Buying a Property for Development or Flip
If you are a developer and you’re looking to buy a property for development or to flip, there are several important things to consider.
1. It’s important that you understand the local rules and regulations.
If you don’t know the specific rules and regulations of a particular town, you can run into a situation where you’re stuck with a property that on paper looks like a winner but in fact is a loser.
A good example is Somerville’s condo conversion rule, which was enacted a few years ago. This rule gives tenants who have lived in a property for the last 12 months the opportunity to buy the property back from the new owner.
In practice this means if you buy a Somerville multi-family with the goal of flipping it, and a tenant was in place for the last 12 months, they have the opportunity to buy the property back from you and significantly delay development. (If they say “yes” to buying the property, you have to offer them a price at “fair market value”, and the tenants can wait up to 12 months to decide. Even if their answer is “no”, you need to get them to sign something in writing saying so, and if you can’t get them to sign you still have to wait 12 months).
A project that normally would take a year now could end up taking 24 months or longer, dramatically increasing your holding costs and taking a project that was previously a winner into a serious loser.
2. You need to understand the market for gut renovated condos at the moment you buy.
You need a firm understanding of how much the condos can sell for, what your ideal bed/bath breakdown is, what kind of finishes are expected for a given neighborhood and price point, and what other offerings have become norms for a given area.
If your finishes are too low grade, you may not be able to get the price you need to make your project a winner. If your finishes are too high grade, you might spend unnecessarily on finishes that don't help with sales price and significantly eat into your profits. Finding that sweet spot is critical to selling your units at the price and time frame you need.
Ultimately, there will be hundreds of small decisions to make during your project, like:
Where to put the laundry hook-ups
How to break up parking
What outdoor space should be common or exclusive
Should you go with a peninsula or island
The list goes on. You want an agent who is on the ground every single day and who can clearly communicate what is working and what is not working in the market you are focused on.
If you are looking for a development project and would like to chat through what I’m seeing in the market, give me a call!