Meet John Dough
I am pleased to introduce “John Dough.” He volunteered to tell his tale of flipping a property when the chips are down. Crazy? We’ll see!
Here’s John, in his own words:
I’m looking to find out if a property can be flipped in the next few months. My name is John Dough and over the next few weeks, I will chronicle my progress as I -- along with two other investors -- acquire a property, renovate it, refinance it, and then try to sell it. My personally feeling is that if you buy in a good location, at a price point that works with the comps, and you produce a quality product that is superior to your competition, you can flip in just about any market. Time will tell if I’m right.How I found the right place:
My favorite search on MLSPIN is by “price per square foot”. I have been looking through that over the past few months and have found some gems. Problem is that the search usually results in a list of properties with street names I’ve never heard of. So I use the interactive map search on the Zip Realty website. I know all the good parts of Boston; I just don’t know all the street names. So, I can zoom into the locations I prefer and can see if anything good pops up. That is how I found this property. It is located in what I would consider an emerging area, as far as desirability goes.
It’s a foreclosure and it needs work – it was half renovated by the former owner (which isn’t too uncommon with the foreclosures boom we are seeing). I ran some quick comps and it looked like there was some cushion there between asking price and future selling price, so one of my business partners and I decided to take a look. We were pleasantly surprised to see a massive unit with most, if not all of the rough work completed. We found the permit card and saw it had sign-offs from the building, electrical, and mechanical inspectors for the rough-ins. The unit had been sheet-rocked and plastered with some trim already installed. This unit was nearly ready to go. Later that afternoon we put together an offer and faxed it over to the seller’s agent. Within a few days we had the unit under agreement. At this point, we had to perform some due diligence to make sure we weren’t missing something wrong with the property. We looked up all the permits on file. We got in touch with the subcontractors that performed the initial work and questioned them to see if they ran into any major problems on site or if they were owed any money for work they did. We went to inspectional services. There was no occupancy permit, so we will need to work with the building inspector to obtain one. Also, we looked on the Suffolk Registry website gave us the master deed, declaration of trust, and condo plans. Additionally, we looked to see the status of the other units in the building. Turns out, they were either foreclosed on already, or were soon to be REO’d. That was probably the biggest negative we found. With no active condo association we’d have a hard time getting financing without a 6(d) certificate. And in the midst of financial crisis we were about to find out first hand how hard it really is to get a mortgage...
More from John Dough soon.
Let’s wish him luck and ask him questions.
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John - You may want to check out model of the Arborview Companies in JP. They appear to have a healthy rehab and flip business -- even in this market.
What part of Boston is this in? How big is the unit and does it have historical details or mostly new cheaper finish?
Kiki and others,
"John" asked that the property address not be disclosed. He is not writing here to sell his place.
I have seen the fact sheet on it, but I have not seen it personally (he's not my client.)
I think it is a nice neighborhood. I'd live there. The building is intrinsically charming (bay windows and such.) The wallboarding is being replaced. "John" will tell you about the rest of the work he is doing as he does it.
John,
The biggest issue you might face is getting a buyer on the flip side (pun intended) that will qualify for an association that is defunct, low owner occupancy score and if it is under 4 units you may preclude buyers using FHA financing.
You will need to take over the association and file yourself as trustee. You will also have to produce a 6D to a buyer if they are financing. If you are financing, obtaining a 6D might not be impossible (depends on how much you are putting down). As future trustee I would require all back expenses to be paid at closing on subsequent units and place liens ASAP. I hope you are working with a good attorney that specializes in condos and foreclosures. Expect long delays on your closing and if the seller is using some certain attorneys (ask your agent which are notorious for incorrectly filing foreclosure deeds), expect even more delays.
Good Luck! It can certainly be done in this market.
NF,
Thanks for the comment. All your points are well noted and we feel that selling the unit will be tricky. Not all buyers out there will qualify to purchase in this building. I will get into our financing situation in the next entry.
Really interesting topic, Rona. I'm looking forward to seeing how this goes. Is John going to include any dollar amounts in his discussions? I'm curious about how much all this is actually going to cost him (and how much he makes when he sells).
This is like the waning days of the CB radio craze.
John's name will soon be John "NO Dough" as this is clearly a financial suicide mission in this market where home values are dropping by the day...
I wouldn't have the stomach to attempt this, but I would imagine that if you were incredibly well organized, detail-oriented and cost conscious, you could probably turn a minimal profit. The problem for me would be that the upside potential is fairly limited, while the downside is almost limitless - particularly in light of the grim new economic news regarding unemployment and retail. I wouldn't try this unless I had bundles of cash to burn - and I did flip several properties when the market was humming along.
I'm sure it can be done with the proper game plan though - good luck!
Ahhh - flippers. The people who take affordable houses and make them unaffordable. Way to take housing opportunities away form people. sigh.
John - Good luck . You are certainly going against the flow , and at this time the flow is a tsunami. With 4800 +/- vacant condos currently available in the greater Boston area , REO properties selling for 50% of value, and values projected to decrease by over 12% in the next year ,it may be difficult to make money flipping.
.
Interesting story. I am curious in seeing how the financing issues play out as a condominium unit. I have a home for sale now recently fully renovated in Hingham, 1 Nutty Hill Road at a very competitive price. It was just put up on the market and am looking forward to the feedback.
wow. I'm at a loss for words.
I wouldn't call it flipping if you are actually adding value and doing something - that's redevelopment to my mind.
I do find this fascinating. Certainly doesn't gibe with my views on what the markets will do through next summer - to do any job now I'd want at least a 30% conservative profit projection, but I'm looking forward to reading about this.
Charles, point taken. "Flipping" is a bit of a disparaging term. Sorry, John! I didn't mean to minimize what you are doing.
We have turned the idea of owning a home and living in it into a used car business.
A quick wash or paint job some how adds 200% to the value of the car or home.
And the flipper, like the used car salesman, share the same postion of distain in society
Good Luck Mr. Halaby ,
I looked at this home when it was on the market at 300K this past June. Do you really believe that new granite counter tops, new cabinets, and new stainless appliances in the kitchen, along with new ductwork and wireing and a new septic system, and pulling up the old carpet and refinishing the floors has added 190K value on top of the 310K you paid in July ? I'm not sure I would call 500K "a very competitive price". When we saw the home in June, 270K-280K was our opinion of it's value. Again good luck.
Thanks for all the interest. Here are a few comments:
As we come closer to completion of the project, I will shed some light on the numbers like purchase price and potential sale price. I will freely discuss our construction budget when the time is right.
In reference to the comment that we are taking away housing stock and over inflating the value - we're not. This unit, as purchased, was/is an uninhabitable shell that’s not appraisable. It has no kitchen and no bathroom(s). You would basically have to be a cash buyer or have an incredible relationship with a local bank that would lend on “shell”.
I think flipper is a perfect description of what he is doing. He is trying to get in and out fast. We will just have to see if he has burn marks on the other side. If he keeps finding buyers to buy, good luck to him. I need someone to explain to me why the government wants to spend money delaying foreclosure on the overpriced real estate bought by people who really couldn't afford to buy in the first place?
Interesting read.
J
John,
As an experienced "flipper," my advice to newbies is to expect the project to cost 20% more than you've anticipated and take 30% longer.
Best of Luck,
Ken
Tremendous news! My best wishes Mr. Dough for your continued success. See people? Things in the Boston market are still going strong. Witness the Boston Globe article from September 7th ("Bidding wars? Swarmed Open Houses? It's Happening!").
The fact that we have here a flipper making a profit on a home is testament to the fact that the Boston market is immune. You can't lose in this market! Provided, of course that you do your homework, which sounds like John has done.
For further proof, see the article in Boston Homes magazine. They are reporting that median prices in the downtown Boston neighborhoods they track have INCREASED median prices this year. INCREASED. Don't know about your neck of the woods, but around these parts, things are still rockin' & rollin'!
BEST OF LUCK JOHN!!!
John,
a well-heeled investor can do very well in today's market. The finance part will be the most difficult. It is all about who you know, not what you know.
I have several clients like you at this point and am willing to provide counsel if desired.
Rona can provide contact info.
John,
I would like to know how one goes about finding an investor to partner with. I have done a few renovations with my own money but now that lending is tight I am having trouble moving on to a fourth.
Any advice?
So when are we getting an update on this?
Anon, Funny you should ask. An entry is in queue to publish on Thursday about John's progress!
This blogger might want to review your comment before posting it.
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