Here's the latest installment of Bates By the Numbers, a weekly feature by Boston real estate agent David Bates that drills down into the Hub's housing market to uncover those trends you would not otherwise see. Check out his ebook, Context: Nine Key Condo Markets, 2.0.
Perhaps no aspect of real estate engages the public's imagination the way "flipping" does. Buy low, sell high. FAST.
In the local real estate recovery, interest in flipping may be at an all-time high. In February, Fortune Builders, a company founded by Than Merrill, one of the stars of Flip This House on A & E, had more local radio spots than beer companies had commercials on Super Bowl Sunday. Not long after Fortune Builders left the Hub, Doug Clark, one of the stars of Flip Men, which ran two seasons on Spike TV, had free presentations in 18 regions, including nine in Massachusetts.
Then on March 1, Massachusetts celebrity flippers in residence, Peter Souhleris and Dave Seymour, premiered the first episode of Flipping Boston, now in its third season on A & E.
Why all the flipping interest in Massachusetts? It could be in part because 24/7 Wall St. just named Massachusetts the most profitable state in which to flip a home. Analyzing data collected by Realty Trac, 24/7 Wall St. asserted that despite being a market with comparatively high home acquisition costs (eighth highest in the nation, in fact), and a low rate of foreclosures (ninth lowest), the average 2013 Massachusetts flip sold for $300,000 more than the original purchase price and generated $103,384 in gross profit.
I decided to speak with some of the most successful Hub flippers and find out more about this profitable market.
Tom Cafarella, 31, quit his full-time job as a CPA in 2008 so he could flip full-time with three partners. According to Tom, their company, Ocean City Development, is one of the largest flippers in the area. Based on the information Tom provided (the MLS number of the agent they use for sales), it appears his company was involved in 21 flips last year. It might not sound like much, but that super-sized flip volume requires identifying and acquiring on average two homes a month; successfully selling two homes a month; and managing multiple construction sites. So it comes as no surprise that Tom said that flippers have to be skilled at acquisition, rehabbing, selling and financing. "There's not one of those pieces that you can't be good at," he said.
Another critical part of flipping—perhaps the most important—is finding distressed sellers who are willing to sell their houses at a discount. Tom says he has about 20 different ways to find sellers and that the company spends, "on average, about $20,000 a month" to generate flipping leads.
Tom is another flipper who offers educational opportunities to the less experienced. In December 2012, he started the Meetup group Boston North Shore Real Estate Investors-Massachusetts, which has 857 members. Tom says education is important because while most other occupations have defined career paths, there is no blueprint for real estate success.
Another group among the most prolific and successful flippers in Massachusetts is that of Jeremy Gavin, 35, and Aaron Katz, 34.* These go-getters are actually flipping franchisees.
After completing several profitable real estate deals on their own, the former University of Massachusetts-Amherst roommates ran across HomeVestors of America at a Real Estate Wealth Expo in 2006. The Texas-based company, also known as We Buy Ugly Houses, had nearly 200 franchises across the country, but almost no presence in Boston. When Homevestors convinced Aaron and Jeremy that their systematic approach included a lead generation tool that wouldn't fall flat if the market crashed, the twosome paid $50,000 to establish one of the first Homevestors franchises in the area, opening their doors at the beginning of 2007.
Since opening, Aaron and Jeremy have done more than 100 flips. The 22 flips they did in 2013 made them the largest of 14 HomeVestors now operating in the Greater Boston market.
Aaron and Jeremy said that capital is their biggest challenge. They said they are fortunate because their success has provided some financial advantages, but that HomeVestors also offers franchisees hard money. "You gotta figure out a way to get every deal done because there's only so many deals out there," said Jeremy, noting their company, HomeVestors-WinWin Properties, currently has seven or eight properties under agreement with no contingency offers.
Provided the price is right, they won't pass on deals that have challenging locations. From their Braintree office they work on flips as far afield as New Hampshire, Cape Cod and Rhode Island. What does cause them hesitation, however, is when it's tricky to figure out value. "You got some of these oddball houses out there that you just can't put a value on because there are powerlines running through the backyard, something that you can't fix," Aaron said. "It's a two-family with 15 bedrooms that there are just no other comps," Jeremy offered as an example.
Aaron credits the HomeVestors system and professionalism for their success. He and Jeremy mentor new franchisees in the Hub and he advises would-be flippers, "You need to have a system that is going to work. You need to consistently follow it every day." HomeVestors trains franchisees on how to go on "buy calls" and has proprietary software that indicates how much to offer on a property.
Aaron and Jeremy spend $17,000 a month in advertising, even in months that are typically less busy because they are determined to be consistent. The Boston HomeVestor advertising cooperative is committed to spending $1M in advertising this year and it is their hope to eventually acquire a 20 percent share of the region's distressed sales market. That's a flipping commitment!
*Disclosure: In the brokerage I owned, I worked with Aaron and Jeremy to buy and sell some of their first properties.
· Our Bates By the Numbers archive [Curbed Boston]