On Sunday August 11, Arixa Capital's Jan Brzeski was featured in a Reuters news article about the resurgence in the luxury home fix-and-flip business. Arixa Capital is a private lender that provides financing to developers in California who are purchasing luxury homes to renovate and resell.
The following are excerpts from the article.
Brzeski said he had originally been wary of the high-end market, because of the much bigger sums involved and thus greater risk. But then in 2011 he financed the purchase of a house in West Hollywood for $1.425 million. Another $1.175 million was spent on a total refurbishment.
"When the developer put it on the market, they had multiple, all-cash offers," he said. "There was a line out the door to buy it. It sold for $3.5 million. This was an incredibly profitable project. This really opened my eyes."
Brzeski's business model is simple. Using a fund of investor money he lends 75 percent of a project's "hard costs" - that is money used for the purchase and refurbishment - and collects interest at an annual rate of approximately 10 percent.
"Almost all our homes in these A and A-plus neighborhoods have something in common. You look at the appliances in the kitchen. If they are from the 1960s or 1970s, that's the house to flip," Brzeski said.
"The market has gone through the roof. You see people buying properties one year ago and selling them at 20, 30 percent profit. Some of these are no more than paint jobs. The ones that are doing big rehabs are making huge profits."