Flipping Condominiums – It’s an Awful Way to Get Rich
Flipping Condominiums – It’s an Awful Way to Get Rich
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In this issue:
Flipping Condominium Units – It’s an Awful Way to Get Rich
New and Noteworthy – A Great Back Bay Building Gets Better
90 Commonwealth Ave, unit 2/3 – Driving Architects into an Insane Asylum – Well Sold
314 Commonwealth Ave, unit 2 – A Great Apartment, With Bragging Rights – Well Bought
What’s Catching Our Eye
Flipping Condominiums – It’s an Awful Way to Get Rich
Ten years ago, buying and flipping new development condominium units in Boston was somewhat rewarding. Developers were happy to leave a little financial meat on the bones for the flippers because they were able to sell out their projects quickly. Flippers today are learning the hard way that this has become a very crowded trade.
How can it be that a flipper needs to get a 17% price increase just to break even? Let us walk you through the math.
This week, unit 8N at 300 Pier 4 (Pier 4) was listed for $4.2 million. According to public records, the seller bought the unit in August of 2019 for $3.6 million and financed the purchase with a $1.9 million adjustable rate mortgage with an initial rate of 4 1/8% (this is a bank mortgage, they didn’t go to a loan shark).
As far as we can tell, the seller didn’t make any meaningful improvements to the property, it doesn’t appear to have been rented, and the listing indicates that the seller didn’t qualify for the residential property tax exemption (which generally indicates it’s not a primary residence). It smells like a flip to us.
So what gives with the $600,000 mark up?
Assuming they get their full asking price, you need to deduct the standard sales commission of $210,000 and the cost of carrying the property for 24 months (principal, interest, taxes, and condominium fees) of $377,184 ($15,716/mo).
The commission and carrying costs are roughly $587,184. Again, assuming a full price offer, the net proceeds would be $3,612,816. A $12,816 profit? Nope, other fees and taxes will wipe that out.
Maybe you're thinking that the values at Pier 4 have gone up. We’d say no. In 2019, the developer sold unit 7C for $3,000/sf (this unit is currently on the market for $3,099/sf). Last month, the developer sold unit 7D (which in our opinion is essentially the same as unit 7C) for $2,429/sf. This would imply that the values have actually declined by roughly 19%. Have the values dropped that much? Probably not, but it’s pretty difficult to make the case that the values have gone up.
If you’re thinking of buying Boston real estate for investment purposes, please reach out to us and we’d be happy to offer some guidance. Valuation and analysis are at the core of what we do. Coming from the investment industry, it’s engrained in our DNA.
New and Noteworthy
50 Commonwealth Avenue – A Great Building Is Getting Better
Large special assessments are typically dreaded in condominiums. But that didn’t stop a quick deal over at 50 Commonwealth Avenue. Unit 704/705, a seventh floor 2,070 square foot 3 bedroom with an asking price of $2.688 million is under agreement in just eight days, notwithstanding a $82,600 assessment.
50 Commonwealth is a classic pre-war style, 40 unit building in a great Back Bay location. For years, the knock on the building has been the lack of central air conditioning, but that’s about the change. The special assessment is for installing AC, a new common roof deck, a new fire alarm, exterior repointing, and an overdue lobby upgrade.
The assessment is about 3% of the asking price, and make no mistake, living through the work will be miserable, but the end result will be well worth it.
You’d Think That They’re Giving Them Away – High-End Boston Real Estate Sales Continue
The summer of high-end Boston real estate deals continues unabated.
Unit W11A at 776 Boylston Street (Mandarin Oriental), a 3,168 square foot, 2 bedroom, with an asking price of $12,375,000 ($3,906/sf) reports an accepted offer after 43 days on the market. This one has us kind of puzzled as $3,906/sf seems a bit pricy, but someone obviously loves it and sees the value.
Over at 2 Commonwealth Avenue, unit 15 E/F, a 2 bedroom, 3,657 square foot corner unit is under agreement. The last asking price on this one was $12.0 million ($3,281/sf). This valuation makes more sense to us. Sitting 15 floors above the Public Garden, it has amazing views of downtown, the Back Bay and Cambridge.
Well Bought/Well Sold
90 Commonwealth Ave, unit 2/3 – Driving Architects into an Insane Asylum – Well Sold
Unit 2/3 at 90 Commonwealth Avenue has a new owner. The final sale price of this 3,062 square foot, 5 bedroom came in at $3.7 million ($1,208/sf), a 23% discount to the original asking price. It took a year and a half to sell, which can be chalked up to the ill advised original price.
90 Commonwealth is our kind of building - a 25 unit classic apartment house built in 1925 in a great location. This unit has the added benefit of two deeded parking spaces. If you back out the value of the parking, the price gets closer to $1,000/sf. What’s not to like?
A lot. In our view, the apartment (which is the combination of two units) is the poster child for how not to combine units. The previous owner installed a very nice new kitchen, but the other kitchen wasn’t entirely removed. You also have the redundancy issue often found in combined units: two living rooms, two master bedrooms, etc.
To us the apartment felt like a hodgepodge that would drive an architect into an insane asylum. The fact that it’s located in the rear of the building, just above street level, doesn’t help matters. That rear alley serves the commercial businesses on Newbury Street. So you can expect to wake up to the sounds of garbage trucks a few times a week.
The moral of this story is that if you are going to combine units, hire a good architect, spend the money, and do it right. And don’t combine the two least desirable units in a building. The value is compelling, but the floor plan needs to be addressed and that won’t be cheap. More importantly, you can’t change the proximity of the rear alley, and for that reason, we’d say that the seller got the better of this one, it was – Well Sold.
314 Commonwealth Ave, unit 2 – Great Apartment With Bragging Rights – Well Bought
Tom Brady’s former Back Bay condominium has changed hands, with the final sale price of $6,287,500 ($1,837/sf) after 79 days on the market. The original asking price was $6.995 million. The last time this 3,422 square foot, 3 bedroom unit with garage parking traded was back in 2016 for $6.2 million. As we previously pointed out, this seller is an experienced Boston real estate broker, so the unit was correctly priced right out of the gate.
One knock may be that the corner of Hereford Street could be a bit too far down Commonwealth for some people. It also could be argued that the unit needs some updating, but with the price essentially flat with 2016, we see plenty of room to make improvements.
This looks like a fair deal for both parties. We’re giving the advantage to the buyer as they now have bragging rights about living in the GOAT’s old apartment, it was – Well Bought.
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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to the real estate brokerage.