Real estate broker Brad Litz and homebuilder John Eaton began a partnership to buy, overhaul and flip old homes in neighborhoods like Meridian Kessler and Butler Tarkington four years ago after the new-home construction market cooled.
Those side projects have become their specialty. These days, nothing gets a neighborhood buzzing like the arrival of Litz Real Estate and John Eaton Homes signage in a nearby yard. Once the signs go up, the soon-to-be-revamped home may already have a buyer plucked from a growing waiting list.
Litz and Eaton are making waves by paying cash for older, tired homes in walkable neighborhoods, quickly gutting them, adding designer amenities more common in Carmel, then selling them—often for three times their purchase price or more.
Some neighbors grouse that the duo is pricing buyers out of the neighborhoods—after all, they pay cash, close quickly without contingencies, and don’t pester sellers with long to-do lists. But Litz and Eaton are finding
plenty of customers are eager to pay up for move-in-ready homes, and the resulting rising property values are giving a warm-and-fuzzy feeling to most who live nearby.
“People want a classic neighborhood with modern amenities,” said Litz, 37. “We provide a finished product.”
Litz and Eaton, 43, have renovated 20 homes in the last two years, including in Meridian Hills, Forest Hills, Arden and Williams Creek. In many cases, the projects can barely be described as remodels; they’re entirely new homes within an old shell.
Just ask the neighbors of one of their most recent finished projects, side-by-side gut remodels along Illinois Street a few blocks south of the 56th Street retail cluster.
They bought one for $230,000, and before they even started work had inked an agreement to sell the customized Southern colonial (shown on page 15) for about $900,000. After they bought the first home, the owner of the double next door offered to sell as well; they bought it for about $360,000 and sold the converted single-family home for more than $900,000.
Both homes sit on large, estate-style lots, a key selling point.
“We turned two properties that hadn’t been well maintained into star properties on the block,” Litz said.
The buyers of the two-story Southern colonial, Alex and Brittany Overbeck, had been looking for a home for about two years before their buyer’s agent, Seth Patton with Everhart Studio, connected them with Litz and Eaton.
They knew they wanted an older home, and after briefly considering suburbs including Zionsville, decided they wanted to live in an older Indy neighborhood.
“We wanted some character but with modern finishes on the inside,” said Brittany, 24. (Alex is 26.) “That’s not really easy to find.”
Buying the home was a leap of faith, since the interior layout and décor was “absolutely terrible” before the remodel, she said.
The couple was sold by the drawings Litz and Eaton shared with them, but ultimately they made several customizations. The finished product is less modern than what Litz and Eaton first envisioned, with a large clawfoot tub and a room-size master closet made possible by extending the back of the home by 8 feet.
Home-flipping is not a new business on the north side, but no one to date had done it on the scale of Litz and Eaton, said Clay Bowden, an associate broker with Encore Sothebys International Realty who sells homes in the areas Litz and Eaton work.
“A lot of people don’t have their vision,” Bowden said. “Buyers want turnkey. They don’t know what wall to take out, what wall to put in. I think [Litz and Eaton] are definitely filling a need, and I think we’ll see more people start to do it, seeing the returns these guys are getting.”
They’re on track to finish 10 homes in 2014, bringing in revenue of $10.6 million, Litz said. Margins are in the range of 30 percent on the deals—well above the 15 percent to 20 percent they would get for a contract build.
The margins are higher, but so is the risk. They self-finance the deals with help from private investors. Banks weren’t interested when they started, so they don’t get a cut now that business is booming.
The projects are a 50-50 partnership, with Litz handling deal-making and number-crunching and Eaton handling design and construction. Litz’s brokerage firm employs eight, and the construction firm Eaton Homes has 19 employees.
Flipping homes on spec is the growing portion of their business. They expect it to ultimately make up 90 percent of the total, up from 75 percent.
One challenge is finding inventory. There are only so many older homes to hit the market with the right bones, right location and right price.
It’s a seller’s market in the neighborhoods they target, so Litz and Eaton are aggressive with cash offers—often in the $200,000 to $250,000 range for homes in need of extensive updates.
They’re often competing, at a big advantage, with buyers interested in getting in the neighborhood affordably and working on their own homes, noted Bowden, the Encore Sothebys broker.
“They’re doing a great job, and it’s nice seeing the renovations taking place,” he said. “But I do think they’re pricing some homebuyers out of the market—people who would want to do those renovations themselves.”
Of course, do-it-yourself remodels can drag on for years. Litz and Eaton typically turn around homes in six months or less.
It’s a tricky business since every old home comes with surprises.
“It’s way easier building a new house,” Eaton said. “Every old house has a new problem.”
But both say they love older homes (Litz lives in Meridian Kessler, and Eaton in Crow’s Nest) and enjoy the challenge that differentiates the process from traditional custom-home building.
“It’s a creative outlet for us,” Litz said.
Not everyone is thrilled when Litz and Eaton start a major project next door.
Nancy Showalter, a Meridian Kessler resident for 50 years who lives near a double they’re overhauling into a single-family home near 47th and Pennsylvania streets, complained after workers left the home’s doors and windows open, blocked the sidewalk with a Dumpster, and killed all the grass in the yard where they were working.
“This is different from doing work out in a big field like you would in Carmel or Noblesville,” she said.
Showalter said the company addressed her concerns within 24 hours after she and a Meridian Kessler Neighborhood Association board member lodged complaints. One positive result of the company’s work, she noted, is a boost in neighborhood property values.
Retaining and bringing in new young professionals is the biggest upside in the eyes of Pegg Kennedy, a Meridian Kessler resident for almost 40 years, former president of the Meridian Kessler Neighborhood Association, and a residential broker for F.C. Tucker Co.
The influx of young residents and families should help stabilize the neighborhood and public schools, she said.
“A lot of people left this neighborhood because houses were compartmentalized and they wanted open concepts,” she said. “People need more space and amenities, and these guys are doing it. It’s helping the neighborhood in a broad-based way for a long-term benefit.”
The city’s most walkable neighborhoods will always be sought after, Litz said, but ultimately neighborhoods aren’t sustainable without “modern homes with open floor plans, large bathrooms and plenty of closet space.”
Kennedy, who lives near 40th Street and Central Avenue, at first thought it was “a prank” when Litz and Eaton signage popped up at the southeast corner of 46th and Central, a former church parking lot.
Her excitement only grew once she learned the details: The plans call for two new single-family homes selling for the upper six figures, a once unheard-of price for the area. One already has a buyer.
“The neighborhood has changed immensely, but these guys are pushing it faster and faster,” Kennedy said.•