Penthouse Plunge: Going, Going … Almost GONE

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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.

Let’s Review

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.

Not a realistic budget

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.

My pots and pans are in there somewhere

Stressful Limbo

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.

Lookers

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

Personal Gain

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.

mm

Jon Anderson

Jon Anderson is CandysDirt.com's condo/HOA and developer columnist, but also covers second home trends on SecondShelters.com. An award-winning columnist, Jon has earned silver and bronze awards for his columns from the National Association of Real Estate Editors in both 2016, 2017 and 2018. When he isn't in Hawaii, Jon enjoys life in the sky in Dallas.

Reader Interactions

Comments

  1. Bill says

    Hi Jon, I enjoyed reading this article of yours. The spin you put on it made it quite entertaining. Congratulations on getting Unit A sold. Sorry you went through so much drama and didn’t reap the financial reward you hoped for, BUT with these crazy times going on right now with COVID-19 and everything else, I think you might very well be lucky to not have lost any money.

  2. Mike says

    Thank you Jon for the entertaining and informative articles re: your penthouse adventures. I learn something every time I read your writings. Thanks to you, and Candy thank you, for hiring people like Jon who educate lay people like most of us.

  3. Dr. Timothy B. Jones says

    Congratulations Jon! We think a little alike…..bite off the pain to end up with something you otherwise wouldn’t have had! That makes all the difference and now you will renovate the B unit to be your Picasso! I would love to have a “cost effective” penthouse and now you do! Between maintenance fees and property taxes, I’ve never gotten the numbers to where I could sleep at night….you did and that is awesome! Enjoy and please keep writing about it! We want to follow work on B!

    • mmJon Anderson says

      Work on the B-unit will take years to save up for (I was painting just before I put the Athena unit on the market – nearly 7 years after buying). It’s functional now and that’s OK, getting the space is always more important – the rest can come later. And I’ll be honest, if I ever sell the B-unit, it will be because of property taxes.

  4. Rabbi Hedda LaCasa says

    Mazel Tov, mazel tov, Jon! You are community-engaged, a personally revealing writer, and a mensch. However, I fear that the dressing room mermaid met the same fate as the Bonwit Teller, Rene Chambellan bas relief scarf dancers. Do tell?

    • mmJon Anderson says

      Yes, the mermaid is gone. For some mysterious reason, it didn’t fit into the new owner’s design ethos. (It’s taste being a far cry from that of Bonwit Teller.) 🙂

      • Dr. Timothy B. Jones says

        As a recall, the B unit kitchen had a great retro feel to you! Use your talent to build the design around those elements! I’d love to have those appliances! I paid a fortune to buy a retro Bertazzoni for the new house! I have confidence you will have it looking very penthouse in no time……then tinker until it’s all perfect.

  5. Secret in the Dirt says

    Congratulations Jon! It’s a bittersweet moment; on the one hand I am glad you were able to find a buyer. On the other hand I am little sad that this series will end. To echo the commentator above, your writing is informative and entertaining. Thank you for taking us all along for the ride.

  6. Sharon Quist says

    I must say, the sale of PH 18AB to you was probably the most complicated transaction I have ever done in 4 decades. The sale of 18A was not nearly as complicated, but also quite unusual and with its own challenges. I feel sure 18A will turn out to be beautiful and I am sure 18B will fill you with joy every time you enter the door, once the construction is complete. It will be open and light and inviting and entertaining and a home which should delight you for a very long time.
    This has been a very interesting and educational journey and I look forward to watching it continue to unfold.

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