By: Rob Giuffria, GMS; 1-860-796-4555

I believe the case study method is one of the most effective vehicles for learning and I would like to begin a new series for home seller and buyers. This is the first in a series of real world real estate examples that includes actual stories and the associated outcomes. Names might be changed and figures amended to protect the innocent/guilty client. However, these stories are real! Please email me at Rob@TourRealtors.com for questions regarding this series or visit me on-line at www.RobGiuffria.com. Thanks for visiting!

Client

During an open house, I was approached by gentleman who said that he was an investor and that he regularly bought homes, updated them, and resold them at profit. I later learned that he was a professional (doctor/lawyer) and had a sizable commercial real estate portfolio. 

Opportunity

The house in question was in need of updating and was located in a top West Hartford neighborhood. It lacked curb appeal, but was large (more than 5 bdrms) and was set on a wonderful wooded lot. The seller was facing foreclosure and a job transfer. The home could be purchased below market value, and if updated appropriately, an above average return on investment could be earned. Trends in normal macro-economic risk factors were trending downward and timing was critical to the rehab. 

Recommendation

I recommended that the buyer purchase the home at $250K (figures notional/ratios accurate), invest no more than $125K, and resell the home at $550K. The rehab plan included a new kitchen, floors, updated bathrooms, and painting the house. Finally, I asked that the rehab be complete within 90 days in order to be able to market the home during the prime selling season.  

Outcome

The investor over-spent on items that he liked in a house and assumed that a buyer would value. This exceeded the recommendation for the cap on the capital budget. In addition, the project timeline was not managed effectively and the home was not ready for the prime selling season.  Currently, the home is listed for sale above market value and has not been sold.

Lesson Learned

Market timing can be critical to selling homes. This investor did not consider changing market conditions and also overspent on the house. This was a result of the investor assuming that a buyer for this house would value all the same amenities as he/she did. This was not the case. The investor lives in a $2M+ house and his desires/likes in a home are totally different from a buyer in the market for a $600 - 900K house.