Chris Naugle remembers his first investment, a modest house in Gasport in 2006. He laughs about it now — with his wife, Lorissa, the Lockport native works with over 100 hungry, inexperienced property flippers, coaches, contractors and project managers at FlipOut Academy in the Eastern Hills Mall, with their own television series soon to follow.
But that first property in 2006 — it went way over budget, and he made all the mistakes of a first-time real estate investor. With a friend, he sledgehammered and remodeled its interior. Eventually, they sold it for a modest profit.
“Don’t do anything I did on my first flip would be my best advice,” Naugle says.
In an increasingly crowded Western New York market, home flipping, unfairly or not, has earned the reputation of being associated with poor construction, quick work and investment that damages neighborhoods and communities.
But professional home flippers locally say competition, buyer demand and the threat of a destroyed reputation push them to do a quality job, or you won’t last long in the business.
There are trends in the Buffalo real estate market that can benefit both property investors and home buyers. You just have to understand the fundamental rules before leaping into your first project.
Home buyers are smart
Alex Severyn, with his brother Will, began renovating and flipping properties five years ago. The Canisius College graduates and Lancaster natives have a background in construction and entrepreneurship, and their father encouraged them to consider real estate as a professional career. Today they are the co-owners of Alex and Will Buy Houses.
“Back then, it was a much different market. Houses didn’t sell over asking price. Houses used to sit for 20 or 30 days. Today’s market, we sell them all the first week, which is good and bad,” Alex Severyn says.
Alex and Will Buy Houses has done about 135 projects, and currently has 30 houses under construction. The key, Severyn says, is to target first-time homebuyers in the $150,000-$300,000 range. But buyers are getting savvier. In 2010, for example, flips were generally very basic – carpet, base tile, linoleum counter tops. Quick jobs, in and out.
“You can’t do that anymore,” Severyn says.
The design and finish have to be high-quality. Why? “The last thing we want is people walking in and saying, ‘This house is flipped.’ People now can tell what a flipped house looks like,” Severyn says. “The old model is dead. People want it to be well done with a quality design, and move-in ready.”
That’s especially true when homebuyers are consistently paying above the asking price in many markets across Western New York. The Severyns are spending 16 to 17 percent more per project than when they started. It’s a product of increased competition and a better educated base of potential home buyers.
Trust your contractors
From the city to the suburbs, Buffalo’s housing stock ranges from turn-of-the-century classic brick to 1970s cookie-cutter. Severyn says as a flipper, you have to go into each project with a completely different game plan, and you need to have experience working with a wide spectrum of materials.
The Severyns’ construction background gives them that experience and knowledge. At FlipOut, Naugle says his company has a long list of trusted and preferred contractors, from cleaners and carpets to kitchens and bath. Having his teams under one roof in Williamsville helps, too.
“Work with good contractors. Never hire the cheapest contractor. Just do it the right way because your brand matters,” Naugle says.
Projects take longer now, too. What used to take two months now takes four to five months. Building codes, permitting, everything has to slow down to do a quality job, Severyn says.
Make the right investment
When done correctly, the Severyns say they can sell a house within five to 10 days of it being on the market. The return varies, but it averages out to about 20 percent. “Sometimes we win, sometimes we lose,” Severyn says.
When it comes to home flipping, the money is made not on the sell but the buy, Naugle advises. Markets and demand fluctuate. The one thing you can control is how much you spend on a property, knowing your limits and not overpaying.
“A lot of people are getting lost and hurt in the shuffle because they don’t know what they don’t know,” Naugle adds. “The money is always made on the buy and if you can’t buy them at the right valuations, you’re never going to be successful in this business.”
So what’s next?
Severyn and Naugle agree that North Buffalo may be overheating right now. But there are plenty of opportunities left for potential investors in Western New York. South Buffalo. First Ward. Black Rock. “If you’re taking your eye off those you’re missing a massive opportunity,” Naugle says.
Single-family homes, commercial space, rentable loft apartments that are very low risk: They’re all the current trends, Severyn and Naugle each say.
Despite the rise in home prices locally – not gone unnoticed by Western New Yorkers – Buffalo is still undervalued. Targeting homes and sellers who need to make a quick sale and coming to them with leverage is key.
“There’s been nothing but positive news on the real estate market in Buffalo the last four years,” Severyn says. “People won’t even bother making an offer on a house if it isn’t exactly what they want. Once somebody makes an offer for your house, it better be perfect.”
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