I'm not exactly sure what actually creates the opportunity for flipping condos (profitably) but I'm seeing more and more examples of this lately. It's probably due to a change in the tastes of home buyers, such that most of the available inventory is perceived as outdated, and an unwillingness (or inability) of home buyers to take on substantial rehab projects. This perfect storm appears to create a profitable opportunity for an experienced flipper to step in and do the work that others are unwilling to do. On the surface this can be extremely profitable and then there are those TV shows with really attractive people that make this look so easy (I really don't know because I don't watch them).
I ran a high level guest post on this topic about 2 years ago: How To Make Money Flipping Condos. But then I ran across this real life example late last year and thought it was worth sharing because, supposedly, the flipper made a $225K profit in less than one year.
The condo is in the Kinzie Park Tower at 501 N Clinton, unit 1703, which is in the Fulton River District - part of West Town. That listing link takes you to the last sale of the unit for $1.175 MM in September of last year. The flipper bought a rather outdated unit in an off-MLS transaction for $870,000 in December 2015 (ironically they could have bought it for $825K or less in June 2014 when it was last listed). A fairly reliable source tells me that they only put $80,000 into the rehab, which is how you would come up with the $225K profit.
The folks that did this were really smart with the improvements they made - high impact and lower cost. The finished product is really spectacular. You will find a slide show at the bottom of this post with some before and after shots and you would think that they were two entirely different units. Here is a summary of what changed:
- Stained floors darker, which is more popular and really does look better
- Replaced ugly tile floors with hardwood
- New carpeting
- New stainless steel appliances
- Removed upper cabinets between living room and kitchen to open it up
- Painted entire unit (I assume)
- New tile throughout
- New plumbing fixtures
- New shower enclosures but notice that the bathtub is the same
- New light fixtures throughout
- Replaced the huge wall mirror in the master bath with modern framed mirrors
- Replaced countertops but not the cabinets/ vanities - except for the smaller vanity in one bathroom
- Painted kitchen cabinets and vanities white and upgraded to more modern pulls. You can't even recognize them unless you look really closely.
Then they worked some dirt cheap magic. They very cleverly staged the place, brought in a professional photographer, actually included a couple of shots of the pool, and did the photo shoot at night to accentuate the killer view from across the river. This last step alone made an incredible difference. The original photos of an empty place were so awful it's no surprise they couldn't sell it for $825,000.
Now, is condo flipping a business you or I should get into? I mean...just how remarkable is this profit? Maybe not as much as it seems because I would think that just the return on capital should be about 10%, which would eat up $95,000 of that. And then you have your round trip closing costs. I don't have the time right now to do my normal formal closing cost analysis so I'm going to eyeball it, assuming the flipper paid their traditional realtor an outrageous 5% commission, at $69,000. Oh...and then there is 9 months worth of property taxes and assessments which comes out to another $20,000. That leaves only $41,000 to cover the cost of their own labor, not to mention the risk that the project runs into problems, and then what's left over is their real profit.
Hmmm. Suddenly this doesn't look like such a great deal for the flipper after all. And didn't that Flip Or Flop couple end up getting divorced? I think I'll stick to brokering transactions.
#ChicagoCondos #Flipping #FlippingCondos
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.