1.9M dated house at the bottom of a luxury market, is entry-level luxury a safer first swing or just a worse one

Before anything else, how many houses sold in that pocket between 2.5M and 2.9M in the last twelve months? Not listed. Sold. And what was the median days on market for those.

If the answer is 30 sales you have a market. If it's six, your exit is a queue of six buyers a year and your carry math has to survive being fourth in line. I ask because I've talked myself out of two deals on exactly this number and I still don't know if I was being careful or just scared.

Naive question from the rental side. If it doesn't sell, can you rent it and wait? I know that's the standard fallback lower down the price ladder.

@wren rent on a 2.7M house is usually nowhere near the debt service on 1.4M at 10.5 percent. The fallback doesn't exist at this level, or it exists as a way to lose slower.

Quarry, I'm a few deals in and hit the same ceiling you're describing, so I've thought about this exact jump. Going from a 600k purchase to a 1.9M purchase multiplies every mistake by three. Same number of hours, sure. But your 350k cash cushion, which is comfortable on a 500k flip, is thin here. One structural surprise and one extra quarter of carry and it's gone.

The thing making you uneasy might be that you're bringing a mainstream operator's cushion to a luxury operator's problem.

Who's listing it when you're done? At that price the agent isn't interchangeable. The ones who actually move 2.7M houses in a specific pocket have the buyer relationships, and there are usually two or three of them per submarket. Go talk to them now, before you offer, and ask what they'd want the finish level to be. That conversation is free and it'll tell you whether your 450k is a real number.

Sorry, what does pocket mean here? Is that just a neighborhood?

@rigging yes, a sub-neighborhood, the few streets that comp together.

Quarry, math. Sale at 2.70M. Selling costs 5 percent, 135k. Purchase 1.78M plus 15k closing. Reno 450k. Carry, and I'll be generous at 22k a month for 10 months, 220k. Total out 2.598M. Profit 102k.

That's on 2.7M of value and roughly 800k of your and your lender's money at risk for most of a year. I do thin margins for a living and that's thinner than my thin. Your spread is not fine.

@flint's carry number is the optimistic one and his reno number is the fantasy one. 450k on 4,100 square feet is 110 a foot. That's a good mainstream gut. It is not a luxury finish package.

At 2.7M in an expensive suburb, buyers walk in expecting real millwork, a kitchen where the appliance package alone is 60k to 90k, stone rather than quartz lookalikes on the primary surfaces, and windows that don't look like 1978. Any one of those blows your number. I've watched an allowance for interior doors and casing triple because the first bid was priced as builder grade and the designer specified something else.

You'd be somewhere between 160 and 220 a foot to hit that band properly, which is 650k to 900k, not 450k. Price the scope before you argue about the offer.

The line that stopped me was "leaves me essentially nothing for reno draws until the first one funds." How is the first draw funded? Most construction draws reimburse work already completed and inspected, so you pay the framer and the plumber first and get the money back two to four weeks later. If your 350k is entirely in the down payment, what pays the first three weeks of the job?

I'm still working out my own first deal costs so I might be missing something, but that looks like a hole before the deal even starts.

What happens if the buyer's appraisal comes in at 2.5M instead of 2.7M? Does the buyer walk, do you cut, or do you find a cash buyer who doesn't need one? At 2.7M I'd guess a decent share of buyers are financing something, and there may be very few recent sales for the appraiser to use.

The crews who do genuine high-end finish work are booked and they don't come off a job to squeeze you in. On our schedule the high-end cabinet shops quote 14 to 20 weeks and custom windows are worse. If your 10 month carry assumes trades appearing when you call, add three months. @harrow's dollar numbers and my lead times are the same problem showing up twice.

I went and pulled what I could for a comparable pocket near me as a proxy, since quarry hasn't posted his. Nine sales above 2.5M in twelve months, median days on market 88, longest 214. Nine sales is one every six weeks, and that's arrivals, not buyers who liked the house.

So the theory that the bottom of luxury has the deepest buyer pool holds relative to the top of luxury. It does not hold relative to anything quarry has flipped before. Also, sale prices aren't public everywhere, a dozen or so states don't disclose, so depending on where you are you may need an agent to pull this.

This is the same thing I posted about in my carry sheet thread. My 19.5k a month turned out to be missing vacant insurance, staging, and security, and staging at this price runs monthly for the whole listing period. If quarry's 22k is built the way mine was, it's low, and it's low for every one of the 88 or 214 days @windlass just posted.

Isn't the buyer at the bottom of a luxury pocket often just a move-up buyer from the mainstream market, someone selling a 1.4M house? If so they'd behave more like normal buyers, more of them, more financing, faster decisions. That would be a point in quarry's favor, wouldn't it, or does it just mean they're pickier about price because they're stretching?

@ember I read the guide chapter for this room twice and I think both things are in it. The thin buyer pool is the defining risk, and it gets thinner the higher you go. Your move-up buyer idea would make 2.6M to 2.75M the deepest part of luxury rather than a deep market in absolute terms. Nine sales a year is still nine.

What I don't understand yet is why the deepest part of the luxury band also seems to be where the margin is thinnest, per @flint's math. Is that just competition from other flippers who thought the same thing quarry did?

@juniper partly, yes, and partly because the renovation cost per foot at that finish level doesn't scale down when the sale price does.

Quarry, concrete suggestion. Get a GC who actually builds in that price band to walk it with you and give you a rough order of magnitude before Friday. Two hours of their time, maybe a few hundred dollars, maybe free if you're plausible. If they come back at 700k you have your answer and you saved yourself a year. If they come back at 480k you have something to argue with. Right now you have a number you got by scaling up a 500k flip, which is how the 1970s mechanical systems and the window package end up as surprises.

The capital gap is the real blocker. On @harrow's scope this deal needs something like 1.78M plus 700k plus 250k of carry, against 350k of your cash and a lender at 80 percent of purchase only. You'd need equity from somewhere.

Raising it is possible and people do it, but taking money from passive investors puts you into securities territory and how those rules apply to your specific arrangement is a question for a securities attorney, not a forum. What I'd say from watching private money move is that first-time-at-this-size sponsors get the worst terms available, and the terms are worst exactly when the deal is thinnest.

@sable I'd go further and say don't bring investors into your first deal at triple your usual size. You'd be learning the price band and managing other people's money at the same time, and one of those goes badly first.

Quarry, if I were you I'd walk on this one and spend the next six months doing what @halyard and @girder said, talking to the two agents who move that pocket and one high-end GC, so the next 1.9M house you look at you already know the finish spec and the real days on market. That costs you nothing except the deal you weren't going to make money on. Though I notice everyone in this thread is telling you to walk and nobody has asked what your offer at 1.6M would do to the math.