Saturday, April 19, 2008

Flippin' Ain't Easy

Address: 514 Temple Ave, 90814
Asking Price: $549,999 (Whaddaya say we call it 550?)
Down Payment: $54,999
Monthly Payment: $3,500
Income Requirement: $137,000
Year Built: 1923
Size: 2 beds, 2 baths, 1240 sq. ft.
$/Sq. Ft.: $444
Purchase price: $520,000
Purchase date: 9/2005
MLS#: R801951
On Redfin: 55 days
Description: Great home for 1st time buyers. Rose Park historic area. Beautiful spanish style home, totally upgraded interior and a few blocks from the beach. New recessed lighting thoughout the home, new kitchen cabinets w/ granite counter tops. Upgraded bathrooms w/ new bathroom vanity's, mirrors, tile and new bathtub, toilets and showers. Master bathroom has walkin closet. New sliding french style rear doors.


By the way, I love the “perfect for first time buyers” line—possibly one of the dumbest realtor clich├ęs. Hey idiot, you're asking more than half a million dollars! How many first time buyers do you know with that kind of scratch?

Plus, a $137,000 household income is required to realistically afford this place. Someone with this kind of income and a $50,000 down payment doesn’t exactly sound like the type who would be in the market for a “starter home.”

Furthermore, if this stucco bucket is so affordable that it’s great for a first time buyer, then why aren’t the sellers just keeping it and reveling in how "great" it is?

Since realtors clearly aren’t referring to affordability when they say, “first time buyers” what they’re really saying is, “You’re just a few years out of college, you know what’s like to live in a shit hole.”

This dump is no more “perfect for first time buyers” then black tar heroin is “perfect for health nuts trying to lose weight.”

I walked by this place the other day and poked around. I’m pretty sure the Glamour Shots people were responsible for these pictures—it’s actually CONSIDERABLY uglier in person.

I didn’t get to go inside, but I can tell you with some confidence that the lawn is the best feature of this property.

There is a very creepy vibe to this house. As you can see in the photos, blue painter’s tape is around the front windows and all over the house. The kitchen upgrade is incomplete, floors are unfinished, and there is “construction” dust all over the kitchen and bathroom countertops.

I mean, just look at the hastiness of the listing photos. They were so desperate to get out of there they couldn’t even wait until the movers finished clearing out the rooms! Mattresses against the wall, dressers wrapped in cellophane, moving blankets…it’s just eerie how quickly this home was deserted. It’s as if these people were living in the home, working to fix it up and then ZAP!, they were suddenly vaporized.

It’s pretty clear that this is a flip gone flop.

The former residents got in over their heads financially and got the hell out of dodge. And judging by their hilarious pricing strategy and lazy-ass photos, I don’t think they’re the types to make much effort to avoid foreclosure.

Think about it, if you had a $3,500 dollar monthly payment, plus the costs of upgrades, not to mention property taxes and insurance, and as you slowly realize your salary can’t support this crushing debt-load, the market takes a dump and you’re suddenly 15-20% underwater…what would you do?

If you were shrewd, you would send the keys back to the bank and walk away. It's either that or spend the next 30 years enslaved to a 85-year-old shit box sitting on a busy street worth half of what you paid, that even if you could rent it out, would not come anywhere near covering your monthly carrying costs.

The plane is engulfed in flames; time to grab your 'chute and bail out.

My guess is there will be a Notice of Default on record very soon. This baby is going back to the bank unless the sellers start pricing aggressively and take a substantial loss.

And let’s talk about the wishing—errrr, asking price. If this seller, who is long gone by now, manages to find a knife-catching buyer with severe head trauma to pay asking price, after a $33,000 realtor commission this seller will have to write a $3,000 check to get out with their credit in one piece. Worth every penny. You got off easy.

However, if you factor in two-and-a-half years of mortgage payments, the total loss will be more like $60,000 (with a banana republic loan) to $105,000 (with 10% down and a fixed-rate loan).

It's obvious they're not interested in selling--only in getting out without any financial repercussions. Sorry pal, those days have long since passed. These days it's write a $100,000 check or walk away.

By the way, those loss calculations are assuming someone buys at this pipe-dream $550,000 asking price. We all know that’s not going to happen. To provide a little perspective, if we take the 2000 price of $210,000 and factor in 8 years of a very generous 5% appreciation, this house would be valued at around $290,000. Slap down some ugly ass tile flooring (ugh) and a few countertops, factor in the foreclosure competition in the neighborhood and we’re at about $310,000.

New Selling Price: $310,000
New Down Payment: $31,000 (totally manageable for first time buyers)
New Monthly Payment: $2000 (this matches with a .30 debt-to-income ratio and is somewhat close to rents for a comparable house)
New Income Requirement: $77,500 (this is still higher than the local median household income, but it’s getting there)

So you see, this place actually is great for first time homebuyers—once it receives a $240,000 discount.

1 comment:

  1. Down to 400K now... 150-200K more and it would be worth considering.