Building a business of taking real estate to its “highest and best use” is both an art and a science. Here, we share an interview that RealtyShares, a prominent real estate investment marketplace, had with Katherine Gladkov, an experienced realtor who has recently moved her business toward speculative in-fill homebuilding in neighborhoods throughout West Los Angeles. Los Angeles, which was developed years ago with homes that may no longer satisfy the demands of available buyers, presents opportunities for house flippers or re-developers who understand the construction features that sell (the art) and the permitting processes and construction costs required to bring product to market (the science). RealtyShares asked Katherine about her insights into the current L.A. residential real estate market and where she thinks things might be heading.
RealtyShares: Katherine, what inspired you to enter the real estate business?
Katherine Gladkov: I was born and raised in St. Petersburg, Russia, and was originally trained as a doctor there. When I immigrated here in the 1990s, however, it became clear that I would have to re-start my medical training if I wanted to stay in that field, and that would have been tough. Instead, I began to look for another career path.
Both my husband and I have an entrepreneurial mindset, and the opportunity to work for myself in real estate was appealing. I worked to get my realtor’s license and began my career that way. My husband and I began making our own investments in real estate soon afterward.
RealtyShares: What were your first ventures in real estate investing?
Katherine Gladkov: While working as a realtor I learned a lot about the local market in West Los Angeles, and in 2000 we began to take on some fix-and-flip projects. We lived in the Mar Vista neighborhood, which is well located but which had some houses that had seen better days, and we thought that we could make some money fixing them up a bit before re-selling, trying to add value with improved features that we thought buyers would appreciate and pay more for.
RealtyShares: How did those fix-and-flip projects work out?
Katherine Gladkov: Pretty well, generally. We bought, renovated, and sold a number of local houses, nearly always for a healthy profit. We usually focused on kitchens and bathrooms, which are often the areas of a house where updating can provide the most added value.
As one example, in 2004 we bought a 4 bedroom, 2 bath, 2,000 sq ft house in Mar Vista for $750,000. We remodeled the kitchen and the bathrooms; reconfigured the floor plan; and added a few windows. None of this increased the square footage of the house, but still we were able to sell this house a few months later for $1.1 million. We made some decent money with those projects until the Great Recession hit, and then we had to sit on the sidelines until things stabilized a bit.
RealtyShares: Once the storm had passed, you took on bigger projects. You’re now more focused on tear-downs and speculative homebuilding. What caused the move to that riskier part of the business?
Katherine Gladkov: The experience I had gained in every aspect of the business! First of all, I knew pretty well the expected cost of specific projects to be sub-contracted out. Second, I had a team of sub-contractors that I could trust with the speed and quality of the job. Third, I had a pretty good understanding of the property market. Fourth, I got more financial stability and therefore was able to look into a bigger projects with bigger profits.
RealtyShares: How would you describe your focus? Are there certain criteria you use to evaluate properties and their neighborhoods?
Katherine Gladkov: The analysis of the specific sub-market – or even neighborhood market — is very important in this field. I am focusing on the areas that I already know pretty well, and have observed the dynamics of for a number of years in evaluating in-fill homebuilding projects.
Another important aspect is the demographics of the area. Very often these will change due to a specific trend, or because larger companies (like Google, on the West Side) develop offices in the area. These developments tend to bring a “new wave” of buyers to a neighborhood.
RealtyShares: Any particular tips you have for dealing with the building process itself? Do you now have a good network now of reliable contractors?
Katherine Gladkov: The architectural design stage is probably my favorite part of the process. It is where I feel creative. I also believe in a floor plan that really functions well. I am a homeowner myself, and I think a house’s functionality is sometimes more important than the most recently trendy architectural innovations.
After the architectural plan is finished, the process of approval by the city can take a pretty long time — sometimes 4-5 months, depending on the size of the project. After the approval is issued, the actual demolition, foundation work, and framing can be a pretty speedy process. On a smaller project, all of these steps might take no more than 2 months!
It is important to know your sub-contractors. They need to come by referrals, and it is a good idea to get several proposals to compare.
RealtyShares: Most of your projects seem to be for mid-to high-end properties, in the $2 million to $5 million range. Are there particular features that you see buyers appreciating when it comes time to market a property?