To a dabbler in spec remodeling, the real estate agent’s call last spring would have been tantalizing. To Mark Wade, who’s in the business of buying, remodeling and selling old buildings in Center City Philadelphia, it was the blast of a starting gun going off.
The agent told Wade that 268 S. Third St. had just listed for $350,000. "I knew the house exactly," says Wade. He immediately drove to meet the seller at the house. Wade offered $300,000, then $325,000, then $350,000. Within half an hour, the house was his.
When it comes to acquiring real estate in Center City, "I grab it quick and I ask questions later," Wade says. Although he does not have all the investment analysis buttoned down before buying a particular building, Wade is a walking book of knowledge about properties, prices and potential buyers in the six neighborhoods that form his target investment area.
|Choosing a Property|
|Mark Wade uses the following informal checklist in deciding whether to buy a building to remodel for resale:
A former real estate agent, Wade’s been buying and re-selling houses for his own portfolio--that is, spec remodeling--in the tony Center City area since 1995. "I’ve been in 8,000 houses in Center City," he says. "Every Sunday for 10 years, I’ve gone to open houses. I’ve spent years studying the market. I know what the market wants and what buyers will pay. I know how to improve with out over-improving [a rehab property]."
Wade recognized 268 S. Third St., an 1813, Federal-style townhouse that had been vacant for 25 years, as a sleeper on one of the best blocks of Society Hill, one of the oldest, most expensive, most desirable neighborhoods in the city. He is confident he can turn the property into a stunner and sell it for $1.2 million once the transformation is completed in November.
Wade’s blend of unparalleled market smarts, aesthetic inspiration, and educated intuition has made him highly successful in Center City spec remodeling. Would more systematic project analysis make his business even more profitable? Professional Remodeler editorial advisory board member Bill Asdal, CGR, a contractor who remodels properties as investments, thinks so. To test these the theory, Professional Remodeler chose Wade’s 268 S. Third St. project as the 1999 Model reMODEL. The project demonstrates how Wade runs his spec remodel company and how new business models could raise the operation to a higher level.
During the eight years Wade sold real estate, he saw the Center City market come alive. The urban Philadelphia area, cleaned up and convenient to jobs, became the "hip place to be," he says. Wealthy baby boomers raised in suburban ranch houses began migrating into town, hoping to nab an old but elegantly restored house in a historic area, most notably Society Hill. Demand was high, supply was relatively limited, the economy was healthy. Prices for fully restored luxury houses rose to the $1 million mark and above. Buyers never blinked.
In 1995 Wade and his brother, Paul, a CPA, set up Wade Properties, Inc., and bought their first investment property. "Twenty six houses later we’re at the Model reMODEL," says Wade. "I believe the market is there [for the foreseeable future], he says. "People are always moving, and every house in Center City is in a different state of disrepair.
Wade bags choice properties by being on-the-spot, he says. He’s in the Center City area every day, talking to people, looking around. "I keep my ear real low to the ground and if a house comes on the market, I’m there." He adds, "As long as I buy it right, I won’t lose." His record is impressive. "My worst- case scenario is to break even," says Wade. "I lost $200 on one house, but made money [on the other 25]. Sometimes we make a profit which is 50 percent of the purchase price."
Wade finances the purchase with funds from a bank that provides 60 percent of the appraised value for 10-percent interest. One or two private investors kick in lump sum payments two or three times during the remodeling phase in return for a share of profits.
Wade works with one architect, who draws rough plans for the remodel. Guided by ideas gleaned from magazines and feedback on previous remodels, he adds closets, or decorative molding, or a custom mantel. Only the best products and finishes go into Wade’s houses. His sophisticated, upscale buyers can sniff quality a mile away, he says--or, to be more precise, "they know lack of it."
Although Wade is the inspiration behind property selection and rehab design, John Fries runs the construction process. For the past five years, Fries’s Philadelphia company, Wissahickon Valley Construction, has kept busy doing Wade’s projects. "We just have to look at each other, and John knows exactly what I’m talking about," says Wade. It’s a win-win arrangement. Wade trusts Fries to do quality work; Fries respects Wade’s market expertise and regards him as a "client who will be a client on the next job."
Wade now rewards Fries with 3 percent of profits on projects. By mutual consent, he pays Fries on an hourly basis. The cost-plus system helps Wade, says Fries, because he can make changes on the fly. "I know I’m not leaving anything out," he says, and there aren’t any hidden problems or expenses not covered by a fixed-price contract.
The moment Wade acquires a property, he puts it up for sale. A small sign in front of the Model reMODEL generated three or four calls a day when the house was being remodeled. Wade featured the house on his website, webuyandsellcchomes.com. He routinely spreads the word about his properties through informal, word-of-mouth channels, neighborhood flyers and small newspaper ads. At open houses, he offers to split the 6-percent broker fee with any real estate agent who produces a buyer. One of every four of Wade’s houses sells in the first two weeks after completion, often to the first person who walks in."If the offer is close to the asking price, I’ll take it,"says Wade. Another 50 percent are sold within three months.
The Model reMODEL caused quite a buzz among potential buyers, because of its premier location. Wade kept the names on file, but preferred not to show anyone the house until all the work was done, he says "My kick is my finished product."
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