When it comes to making waves in development circles, the big guys can make a big splash with a single project. But it’s the little guys who act as the steady steamrollers of progress, building up Buffalo neighborhoods.
I recently learned about a residential rehab project at 96 Baynes on the West Side, which was pretty much a gut job (see images below). One of the guys behind the project was Nick Corto, Realtor with Hunt ERA. The work was conducted in conjunction with his renovation company Buffalo Renaissance Properties (BRP). Nick, along with his partner (and brother in law) in the project, Joe Constantine, documented the redevelopment project, and even produced a short promotional film for BRP by Eric Battin, Owner of Battin Film Co.
After watching the film, and taking a closer look at the 96 Baynes project, I decide to reach out to Nick, to ask him a few questions pertaining to the 11 investment properties thus far in 2018, four of which have sold, and all which have turned a profit.
Where are the properties that you have bought with the intentions of fixing up in 2018?
- West Side – 4
- Elmwood Village/Albright – 3
- North Buffalo – 2
- Hamburg – 1
- Orchard Park – 1
What struck you about the Baynes property?
Baynes Street, south of Auburn, was a major focus – we have renovated 3 homes on this block. This was due to the proximity to the Elmwood Village and the existence of market support in the surrounding neighborhoods to push the After Repair Values (ARV) higher. ARVs are a critical factor in our business model since it strongly offsets investment risk to a project and allows us to push the envelope in our rehabs with confidence that there is a market appetite for the product. This is one of the core aspects of our model because we won’t be comfortable doing this level of quality just anywhere. When it comes to location, we do a significant amount of geo-targeting on a very granular level, which also comes from our experience growing up here, knowing the neighborhoods, the desirable streets, and other rehab work being conducted by other investors in the area. As a Hunt Agent, I also have considerable amount of data that tells the story of value, activity, and trends that aid in this targeting process.
How many properties are you rehabbing currently?
At the moment, we currently hold title to 7 investment properties, 6 of which are in various stages of redevelopment or currently being sold. We are consistently marketing to various channels of distress to keep the pipeline full and our goal is to consistently have 10-12 titles evenly staggered in development in their phase. It’s not always perfect since deals may come at different times, but generally speaking, timing does come into our general thinking so we can manage the work at hand in a pragmatic efficient way.
Where are you setting your sights next?
Some of the key target areas we are looking at are what I refer to as “fringe pockets” which include parts of the West Side, South of Porter, the East Side south of UB, Jefferson Ave, and South Buffalo. These are areas that have the general support of comps within a mile but for whatever reason have been neglected. The Baynes Block is a prime example of this. Going 2 blocks north and east you’ve got some great streets like Livingston, Putnum, and Richmond, as well as some higher valued homes on Baynes as you head towards Buffalo State. But for whatever reason, this block had a few houses that were neglected and we felt it was a block that had significant potential. It was a perfect combination of where we could buy them right to be able to put more into the actual rehab work, the finishes and the accents and make the property more valuable to the end user.
In addition, we also look within mature stable markets to spot those individually distressed homes that for one reason or another have been neglected and hurting the values of the surrounding neighbors and can be bought at a discount given the current conditions of the home. These are places like the Elmwood Village, Kenmore, OP, Hamburg, Grand Island, West Seneca, Snyder, and Williamsville. 114 Henning Drive in Orchard Park was an example of a project we did in a very stable, highly desired neighborhood in Stonehenge within the Orchard Park school district. The home was a complete cosmetic makeover to a level most home owners shied away from . The home sat on the market until it expired and the owner realized it was better suited to go to someone like us that could bring it to its full potential.
What is the ideal property that you look for?
We love houses that have original character that have been somehow neglected. We love original accents that we can turn into focal points that tell stories. Anything that can allow us to mix old and new and show contrast are always fun projects. That said, we have to adhere to the inventory at hand and like any viable sustainable business, have to make sure the numbers can make sense for our investors. Not all projects can be sexy, but when we do have the opportunity to take on a historical renovation, it is a privilege to do so.
What struck you most about the Baynes property, considering the place was a mess?
96 Baynes had been on our radar since the start of our other 2 flips on this block (102 and 97 Baynes) and currently had construction crews working nearby. On the surface, the sheer size of the house, the driveway, the yard were major points that drew us in. The other major difference in this home was the 10 foot ceilings on both floors, and the beautiful original work within the downstairs fireplace. What we didn’t know was that the upstairs also had a 2nd fireplace (lead image) that was hidden inside the walls! This was a pleasant surprise, and we loved it so much we made it the focal point of the upstairs. Instead of making it a 4 bedroom, we reduced it to 3 and created a 2nd floor “sitting room” that greets you, followed by French doors leading into the master suite. Something that made it unique and individual to the existing style of the home.
See ‘before’ images:
What did you learn about this property – what was the takeaway?
The takeaway on 96 Baynes is to not be afraid to go the extra few steps to make something great. Buyers will pay for quality when it’s done right. We took significant risks with this rehab, given that we spent $2 in construction costs for every $1 in acquisition which for us is on the high side, but in doing so, we brought out its full potential, and so far from the feedback and the quick sale of the property with multiple offers, the risk has paid off.
What is a word of advice that you can offer to someone that is looking to tackle a project of this nature?
Begin with the end in mind… the end user. When you have this customer at the top of mind, the right decisions follow. Our reframing of the bedroom counts upstairs, the addition of the master suite, the master powder room/walk-in closet space, adding in a junior bath, recessing the wall to create the open kitchen concept with an island, the chimney refinishing, adding 1st floor laundry, and adding tasteful, modern finishes all kept the end user top of mind. The result was that we spent a decent amount of money but felt we really hit a bullseye with our target “modern chic/urban lifestyle” audience, and judging by the multiple offers received on the project, the risk paid off.
Have you ever thought about building a house? Or just rehabbing?
Yes, that has been discussed for potential future endeavors, however based on our business model and capital structure, ground up new builds involve a different level of risk given the investment has limited asset-based collateral. Also timelines are usually longer which must be accounted for, so at this time, we are still building our track record to demonstrate performance with rehab projects that have an existing distressed asset, primarily since they act as a form of collateral for investors.
How do you find the houses that you rehab? Is it getting as hard to find houses as they say?
Not easy, but with a system, it is very manageable. This is the “secret sauce” in real estate investing … deals are there, you just need to know where to look. Sure, they are less common than in down market cycles, however, even in hot markets, not all deals are ‘MLS ready’ in their distressed conditions, nor does every seller have the same financial or personal circumstances. You just need to understand how and where to find them and understand its not just the assets that you look for, but the situations in which a distressed sale makes the most sense for both parties. How an investor defines “distressed” will often lead to the answers on where to find deals.
What are some red flags when it comes to purchasing a house – what do you tend to stay away from?
Many new investors hate dealing with major structural issues because they view these as “red flags”. That is not the case with us because we know these are the homes that need our services the most! We aren’t buying homes at retail prices so we must be comfortable with a typical home buyer’s “red flags” since this is how we as investors add significant equity into a project. I would say the deals I tend to shy away from are more based on location and far less on the construction issues. Anything can be fixed including foundations and structurals, but it’s the price that dictates whether or not it will be both a viable and profitable project.
Often times we will be negotiating with a seller who is completely unrealistic with the work involved from a construction standpoint and doesn’t understand that as investors, there has to be a reasonable margin for us to want to take on the project. To me, the biggest issues investors get into is that they are too hungry for inventory, don’t negotiate properly, overpay for their project… construction budgets are squeezed and the project doesn’t sell as expected, so investors are forced to reduce their price and incur a higher carry cost. All the while, the eventual seller ends up with a lower quality renovation and less value has been created. Therefore, our red flags are much more centered around the location and ensuring the price reflects all the red flag items into the deal.
Do you sell the rehabbed properties? Or hold onto them as rentals?
At the moment we are solely focused on re-selling, however do plan to carry more buy/holds on the next down cycle.