The Renovation Dissertation, Part 1

My friend Karen and I still have so much faith in the real estate marketplace that we have recently embarked on a project to bring a 1970’s townhouse-style condo kicking and screaming into the new millennium. I have the real estate knowledge and a handle on what sells in this market, as well as experience in renovating properties all over the country. Karen, a senior mortgage lender with a local firm (klucey@masondixon.com), is both financial and design consultant on the project. We’re gonna have some fun!

Our “flip,” as they say on TLC, is a 4-level building that currently has 5 bedrooms, 2 baths, an outdated kitchen, plain Jane baths, carpet everywhere, an unfinished basement, more than 1500 square feet of finished space, a great location, central air conditioning, huge closets, a fenced yard and gated parking. I hope you will understand that until we close on the deal, I must keep the address to myself.

I am an avid watcher of HGTV and TLC, but Flip That House really makes me cringe. I commend those who are lucky enough to stay on deadline, not overextend their budget and sell the property in a reasonable amount of time. For the others, well, I feel their pain. Yet my main concern is that while people get drawn into renovating properties by the promise of large financial gains, TLC merely adds what the people paid for the house to what they spent in renovations and subtracts the total from the final sales price to arrive at the “profit.” This, I believe, does a real disservice to John and Jane out there in Viewerland, who are sitting on the sofa munching Cheetos and thinking this would be fun.

Where are the costs associated with buying the house? Where are the costs of carrying the mortgage, utilities and, in some cases, condo fees? Where are the costs of selling the house? What about the time involved in researching properties, locating and monitoring suppliers and subcontractors, and even doing your own demolition? Isn’t your time worth something? All these costs play a prominent role in figuring profit. And that figure is only a pre-tax profit, so you haven’t really even reached the bottom line until you pay Federal and State tax on the gross profit you received.

So, by using this Blog as a reality series, complete with photos, descriptions and recommendations for the uninitiated renovator, I have several objectives.

1) To let people who are thinking about renovating live vicariously through Karen’s & my experiences,
2) To point out pitfalls and celebrate successes,
3) To provide a more accurate analysis of the time and money involved in this type of work, and of course
4) To let would-be buyers follow our progress and provide input.

Stay tuned as we march from contract ratification through inspection to settlement and beyond. If all goes as planned, the Open House will be in June.