The Biggest Rehab Project of My Career - Should I Do This?

Question

Yesterday I won a BID on an auction on a house in Lagrange IL.

The Good:

ARV -  $1,000,000

Acquisition Price: $380,000

Repairs: $200,000

Profit Potential: HUGE - about $300,000 profit even if you assume 12 months holding cost

The Bad:

The house is a HISTORIC home. I have no experience renovating a historic home. I have not done such a big renovation project. Property taxes is over $20,000/year. So carrying cost is huge.

Also, the house is very unique for Chicago - Spanish Villa type home (stucco exterior) and the driveway is shared by three other houses. At one time, this was the only house in that subdivision perhaps and then the owner subdivided the lot into 3 other parcels.

So, BP rehabbers...

1. Anyone out there who has done a historic renovation project? I need your help.

2. What are the things I should consider before I commit to doing this?

3. What are the risks and based on the numbers and other factors (described above), should I even do this project?

Any help, inputs, suggestions...will be appreciated.

Joel Owens · Answer

I have not done a historic home project. I do know if in a historic district you need committee approval for almost everything.

If they want exterior and interior preserved to perfection than your projected costs could go much higher.

If this project represents a large portion of your resources then it would be a NO for me. For example if risk exposure is 750,000 all in but you are worth 7,500,000 then that is a 10% risk exposure. If you are worth around what the risk exposure is then it is not even close to being worth it. The payout might look high but how long will it take to achieve that return?? That is another factor.

You might just want to sell it for a spread as it sits to one of these architecture company owners, someone wanting to do a bed & breakfast, or one of these historian types that makes it a labor of love and not about the money. For them it typically is about bringing something old back to life and recreating what life would have looked like back then etc.

Millie D. · Answer

Account Closed you should absolutely do this. You're treading into the unknown--in this case, it's the word "historic" that's scary. But once you're familiar, it will be worth your time. I would be more intimidated by the scale of the price and costs than the historic aspect.

I ONLY do renovations of historic homes. By 'historic" I mean listed on the National Register of Historic Places. I have also served on a local Historic Preservation Commission (the renovation taste "police" as some unhappy campers refer to it). I've dealt with the planning, land use departments.... Dealing with paperwork and commissions will be your biggest obstacle, but there is a financial incentive to do it right.

In order to help you, the first thing I would ask is, is this house in a neighborhood that is listed on the National Register? This is the most important question. I hope it is. That will allow you to offer the buyer a very nice $$ incentive once you've completed renovations.

Looking forward to hearing more! And feel free to PM me.

Crystal Smith · Answer

Regarding the risks.  The challenge @ this price point is the variation between the low comparables & the high comparables.  If you've calculated your ARV based on the average of the solds & that average includes some outliers that are significantly lower than the rest of the population then you'll have to consider that your downside risk.  Downside risk @ this price point could be $200K.  The other usual challenge is DOM.  Properties @ this price point usually stay on the market longer, but we just took a look @ sol d data for last few months 30 miles from our office downtown.  $1M & up properties were moving fast.

Gilbert Dominguez · Answer

Well there you have it. It can either be very good for you or it can go south on you. You are stepping outside of what you know and as most of us we would probably evaluate this according to what we know. Maybe find someone who has done historical properties and do a joint venture just to get familiar with all that you will encounter so the next time you will feel more comfortable with what you get yourself into.

Might be you have discovered a new niche which by the way scares allot of us, you know the unknown but it could turn out to be very profitable for you as well. Your call.

I noticed someone offer a contact for you here for someone who has plenty of experience with historical buildings, might be worth a shot. Maybe just another opportunity to make money that allot of us would walk away from so there might be less competition in this area.

Reed Starkey · Answer

Account Closed

That is a huge remodel.  I sure would like to see the reno pics if you get it.

Michael Seeker · Answer

Sounds like quite the project!  My best advice from doing several historic rehabs is to take your budget and timeline and multiply by 1.5-2.  Still looks like it could make for a great deal but with historic buildings there are many things that come into play that you normally wouldn't encounter.  I have an uncle that lives in Elgin that's been doing historic rehabs for 40+ years.  If you'd like me to connect you with him shoot me a PM.

Wendell De Guzman · Answer

Thanks Michael.

This is why the rehab is $200K. The rehab based on my estimate is $120K and I am adding $80K for the unknowns. The timeline is 6 months and I am assuming it's 12. Even then the profit is HUGE. I will either wholesale it to someone who has done a deal like this before or JV with someone who has.

Wendell De Guzman · Answer

Thanks for your detailed response - very helpful. I will consider all these in mind.

The Biggest Rehab Project of My Career - Should I Do This?

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