Tuesday, May 19, 2009

Failed Flip in the Ranchos

Address: 7131 E Mezzanine Way, 90808
Asking Price: $645,000
Year Built: 1953
Size: 3 beds, 2 baths, 1,130 sq. ft.
$/Sq. Ft.: $571
Purchase price: $599,000
Purchase date: 4/2007
MLS#: P686990
On Redfin: 8 days
Down Payment: $129,000
Monthly Payment: $3,400
Income Requirement: $184,000
Description: This immaculate, authentic Cliff May Rancho has been extensively refurbished by its owners, and represents the bright, open, indoor-outdoor lifestyle that Cliff May intended in his residential designs. The numerous upgrades to this home include: a custom kitchen with hand built birch cabinetry, full extension glide drawers, and GE profile appliances; new birch paneling throughout the interior and new interior birch doors, all built to original specs; remodeled bathrooms with stainless steel fixtures; an upgraded electrical system with 200 amp panel; and, newer furnace and water heater. This home sits in a quiet interior location within the tract, set back from the street for privacy and serenity. The entire neighborhood is bordered by beautiful El Dorado Park and Nature Center, which has 800 acres of fields, streams, lakes and paths.

DAAAAAAAAAAAAAMN! This Cliff May house is freakin' awesome. I love it!

They did such an amazing job of staging it, I would be tempted to buy it fully furnished. Sure, this house is tiny (I mean, how do you even cram three bedrooms into 1100 square feet? By the way, in laptop computer technology, "mezzanine" means "a sheet of plastic insulating different parts of circuitry from each other in cramped environments.") but overall I'm impressed with the house, the great listing description, and the photos (although that Thunderbird is an early 60s model and misaligned with the 50s theme of the house but I still give them an "A" for effort).

This flipper purchased in April 2007 for $599,000, which, frankly, is completely insane. But he saw potential for massive profits and with dollar signs shooting out of his retinas, he made his move. He obviously put a lot of money, time, and effort into tastefully updating the home while staying consistent with the Cliff May design themes. Unfortunately, he picked the worst possible time to sell.

You see, even if he was able to find a knife-catcher willing to pay this absurd asking price of $645,000, commissions alone would eat up $38,700, leaving a meager profit of $6,300 for his troubles. The only way this guy is walking away with any profit whatsoever is if the upgrades cost less than $6,300.

I guess he saved a few bucks by choosing cheap floors and hideous blue formica countertops (WTF?) for the kitchen...

...but still, I'm guessing these improvements, updates, and furniture set him back at least $60 grand.

That means, if a buyer decides to pay full asking price of $645k (the second most expensive house in the Ranchos by $5,000), the loss to the flipper will be at least -$92,000.


Worse yet, that doesn't include the carrying costs for two years of ownership, which would run about -$67,000. And that's after the tax benefit!

Ultimately, the total out-of-pocket cost of following his Flip This House-inspired dreams of real estate riches will likely be -$159,000.


Those losses, of course, assume this flipper can find a knife-catcher foolish enough to shell out for this stylish, but cramped and overpriced homestead. Not going to happen.

And here's why. First, although we have seen a wide discrepancy in Long Beach between the asking per square foot price versus the ppsft homes actually sell for, in 90808 that's not the case:

It's pretty clear that most homes in 90808 are listing, and selling, for $340 per square on average. This dude is trying to unload for $571 per square for one of the smallest Cliff May models. Yeah, good luck with that.

Second, this nearby seller's Cliff May house is arguably just as nice as 7131 Mezzanine (seriously, take out the modern/retro furniture and they're pretty similar) and has 200 extra square feet, an extra bedroom, and nice hardwood floors.

And the Kallin house, rotting on the market for 108 days, is asking $30,000 less!

In other words, the Mezzanine flipper is in deep shit if he doesn't start pricing competitively. Like, yesterday.

When property values inevitably come down to earth and align with local incomes (a healthy $82,431 in this zip), I would be all over a house like this, as small as it is. Until then, the longer this guy waits to lower the price, the more crushing the monthly carrying costs will be, and the further into the hole he will go on this well-executed, but poorly timed, flip.

Hat tip to Carl


  1. I love those houses, too. The ceilings in particular are nice, and give a very open look to them. And it's in a great area. But holy smokes, three bedrooms, two baths in 1130 sqft? My girlfriend's 3br ONE bath house at 1170 sqft seems cramped.
    Guess they used a wide-angle lens!

  2. OT --

    El Bee, remember that little probate joint on the corner of 6th and Grand (535 Grand)? It's got a sold sign on it today. And last week I think I remember seeing (in the Grunion? maybe) that the price had been dropped, either to 355K or 333K. I'll be curious to find out what the final sales price was -- if indeed this is well and truly sold. At 333K it's still waaaayyyy overpriced, more like a figure from 2002 or 2003. One bedroom, no lot, and the bathroom from hell.

    Get the band aids! Someone's hands are bleeding badly.

  3. One other note - the house on Kallin has Central Air!!! and with those ceilings (little or no insulation) that look really trendy but are horrible during the summer some type of cooling is a blessing. The flipper just put lipstick on the pig (pretty pig but still a pig).

  4. I was hoping I would see something on this place. Well done, El Bee!!!!

    I just came back from Louisville and saw this. Our son is a junior out there, and I finally titled him his car.

  5. Just a 1993 Camry with nearly 190K on it. I thought it was time to hand it over.

    BTW, Jefferson County Clerk's Office Motor Vehicles Dept. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> California DMV. We were in an out of the DMV office (including inspection) in about one hour WITH a KY license plate.

  6. I was hoping it would be some sick classic with a 396 in it.

    But hey, in college wheels are wheels!

    Wow, an hour WITH a plate? Pretty efficient!

  7. Yeah, it was weird. The woman behind the desk (yes, desk as there was no 1.5" bullet proof glass in between us)was MORE than helpful, and was pleasant. I guess those KY residents pay attention to the "No firearms in County Buildings" sign.

    Also, my ass was feeling normal once I left, which is totally different that the CA DMV. I had anal-ease ready to use, but didn't need it.

  8. Several years ago I went back to my home state of Illinois to get a car of mine ready to drive back out here. The plates had been expired for a couple of years, and I was ready for some major grief. The lady who was the head of that particular DMV knew me from community college, and hustled my paperwork through in about 15 minutes!
    At the CA DMV, I would have packed a lunch!

  9. Flip? How many flippers do you know that take 2 years to do a flip? This was not a flip but unfortunate timing for the owners/renovators.

  10. Anon,

    I see your point. It doesn't look like a "traditional" flip because they took two years to cash in. But, IMHO, anyone who dumps a whole bunch of upgrades into a house and expects to extract a profit qualifies as a flipper--regardless of the timeline.

    I agree that this is "unfortunate timing for the owners/renovators," but ONLY because they are trying to sell for a profit ("trying" being the operative word). The renovator in question CLEARLY never intended to live in the house. Otherwise they'd still be living there, right? That makes him/her a flipper.

    But, regardless of our definitions of "flipper," I'm pretty sure this will be a money-losing proposition. The carrying costs (while waiting for the market to "return to normal"), upgrade costs, and commissions all but guarantee that.

  11. You stated your calculated losses, but say that the owner "expects to extract a profit"? So, I guess you are aware of the loss but somehow the owner isn't? I think they are aware of the hit they are going to take.

    "IMHO, anyone who dumps a whole bunch of upgrades into a house and expects to extract a profit qualifies as a flipper--regardless of the timeline."

    Your definition paints an awful lot of homeowners as flippers. I'll go with the wiki definition and say that "quickly" is key. http://en.wikipedia.org/wiki/Flipping

    "The renovator in question CLEARLY never intended to live in the house. Otherwise they'd still be living there, right? That makes him/her a flipper."

    How about a job transfer? Moving to be near an ailing family member? There are many reasons people move. But those wouldn't justify your schadenfreude, so yes, I'm sure they were trying to flip it.