Hell on Earth: Flipping in a Historical District
Hell on Earth
A Story About the World’s Worst Real Estate Flip.
As I sit down at my desk to write this story, I actually don’t know the outcome of this home flip. What I do know, is that whether I lost money, broke even or made a substantial profit…it wasn’t worth it. I wouldn’t wish my experience on my worst enemy. And I don’t mean that as a common phrase, I literally wouldn’t.
To give a little background on myself, my name is Alex Simon and I am a small scare real estate investor in Dallas, Texas. I was a Commercial Real Estate Appraiser between 2009 and 2016 who focused mostly on apartments, and in 2016 I stated my own real estate investment company. At first I flipped a home and a small four-plex. Both projected went off without a hitch. Mostly because of my knowledge of how to value assets and also my handy-man skills (I can do it all).
At the beginning of 2017 I decided it was time to start my next project. The Dallas housing market has been going crazy for some time now, and finding a deal is damn near impossible. I came across a 3,100 sqf four-plex just east of down town Dallas. The place was a dump. But that’s ok, that’s what I like. I try to find the worst property that no one wants. I get a real kick out of people telling me about impossibilities and then making them happen. Anyways, there were two catches with this home. One, is that the city was mandating it be turned back into a single-family home. This actually worked out perfect for me as I was trying to create some capital by flipping the asset so I could buy another multi-family property. The second was that it was in a historical district. Which is where the real story begins. Now I knew that historical district could be a thorn in your side, but I had no idea the extent to which I had underestimated the gravity of the situation I was about to get myself into.
After looking at the numbers, this was going to be a no-brainer. I purchased the asset for $90/SF, with the house next door selling for $210/SF and the home on the other side selling for $175/SF. On a 3,100/SF house, you’re taking about a NICE profit. Even if I spent over $100,000 renovating.
So I moved forward and purchased the asset. Immediately after purchasing the asset, I requested to meet with the historical district Senior Planner (Eric Hill) at the property so I could go over my plans for the renovation. Both he and the neighbors were elated that someone had finally decided to renovate the property. The property had been abandoned for approximately eight years with all the windows boarded up. Vandals had broken into the house over the years and used it as a drug den. During demo we found multiple crack pipes as well as dirty heroin needles. So needless to say, I was doing the neighborhood and the city a big favor.
The senior planner hinted that the city would most likely let me do what ever I wanted to this property (within reason), considering its current state and impact on the neighborhood. Or at a minimum, a substantial amount of leniency would be given. However, this would not be the case.
In order to move forward, I needed to fill out an application with all the renovations I wanted to do. The senior planner stated I can only turn in an application the first Thursday of each month. But it was the second week of April and I would have to wait until the following month.
“So you’re telling me I have to wait another three weeks to find out what I’m allowed to do to the property I own?”
Oh, wouldn’t that have been nice. Not only could I not turn in an application until the following month, but it would be an additional month after that before I would receive the results. I spent the following weeks putting my application together. The level of detail is unimaginable. There is no “Repair Siding” or “Paint Exterior with this color”. Every item has to be detailed and documented to the letter. EVERY ITEM! For instance in order to install hand rails on the front porch of the Craftsman style home, the historical district requested the color, type of wood, style of pickets, space between pickets, number of pickets, where the mounting plates would be attached to the home, etc. And to top it all off asked for original photos of the home when constructed so that everything would be as it was the day it was built. And that’s where they get you by the short hairs. When you renovate a historical home, you are not renovating it to the period specific state, meaning all the things you do would be appropriate for the period of time it was constructed, you are literally building it back to the way it was originally constructed. Now I don’t know about you, but I don’t have photos from 1916 for every home of the city I live in, but that’s for later in the story.
After weeks of back and forth with the Historical Preservation office, my application was finally complete and ready to go to the staff review board where pretty much everything was denied. Just like that weeks of work and correspondence down the drain, even though most of the recommendations came from the Senior Planner himself. Windows weren’t rotten enough and should all be rebuilt at a cost of $1,000 - $2,000 each. The front porch wall sconces were too round, the boarder for the flower planter should be made of the original brick from the home and not stone, and the list goes on. After that meeting I had a couple days to make requested corrections, and I did such. A couple days later I got an email from the senior planner that my application had been complete and was ready for submission. Given the amount of time and effort I had put into this application, as well as the costs I incurred from the asset just sitting there, I wanted to make sure this application was bullet proof. I sent numerous emails asking if they needed any further detail or if any additional paper work was need. He assured me that my application was great, and he didn’t see any reason why it wouldn’t all be approved.
From here, I would have to wait four more weeks before the Landmark Commission reviewed the files and gave me the results. Now if you haven’t built a home or done a total remodel of a home, you can still probably understand how frustrating it can be to not be able to speak with the authority that is the ultimate decision maker of your project. In other words, you must go through between a one and two month application process, and at the end of all of that the people that make the decision are not the people you have been dealing directly with. And in the even that the Landmark Commission denies your request, there is no rebuttal or compromise process. You must go through that whole process all over again. Which is exactly what happened to me.
So it was finally time for me to go to my Landmark Commission board. All I had to do was get my stamp from the committee, go to the city for my building permit, and I could start working on this asset I had been sitting on for two months. Given the title of this story, you can probably assume how my meeting went. In fact the lady that went before me had a dead tree that was about to fall on her home that she requested to be removed. The Landmark Commission requested she hire an arborist to validate the state of the tree and come back next month even though photos clearly showed the tree was dead, or just let the tree die. Now I’m not an arborist, but I think we all have a pretty good idea of what happens when a 100+ foot tall tree dies and falls on a home, car or person. Right then I knew I was in trouble.
Almost all my requests were denied, and I was requested to go through the process all over again, but they “were very grateful for my investment in the community and looked forward to seeing me next month”.
At this point I was at a crossroad. I could completely change my renovations plans and move forward renovating the property the way it stood, or I could go through the application process all over again. Given my previous experience and the likelihood that the end result would be the same, I chose to move forward renovating the existing asset making no exterior changes (By this I mean I didn’t move any windows, expand any walls, or dramatically change the exterior structure. Just exterior maintenance including painting, new siding, new trim, new roof, stuff like that.). I took my Certificate of Appropriateness (the documentation you receive from the Landmark Commission that must be provided to the city before they will release your building permits in a historical district.), received my building permits, and went to work.
We (me and my crew) spent the next four months, three of which were June, July, and August in the Texas heat with no A/C, renovating the property. We were getting close to the final framing inspection and I noticed a discrepancy on some of the paperwork the city gave me. If you’re not familiar, when you call for your final inspection in a historical district, the building inspector comes out along with the historical department’s field officer and they make sure what you applied for is what was built. However, the COA that was provided was incorrect. I called the city to get ahead of the issue, and this is where the story takes a dark turn.
Now you would think that a city would be grateful to a citizen who was not only improving one of it’s historical assets that was condemned and dilapidated, as well as a drug den with paraphernalia laying about, but also bringing an error to their attention. Within 24hrs of bringing their error to their attention, a stop work order was placed on my project. After two months of applying and four months of hard labor working in the Texas sun, we were shut down. I called my historical preservation representative and asked what was going on. She stated that I had never applied to re-side the building and replace all the windows. To give you an idea of the work I’m doing, when I purchased the asset the property was sided with Hardie-board siding that was falling off. In fact, the siding was nailed directly to the studs. There was no sheathing on the exterior of the building. Just studs and siding. In order to make this the best property possible, we built temporary walls to support the weight of the home, then removed, re-framed, re-sheathed, and re-sided all the exterior walls. Yup, if you’re going to do something, do it right. Now, even though Hardie-board is not an approved building material in a historical district, it is far superior to wood. It last three times as long, costs about ¼ the price, resists mold and mildew, and wont crack or warp. None the less we removed all the Hardie siding and replaced it with matching Cedar siding at a cost of over $15,000. Making the property closer to its original historical state than it had been in decades. In addition, all the wood windows were so rotted that when you went to open them, they fell apart. All windows, with the exception of the rear, in this historical district must be solid wood windows. Approximately $6,000 and six weeks of time was spent custom ordering/building new matching wood windows. Again, a far inferior product to the modern building material such as vinyl windows, but nonetheless, a requirement for the historical district.
Now at this point in the story I am standing on the front porch of the property staring at a bright red “STOP WORK ORDER” sign mounted to the home, talking to the historical preservation representative asking what’s going on. At that very moment, the historical district inspector shows up. Finally, I can get some clarity on what is happening. We talk for approximately three minutes, have a couple of professional disagreements, and then stuff hits the fan. Running out of money and time on this project, I ask her what the penalties are if I continue with the renovation. I can’t spend another two months going through the application process. She demands my driver’s license, and I refuse. She demands again, with the same results. At this point she states that if I don’t give her my driver’s license she is going to call the police on me. “WHAT?! The Police? For What?” I was standing on my personal property and had committed no crime. Knowing that she has no authority to hold me, I leave. Looking back, I’m very upset with myself for leaving. I let her intimidate me into vacating my own property. But given the way they had treated me up until this point, I wasn’t quite sure of their authority, and didn’t want to risk having a police report stating I was on the property of a project while there is a stop work order in place. They seem to jump at any chance they get to harm me.
By the time I got home I had a couple emails from the historical district inspector. The emails included photos of me at the property as well as pictures of me driving away. The email also included multiple threats. The inspector stated that she was filing a police report, demanding my records from the city (home address, birth date, and vehicle registration), placing a lien of my home, and fining me with a $2,000 fine. And to this very moment I still don’t know why all of this is happening. I know for a fact that I requested the siding to be replaced, and I know for a fact that I requested to replace all the windows. Given the level of detail they requested, there was no way I could have missed such a big part of the application.
Thank God for email and its historical search properties. Or so I thought. I spend the next hour searching through my emails from the six months earlier during my two month application process, and I find exactly what I’m looking for. And lots of it. Multiple emails between me and the senior planner asking what siding they would like me to use detailed all the way down to the size, style, and type of wood. Not only do I find that, I have the email where he tells me he has received the request, placed it on my application and deemed the siding to be an approved material. I also find all the email about the windows. What size, where they will be, what they will be made of, what the style is, and what brand is making them. Again, I find his corresponding emails, in addition to the email where he tells me what item number it will be on my application.
Surly, this will be more than enough to clear my name. But you and I know better than that. The historical district states that while they see that I have communicated with the senior planner about the said items during my application process, they were not included in the application. Notice they did not say the senior planner failed to put them on the application. Any logical person would see that I followed the process as requested, provided all the necessary documentation, paid all the associated fees, and should be allowed to move forward. But no. Not only will they not remove the stop work order from the job site, they are mandating that I go through the application process again. And as luck would have it, this all happened the second week of October. That’s right, I have to wait until November to reapply, and wait until December to receive the results. And at the end of all of that, there is a good chance that they could reject the custom windows and the cedar siding and force me to remove and reside it all. Even though they match what the property was originally built with, and I had written confirmation that I had applied for these items, and the senior planner with the historical preservation office deemed them appropriate. Two more months and over $20,000 down the drain. Through out this whole process, they have never once admitted fault or shown the slightest bit of compassion/mercy.
So why am I writing this story? Hell, I may never send it anywhere or share it with anyone. But here’s the reasons I came up with. First off, I have nothing to do for the next two months. Like I said, I am a small time real estate investor and can only afford to do one property at a time. I have everything invested in this project, and can’t move forward until it’s complete. Two, to give me a little sanity. I’ve spend hours, days, weeks, months trying to understand why this organization is treating me this way, when I’m working so hard to make their historical district and the City of Dallas a better place on my dime and time. I’ve lost a substantial amount of sleep over it and thought that maybe putting it on paper would help clear my head a little. We’ll see. But most importantly, if I do decide to share it, that any potential real estate investor knows what could be. Even if one person reads this, and thinks twice about investing in a historical district, it will be worth it. I’ll never invest in another historical district ever again. This process has stripped me of the thing I am the most passionate about, renovating real estate. And it may be some time before I get it back. There is a good change they could hold the asset hostage until I give into their demands, and I could lose everything I have worked so hard for.
So if you’re contemplating investing in a historical district, DON’T DO IT! Regardless of the margins.
Alex Simon