Over the long July Fourth weekend, I received two offers on my Penthouse Plunge at the Claridge.
One offer was quite low citing the prospective buyers’ uncertainty in the high-rise market in the face of COVID-19. The other was a much higher cash offer that wanted some customizations. Even after the low-baller increased their offer, I took the cash. Given that it’s still under construction and the buyer wanted some customizing done, it took a week to work out the contract.
For anyone thinking of flipping a home, let’s review the sacrifices I made to be able to live in a penthouse. Warning, it’s not a process for those who thrive on instant gratification or risk-free finances.
Regular readers will know that I purchased a 5,311-square-foot double penthouse at The Claridge back in September 2019 with the intention of separating the units, flipping the A-unit while retaining and living in the smaller B-side. The combined unit had been on the market for four years and had had over $1 million in price reductions before I struck a deal for $1.5 million.
For reference, while I have significantly renovated every home I’ve ever owned, I have never flipped a home. I’ve watched flipper shows on HGTV and trust me, their math is exceedingly unrealistic.
The deal was a significant challenge for Dave Perry-Miller’s Sharon Quist, who represented both myself and the seller. Mostly because I had no business spending $1.5 million on anything. Before this transaction, the most I’d ever spent on a home was $235,000.
But I’d run the numbers six ways from Sunday so I roared forward with the confidence of someone who knows enough to be dangerous.
The Real Deal
The deal ultimately struck with the previous owner had me making a $100,000 down payment and committing to a three-year $1.4 million interest-only wraparound loan with his bank (I’ll let the heebie-jeebies of a wraparound loan soak in). Interest was only owed at the sale of unit-A (I didn’t have the income to pay a huge mortgage and double HOA dues). Additional equity came in the form of a $300,000 lien on my Hawaii condo. I was tapped.
There were lawyers on the seller’s side and Dallas and Honolulu lawyers on my side – all tangoing with the title company to get it right (and protect me). What was supposed to close at the end of June 2019, closed in early September.
My risk was enormous. If everything went to hell, I’d either be bankrupt or more realistically, I’d have to sell Hawaii in order to pay off the penthouse mortgage. Pretty big risk for someone <10 years from retirement with my income.
Offsetting possible financial ruin, a renovated penthouse on Turtle Creek is a tangible, highly saleable asset.
One justification I used was that I’d spent my life playing it safe. I don’t buy what I can’t afford. I keep my monthly expenses very controlled. In my real estate transactions, I always bit off less than I could chew on purpose (and looked back with regret). So I shut my eyes and did it.
The Money Honey
Texas is a non-disclosure state, something I think should change. But since we are, I’m not telling you the selling price – if you’re on MLS, you’ll know anyway. Suffice it to say that my best-case plan was to sell the A-unit for enough money to keep the B-unit with only a mortgage covering the completion of some-or-all of the renovations needed.
That didn’t happen. Not because of the sale price, because of the renovation costs.
As it worked out, I broke even. In this case that means the small/new mortgage I have is the same I’d have had if I’d been able to purchase the B-unit separate from the A-unit and just moved in.
That’s not completely true.
The B-side floors have been done (easier before moving in), the master bath was demo-ed and the chapel has returned to a laundry room. So the white shag is gone and I have clean clothes and no functioning master bathroom. Everything else remains 1984-chic.
What I lost was a year of my life living under the pressure of a $1.4 million mortgage. From March forward that pressure included a global pandemic, the work stoppage in high-rises and COVID-19’s potential effects on the real estate market. You may have noted my recent, almost rabid interest in tracking the market (here, here, here, here, here). Those columns helped manage stress and from the comments, helped others.
On a quality of life note, I moved out of the Athena in June 2019 and into the Extended Stay America on I-35 and Inwood Road. I spent five months there before I could move-in. As someone who likes to cook, I haven’t made a meal outside of a toaster or microwave oven in a year. While I have a functional kitchen, I have unpacked very little to minimize repacking when construction begins in my B-unit. It seemed smart at the time, but now …?
In many respects, I stopped living a normal life the day I moved out of the Athena in June 2019 – long before COVID-19.
On the financial upside, I shouldn’t have any capital gains taxes from the A-unit sale. The sale amount above what I paid for the A-unit was all renovation costs.
Almost from the beginning, prospective buyers contacted me either directly or via their agents to see the A-unit. It proved my point that people lack the imagination to see the end of a renovation. The most popular comment I heard was an interest in seeing it when it was done.
One couple saw the A-unit multiple times, even visiting my cabinetmaker’s showroom. They’d been in construction so could read blueprints. We left one meeting saying that our attorneys would talk the next day about drawing up a contract. Hours later, they walked away saying they might make an offer later if the unit was unsold. Given the roller coaster of emotions that produced, I’m glad things unfolded differently and my new neighbor arrives with a clean slate
One intangible upside is that I feel good about restoring two homes back to their intended, usable configurations. The joining was always a mistake. The floor plan never remotely worked. The project needed someone like me to make right. For four years no one wanted the whole thing. Equally, no one wanted to buy it all and go through the double renovation.
I took a huge risk, something I had never taken before – ditto flipping a home. I strongly doubt I’d do either again, but I did once. And while it didn’t pay off financially as well as I’d hoped, I’m now the poorest owner of a penthouse on Turtle Creek that has “lots of potential” (i.e. it’s still pretty dumpy).
I’m Good … Tired … But Good
This column is meant to honestly examine how I got here. I hope it doesn’t read as regret because I have none – except COVID-19 means I can’t have a celebratory CandysDirt.com party before I turn over the keys.
Sure, it’s taken longer and cost more than I could have ever imagined (but that’s true of all renovations). But I parlayed the profit from selling my 1,899-square-foot home at the Athena into a 2,541-square-foot penthouse on Turtle Creek for a $60,000 larger mortgage. Even my credit score – that had dropped 62 points at one time – has rebounded.
I took risks and survived. I have no plans to tempt fate twice … although a friend has asked for help on her renovation.