Delaware house flippers search for diamonds in the rough
Terry White has flipped nearly 150 Delaware houses since 2004. He aims for about $25,000 profit per property, but he’s made anywhere from $22,000 to $80,000. White said flipping is not as easy as it looks on HGTV, especially since “everybody and his brother” has jumped into the market.
House flipping is back in Delaware, fueled by a shortage of starter homes and plenty of foreign and domestic capital searching for higher returns.
Deli owners, hairstylists, schoolteachers and, of course, contractors are hunting for condos and single-family homes to flip.
Flips were up more than 16 percent in the first quarter of 2017 in Kent and New Castle counties, compared with the first quarter of 2016, but they fell more than 4 percent in Sussex County. Gross profit per flip was $63,500 in Kent, $70,000 in Sussex and $74,200 in New Castle County, according to ATTOM Data Solutions.
Sarah and Steven Christophel parlayed his background as a contractor and the eye for design she developed as a hairstylist into a side business flipping homes.
Eric Armstrong, a phys-ed teacher, flipped one house and he’d like to do another. He just broke even on the first, because he picked the wrong contractor, he said. He became good friends with his buyer, though, so now he hangs out in the living room he designed.
Amy Torbert was a new mom with a pre-med degree when she flipped her first home in 2010. Looking for work after she sold her Pittsburgh deli and moved to Delaware, she opted to flip a fixer-upper near Dover Air Force Base. She bought it for $70,000, put in about $40,000, worked on it full time for four months and sold it for $155,000. She was so successful that her husband James quit his job selling cell-phone plans to join her Torbert Homes. Now they are both licensed real estate agents working on a Victorian in Smyrna’s historic district.
Nearly 8 percent of all first-quarter home sales in Kent and New Castle counties were flips. In Sussex, 2.7 percent were flips.
While flippers are sometimes slammed for buying up starter homes, Brigit Taylor, president of the Sussex County Board of Realtors, said flippers turn properties that need repairing or remodeling and put them back in the housing inventory.
Most flips are mom-and-pop jobs. Almost 70 percent of all condos and single-family-home flips in the first quarter of 2017 were completed by couples who flipped only one home in the quarter, according to ATTOM.
Sarah and Steven Christophel, a Middletown couple with three children, get compared to HGTV’s Chip and Joanna Gaines a lot. It was actually the Gaines’ “Fixer Upper” show that fueled their notion to combine her eye for design with his contractor’s background to makeover homes.
Even with Steven Christophel’s extensive background in contracting, they knew they’d need someone with deeper pockets to back them.
“We started individually praying about it and it was something God laid on our hearts,” she said. “We spoke to an investor who was just very, very excited.”
Their first flip was a foreclosure in Middletown, done in less than four months, but it sat on the market for two months because they turned down a solid early offer while they hoped for a top-dollar one.
What they learned: “The name of the game in flipping is flipping fast. Now we think the first offer is the best offer.”
Now they don’t enter any deal where they aren’t sure they can make at least $30,000 because they split the proceeds with their investor.
“There is so much to learn in this business,” Sarah Christophel said. “We are constantly pushing ourselves to learn.”
Their current project is a major renovation of a circa 1900 Victorian in the hot Smyrna market. They were able to buy the house in the trendy historic district for $60,000 because it needed a complete overhaul. A charming brick sidewalk that circles the house was hidden in the high grass.
They discovered a 1903 newspaper ad for a cure for freckles in one door jamb.
The rehabbed house has a high-end feel, so the Christophels don’t anticipate it will be on the market very long. “We’re actually going to start showing the house before it’s complete,” she said. “It’s possible we can even have it tailored or personalized for the buyer.”
Their flips have generated so many customers for their Cornerstone RBE Contracting that Sarah Christophel was able to quit her job this summer.
“People come to us in the neighborhoods we flip in. They say, “˜We saw your work. We just love your aesthetic. We’d love you to do our master bath.’ So we get jobs off of the houses that we flip. We get our bread and butter and the consistency from the contract work,” she said. “We have a family with three kids so we need that contract work. We feel like the flips are bonuses at this point. We would love to have the main part of our business be the flipping and have the contract work be something that we do on the side. That’s going to come. That takes time, though.”
While many flippers focus on houses that are just a tad granny, Steven Christophel’s construction background allows him to take on worst-case scenarios. “We usually go after the property that everybody else is scared of,” Sarah Christophel said. “That’s how we make our money.”
Amy Torbert got into the real estate market when she bought a sheriff’s sale property to flip in 2010. Seven years later, she and her husband James are still flipping. They also have their own contracting business and both are licensed real estate agents, so they have steady work when there’s no flip in progress.
“You typically don’t make as much as people think you do. You can be holding a house anywhere from three months to 10 months,” she said. “It’s not the HGTV world, but, of course, we’re not living in California and we’re not working on $400,000 and $500,000 houses.”
Torbert said their profits varied from $50,000 to a small loss because they take on potentially high-profit houses others pass on. “I’m more of a person who takes neglected houses that are pretty much destroyed and starts over again,” she said.
“It’s definitely not for the faint of heart,” Torbert said. “We had a house and we were going to settlement and the septic failed. There’s $26,000.”
She said the problem with TV’s shelter shows is they don’t mention all the costs flippers must ante up: “You pay crazy rates for your money. It’s hard money that you have to borrow for this – it has a higher interest rate than you’d have if you were buying a property to live in. Yes, you bought the house for $100,000 and you put $50,000 in and sold it at a profit, but they don’t tell you there’s a 5 percent real estate fee, 2 percent transfer taxes and hard money. You might be paying $1,400 a month for that, and builder’s risk insurance might be a couple hundred dollars a month.”
Although many Delaware flipper-couples take on tougher projects and earn bigger profits, mom-and-pop flippers nationally report lower average profits than mega-flippers nationwide. They generally pay more for properties – an average of $208,410 compared to the volume flippers’ $153,274, according to ATTOM. They also took longer to flip properties in the first quarter – 194 days compared to the mega-flippers’ 138 days.
Mid-tier flippers, who redo two to nine houses a quarter, and professional-volume flippers, who do 10 or more flips a quarter, often are more experienced at negotiating discounts upfront and they often have defined processes in place to complete rehabs and market homes.
Terry White, a mid-tier flipper from Hockessin, has grown his Diamond State Realty to the point that he hires contractors to work on several properties simultaneously while he searches for more houses. He started in 2004 with one flip and a credit line on his home.
He hires licensed professionals to do the work, but the design is his. White has been flipping so long that he has switched color palettes three times as buyers’ preferences changed. The current best-selling look is lots of grays and whites, he said.
“Once I find material I like, I’ll use it over and over again. I’ve used the same countertops in probably 50 houses, the same tiles, the same cabinets. People like it. Why change it?” White said. “I don’t even go to the store anymore. I just call with the SKU numbers and they pull it and deliver it.”
Time is money to flippers. White said he was paying almost $4,000 a month for taxes, interest and insurance on two recent flips.
His profits vary from flip to flip: “I like to see 25 grand a house, but it can vary from 80 grand down to 22.”
His most memorable flub: buying a $400,000 house that took forever to sell. “I’ll never do that again,” he said. “You’ve got to look at the holding costs, and a lot of investors don’t total that up.”
White shies away from pricey oversized homes because they carry oversized holding fees from taxes to insurance. “People are outbidding me because I’ll walk away from a deal before I lose money. You’ll see guys who will make $10,000 a house. Ten thousand to me is not worth my effort. If you have a sewer line, it could cost you $10,000 to fix it.”
White’s formula for a flip-worthy property: A plug-ugly house, preferably with no serious structural problems in a good neighborhood with a good school district. And no septic tanks involved because costs for a septic system could run as high as $25,000.
His favorites are houses that are just a tad granny. “A house that hasn’t been updated in 30 years, that’s the best kind of house. The house has nothing wrong with it. It just needs to be updated,” he said.
While flippers see possibilities others don’t, they all say it’s important to stay grounded.
“I walk in and I have all these big dreams,” Sarah Christophel said. “Steven’s the one who brings me back to reality. I’m like “˜let’s take down the walls’ and he’s like, “˜No, babe.’ “
The Christophels hire their Realtor-friends Lisa and Michael Davis to market their flips and they hire other professionals as needed. “We didn’t get into the flipping industry because we’re great accountants,” Sarah Christophel said. “We really lean on the support we have around us.”
Flippers warn novices that not everyone is cut out to move walls and level floors. As Amy Torbert put it, “It’s not all this money and all this glamour. It’s just a lot of hard work. For the amount of hours and heart and soul and stress you put it, it’s probably not for everybody. Something goes wrong on a daily basis. If you just want to make money, you should probably just get a job. But, for me, it’s a nice life. It’s fun.”
Millions of Americans agree. Part Midas touch and part American dream, turning a flop into a flip has an allure. “Property Brothers” attracts more than 2 million viewers annually and No. 1-rated “Fixer Upper” draws double that.
Although Eric Armstrong just broke even on his pilot project, he said he’d try again if he found the right house and skilled contractors at an affordable price. “It’s just the feel you would get from finding an eyesore in the neighborhood and fixing it up and making it nice again,” he said. “And I like the opportunity of making a good sum of money in six months. Very few things I’d be able to do in six months generate $20,000. That opportunity is what draws me in.”
Torbert said she looks at each house as an art project. “I just want to finish that project,” she said. Meanwhile, her own home still sports pink laminate countertops. “I can’t wait till I have a nice kitchen, but it will come.”
Photos via Eric Crossan