Flipping luxury homes is the quickest way to real estate riches. Have you ever heard the statement, “the surest way to make $1-Million in real estate is to invest in a $10-Million home?” There is some truth to that. The great news about it is that you do not need to have one million or 10 million to invest in a luxury portfolio – like most of the strategies it is a matter of knowing how to control real estate.
Flipping in the Luxury Real Estate Market
Many real estate investors have been engaged in luxury real estate investing for decades, keeping this as the best kept secret from the masses of real estate investors dealing mainly with “regular” real estate properties, unaware of the gold mine sitting right in front of them.
Mansions follow the same wholesaling principle as smaller homes: you can flip a mansion the same way as you flip a regular home, the only difference is the profit potential. Basically, add a zero to your take home check.
There has been a surge in high-end and luxury flipping nationwide. Between 2011 and today, flips of homes valued at $1 million or more have risen almost 40 percent across the United States, according to RealtyTrac, the housing data company. Two main factors have contributed to this increase in interest on accumulating a luxury portfolio: the first one, with the real estate market collapse, Wall Street investors saw an opportunity in luxury portfolio investing and moved into the mid-market with so much money that they bought nearly every foreclosure in sight, mostly to rent out. The second factor has been the exponential increase of foreign investors in the US real estate market. Last year, Chinese investors spent $12 billion on U.S. real estate, making the country the second-biggest foreign investor, just behind Canada, according to the National Association of Realtors. I personally haven’t seen foreign investors buying homes in Birmingham but it’s only a matter of time. The prices for luxury homes are far below the process in comparable cities.
How do I find luxury homes and buyers wanting these homes?
Like I stated earlier, the concept is the same: you can flip or own and rent out a luxury home the same way as you can flip or own a “regular” home. Motivated sellers are present in every type of real estate. The target audience of motivated sellers will most likely be experiencing one or more of what I call the “Five Major Motivators”: Death, Divorce, Loss of Job, Job Transfer and Illness.
Dealing with luxury homes involves a little of a shift in strategy thinking, although the concept of investing and flipping stay the same. As a local realtor working in the luxury home markets of Mountain Brook, Liberty Park, Greystone, Shoal Creek and Highland Lakes, I’m amazed at how many empty homes that I preview. Many have been on the market of years and are being offered far below competitive market value. In some cases, the bank owns the property or the owners have died and the children own the house and don't want to put any money into it to update the kitchen and baths, so it sits. Then the most bazar, the owner has moved on, to the beach or closer to the kids and grandkids and the house just sits needing rehab but it's more than the owner wants to take on, they've moved on.
Why aren’t they selling?
Most often these homes need some renovation and updating and the average home buyer isn’t prepared to take on the job of getting the home up to their desired specifications. They may not have the time or the mindset to buy at a bargain price then invest the time and money to turn the house into the home they want. Beyond that they don’t know the contractors they’re going to need to get the work done and they’re sure they’ll be taken advantage of by the contractors and pay far too much for the work. So, they walk away and the house continues to stand empty. This is where a luxury flipper can step in.; once you understand how to locate motivated sellers, how to negotiate with them and structure the deal, identify the contractors that do quality work for a fair price, just one closing a year can yield more than most people can make on a regular job.
They Get a Lot of Easy Good Press
If you can find and rehab a beautiful, luxury house or condo, you can really take advantage of the eye-candy aspect of this kind of property. If you don’t get any offers the day of your open house, you’re sure to get them when you get a write-up in a real estate or architecture magazine or website. It’s a lot easier to get that kind of exposure when you have something that those publications want to show off.
Welcome to the Neighborhood
With high-end properties, your home is in a high-end community. Your buyers will drive through the neighborhood on the way to see your property, and they’ll think, “I want to live here,” instead of, “How many locks do I need on my front door. It’s great when the neighborhood helps sell the property.
The Rehabs Take Less Work
Luxury and high-end properties are built using quality materials, and their owners usually keep them well maintained until they cannot afford to anymore. Beyond this, if you find a real estate-owned (REO) luxury property, it’s likely had more protection and security against vandalism and theft than other properties. That means you’re looking at less work when you rehab it and a better return on your investment.
Less Chance of Over-Building
When you rehab a house, you always must think about building to the property values in the neighborhood. If you go overboard with your rehab, you won’t be able to sell your house at the price you need to make a good profit because people buy houses that fit into their neighborhoods. No one wants to purchase a house that costs $200,000 more than any other property on the block.
With luxury properties and neighborhoods, though, you’re looking at houses that have been built to be the very best. You won’t have to worry about over-rehabbing because everyone in the neighborhood has a beautifully updated house with a high market value.
Finally, you can make a lot more money on luxury flip house than you can flipping houses that are lower in the price range. It’s not uncommon to sink $100,000 into a $500,000 flip. However, when you turn around and sell it for $700,000, even with closing costs, you can make $60,000-70,000. For a lot of people, that’s more than a year’s wages. In real estate investing, that’s a couple of months’ work with the right luxury flip!
What’s your next step?
If you’d like to see some fantastic opportunities in Birmingham give me a call; we’ll spend a day together and I’ll take you to 6 homes ranging in price from $600,000 to $1,700,000, in size from 6,000 square feet to 12,000 square feet and all with the potential to sell for 50% more than what you’ll be able to buy them for.
Kerry Grinkmeyer is a real estate agent in Birmingham, AL specializing in the marketing and sales of luxury homes. Kerry's a retired financial advisor, he sold his firm, one of the largest in the Ameriprise Financial Advisor system in 2005 to his son, daughter and nephew. Now he's building one of the largest boutique real estate agencies that he'll eventually sell to his grandchildren. He the author of the children’s book The Christmas Web- A Family Christmas Tradition. Kerry competes in the Senior Olympics in to 50M, 100M and 200M dash as well as the 5k and 10k time trial cycling events.
Kerry offers you his financial background, knowledge of the community, love of business and family and energy to assist you in one of the most important financial decisions you'll make in your lifetime.
205 919 6006