer who does not care about not having a garage. He or she is out there. I am sometimes shocked when I see a really bad house selling, and wonder who bought that and why!? Your is beatutiful, I looked it up, the garage is just that one thing. It may take a while, but you only need one buyer. I say find a financing solution and stay the course!

It looks like comps include a garage. if so, then you're over priced. Being east of dahlia is also less desireable.  12 days on market hardly seems like cause to give up the sale... would have been nearly impossible to sell by Oct 1 with the list date... I would keep it on the market, possibly with a price reduction, eat the oct 1 cost increase and work on a new mortgage.... Do you really want to be a landlord? Maybe lease to own? 

@Jamie Salyer Rates are so low right now that it may be worth refinancing, even if you can't get the full 75% LTV, and then try renting by the room and/or renting as a short term rental (if that area allows it), or to mid-term tenants (30-90 days) to get more rent per month than the average long-term tenant would pay. It may be better than continuing to make those expensive hard-money payments.

Thank you SO much Marcus. I love your message, if I can get the financing that pays off the Hard Money loan (80% ltv) that this sounds ideal. much better than a firesale. 

It IS really beautiful, I will say that. The feedback from showings has been incredibly positive in that regard. Its also professionally done and permitted. 

so what feedback are you getting? i assume you're acting as your own agent here. do people really crave a garage? looks like you've listed at 650k and dropped to 620k on 9/16. any pickup in activity since?

based on the data below, you might want to think about bringing this under $500sq.ft, which is sub $600k. Try 599k and see if anyone bids over asking, perhaps.

sold in late august. 3/2, car port covering off the side of the house, $612.5k, 1088 sq.ft, $563/sq/ft. Pictures are arguable worse than yours. 

https://www.redfin.com/CO/Denv...

sold 9/17, 3/2 + one car, 662k,1458 sq/ft, $454/sq.ft

https://www.redfin.com/CO/Denv...

sold 9/10, 2/1 +1 car, 951sq.ft,$447/sq.ft

https://www.redfin.com/CO/Denv...

sold 8/10, 2/1.5 + car port cover, 1043 sq.ft, $508/sq.ft. very bland rehab.

https://www.redfin.com/CO/Denv...

your competition:

3/2.5+2 car,1420sq.ft, $475/sq.ft, $674k with lots of price drops and buyers pulling out. 

https://www.redfin.com/CO/Denv...

3/2+ no garage or covering. $669.9k, 1548 sq.ft, $433/sq.ft. decent interior, but nothing mind-blowing. redfin lists this one as being "hot"

https://www.redfin.com/CO/Denv...

Originally posted by @Jamie Salyer :

Russel: 3226 S Flamingo Way Denver 

I'd love any input!! or any buyers 

 I wouldnt put the first picture as the kitchen, some people might click past it and assume condo. Main pic should be a exterior photo. The virtual staging looks very fake. Floors dont look great, look a little cheap, and the shower could use a glass enclosure.  Floor plan could go a long way here as I cant tell something as simple as whether there is a master bath or not. Buy a microwave and put it in that slot for it. 

Brass fixtures look great, front door is great. Venthood great. 

3440 Fairfax is a great comp under contract now. It has inferior finishes and inferior photos....but its staged, and has more curb appeal, the front just pops better. Bathrooms are superior on that one too Id say. It also took awhile for that one to get under contract. 3248 Dahlia is a good comp too, sold for $605k. So I think your in the right price range in $605-635k.

Russel, so nice of you to pull up the comps! I have seen many of those, all at least on-line. Spoke to the brokers.  The garage is an issue. People in Colorado don't want to have to deal with the snow but also we have lots of toys; expensive bikes, skis etc. I installed a big and very nice shed in the backyard to deal with the second issue. 

The feedback has been incredible. They rave about the remodel...it is beautiful. I've been a broker for 18 years so I know brokers can be super honest and I always get their input and trust it. The feedback has been the garage. 

In regards to the Garage issue, I have learned a couple HUGE lessons here that I will post in case it helps others. As a long term broker I know not having a garage just means you have to price it lower and/or it will take longer to sell.  One of my huge lessons is that we bought it with the plan of building a garage, comped it that way and trusted that the GC knew Denvers codes. I am the kind of person who takes accountability, so I'll just say with such a big item, I should have made sure it would not be a problem with permitting. I will always check codes etc myself in the future until I have a GC that I have a very solid relationship with. LESSON LEARNED :)

With that said, I am looking for a GC in Denver. 

Originally posted by @Jamie Salyer :

In regards to the Garage issue, I have learned a couple HUGE lessons here that I will post in case it helps others. As a long term broker I know not having a garage just means you have to price it lower and/or it will take longer to sell.  One of my huge lessons is that we bought it with the plan of building a garage, comped it that way and trusted that the GC knew Denvers codes. I am the kind of person who takes accountability, so I'll just say with such a big item, I should have made sure it would not be a problem with permitting. I will always check codes etc myself in the future until I have a GC that I have a very solid relationship with. LESSON LEARNED :)

With that said, I am looking for a GC in Denver. 

Hi Jamie, renovation looks great so at least the contractor has that going for them. It sounds like you’ve been focused on the day to day for this for months now so I bet the situation isn’t as dire as it feels in the moment.    I know I’ve been there, this month construction drama, next month tenant or buyer drama but you are almost at the finish line. Take it one month at a time - in the grand scheme of things one extra month of mortgage payments (even at a higher rate) may not be so bad. 

The garage issue sounds like a planning department code issue, rather than a building and safety code issue. I’d expect my contractor to know the latter, so things like what size drain line to use but for things like set backs that would be better suited under the scope of an architect or similar role (and even they get it wrong some times too!). Best bet moving forward is to email the city planners yourself with what you would like to do at the specific address (so you have a paper trail). In my experience they can be very helpful, even suggesting work arounds to certain restrictions. 

Good luck, I bet by Thanksgiving this will all just be a fun battle story. 

Thanks for the great vote of confidence and encouragement David Arsene!! I really appreciate it and I'm sure you are right. 

It hasn't discouraged me though...I'm eager to start anew with my next project after this sells.