Flipping is for the Birds

Yesterday my wife forwarded me an article in The New Republic about an absentee investor buying up vacant row houses in Baltimore. You can read it here. A Houston businessman, and others like him, buy these properties in tax auctions, and then sit on them waiting for a local investor to buy them at a profit. While they wait, the properties remain a blight on the immediate area, lowering the value of adjacent houses, and bringing with it quality of life issues that perpetuate a cycle of low morale and eventual despair.

I moved to Baltimore just over a year ago from the New York area. Almost simultaneously, another New Yorker, also with a real estate background, and many friends in common with me, moved here as well. For a year he had been buying and renovating vacant row houses in a neighborhood in West Baltimore. With my background in raising capital, and his experience in brokerage and construction, we decided to partner on one of these deals. I would find us an investor, he had investors and capital partners on other deals, and he would take care of the rehab.

Our project timeline was initially four to six months. As anyone who ever worked on or invested in a speculative real estate deal can attest, initial timelines get extended. We were no different. In that time, my partner and I have had to make some tough choices, learn some things the hard way, survive some disputes, and even get into these properties and do a lot of the work ourselves. Some of you have seen my recent posts touting the Zen aspects of manual labor for someone like me who has largely sat a desk for a living.

I have also learned something about the type of real estate investor I am, something my partner had already envisioned for himself. Each property has been, or will be for those still in progress, over-improved. Whether it is high quality finishes, creating more living space through structural improvements, or building new decks with hardscape in the backyards, either of us could proudly live in these houses. It is the antithesis of the type of investor described in the New Republic article. 

We care about these homes, and this neighborhood. My partner lives there, and I spend every day there with him. We frequent the local gourmet pizzeria, or the Peruvian chicken spot, at lunch. We want to be seen as improving the community, and have overspent, in some cases at a loss, to do so. Our margins are tight, in part because when we are done our end product is a renovated home that remains affordable to many, unlike what has happened in our own childhood neighborhoods (in my case, Harlem, and in his, Washington Heights and the South Bronx).

My partner and I are currently shopping a deal to roll up our initial portfolio of ten row houses to investors, on whose behalf we would manage the properties long-term. This would allow us to maintain control of the properties as the surrounding area improves, provide a nice yield for the investors, and free up some capital to renovate the next portfolio of homes. Over this time we have learned how to over-improve these properties with less time and capital, keep several laborers employed, and work with the local community on any concerns they may have. We have also proven that we are not afraid to get our own hands dirty when the situation dictates, and put our own sweat (thankfully no blood yet) into the business.

Please send me a direct message if you are interested in knowing more about our work or the portfolio deal. And by all means please come and visit us for a tour.