While HGTV and other channels make the whole Fix and Flip niche seem easy and profitable rarely are the Flops shown. When they are; the losses seem minor. The following is an example of a Fix and Flip that Flopped and is still looking for a buyer
I was introduced to the home a few years ago post fix-up. I had passed the house almost daily on my commute between my residence in the Cherry Creek North neighborhood and Downtown Denver. I liked the design i.e. pre-1900 Victorian, historic coupled with a manageable size, however the location challenged me.
While the residence is within a few hundred yards of Cheesman Park the home is adjacent to a heavily trafficked (2+ thru lanes) one-way road and is across the street from a commercial strip which has a later evening demand i.e. crowds and noise. The master bedroom, oriented to the east challenged me as well due to the morning sun orientation in the summer and the headlights heading west into the windows during winter mornings. A design background can make one hypercritical or just a good eye concerning potential issues down the road.
The Interior renovation while visually attractive was mostly cosmetic. Yet the majority of the original single-pane windows facing north were NOT replaced; this could be challenging concerning both noise from the roadway and winter temperatures. The rear yard adjacent to the major roadway separated by a flimsy wood fence would be in my opinion noisy, a security challenge and of limited use. Thus we decided to forgo pursuing the house coupled what we felt was an inflated asking price.
The home first came on the MLS as a closed sale with the following note:
“Entered for comp purposes. Sold to a developer before going into MLS. Needed updating and the addition of a garage.”
- 5/16/2018 Sold: $700,000
The home after the renovation came back in the market on 10/2/18, 4.5 months after the initial purchase. The asking price $985,000!
The Fall and Winter of 2018/2019 challenged the pricing of the house as follows:
- 10/17/2018: $985,000-$975,000
- 10/31/2018: $975,000 – $970,000
- *1/17/2019: Change of Ownership – $719,500
- 1/23/2019: $970,000 – $962,000
- 2/4/2019: $962,000 – $958,000
- 2/18/2019: $958,000 – $954,000
- 3/6/2019: $954,000 – $952,000
- 3/22/2019: $952,000 – $935,000
- 4/10/2019: $935,000 – $928,000
- 5/6/2019: $928,000 – $916,000
- 6/2/2019: Listing Expired
Three (3) Days later the home comes back on the market, this time with a different broker:
- 6/5/2019: New Listing $899,000
- 7/23/2019: $899,000 – $889,300
- 8/20/2019: $889,300 – $859,900
- 9/26/2019: $859,900 – $843,000
- 10/18/2019: $843,000 – $829,000
- 11/14/2019: Listing Expired
- 4/20/2020: New Listing $889,000
It seems the ownership is continually trying to recoup their investment. As noted on 1/17/2019 there was a change in ownership per the Denver Assessors office between two LLC’s. My assumption the original owner/LLC could not sell and relinquished to the lender or sold an interest. The transaction at $719,500 was $19,500 above the cost of original purchase May 2017, 1.5 years later.
Even with the new list price of $889,000 the home is being listed at $96,000 less than the original post fix/flip asking price of $985,000. Add to this the house back in October 2019; 6 months prior was last asking $829,000 and did not sell at $60,000 less than the asking price posted last week.
Thus in a span of two years the home had been purchased, fixed up, listed by multiple brokers and has yet to sell. Of note during the two years the ownership has had to cover carrying costs i.e. debt service, real estate taxes and upkeep.
My gut is the home if/when it sells will be $799,000 to $845,000 range possibly still a little aggressive due to location being adjacent to a major one-way street. Even at $845,000 when including the cost of the renovation, carrying costs for 2+ years and eventual broker commissions a break even may be achieved; yet I assume a loss not only in real dollars but also the opportunities missed concerning the monies tied up in this one fix and flip.
While there seems to be pent-up demand for housing in Metro Denver coupled with low interest rates there is a fine line between demand and irrational exuberance. In a strong seller’s market negative attributes including adjacent heavily trafficked roadways, lack of view, cosmetic versus mechanical/structural improvements seem to be dismissed by prospective buyers based on the assumption prices will continue to rise.
However we have been in a 10+ years bull run, not only in Denver, the whole country. Our regional economy has diversified (dependence on oil and gas has diminished yet according to a Denver Partnership Study from 2015 oil/gas accounts for 11% of Downtown Private Sector workforce, troubling concerning the rout in the oil markets of late) yet when Denver is in the top ten most expensive housing markets and is the only one not located on a coast, should we be concerned? I would be and this fix and flip may be the canary in the coal mine.
Denver Real Estate Insights 