Wednesday, February 17, 2010

Flipped Off Flipper

Address: 5200 East ATHERTON St #125, 90815
Asking Price: $299,500
Beds: 2
Baths: 1.75
Sq. Ft.: 1,241
$/Sq. Ft.: $241
Year Built: 1965
MLS#: S581393
On Redfin: 222 days
HOA: $420
Down Payment: $60,000 (20% down)/$12,000 (FHA)
Income Requirement: $86,000
Monthly Nut: $2,000 (20% down)/$2,200 (FHA)
Description: This SPOTLESS and HUGE 1300 sqft 2 bedroom - 2 bathroom 'C' Model has been scrubbed, painted, hardwood floors refinished, ceiling acoustic removed with new skip-trowel finish, new baseboards installed, recessed lighting in kitchen & bath, kitchen cabinets refinished, new faucets, new mirrored closet doors, vertical blinds, stainless steel appliances including cooktop, built in oven, over-cooktop microwave, dishwasher AND new dual-pane windows throughout plus slider door. It even has central air and heat!!! This is one of the nicest, cleanest, most dialed-in properties I have seen! HOA fee includes TONS of STUFF like CABLE-WATER-TRASH-PEST CONTROL-MASTER FIRE INSURANCE-PLUMBING-ELECTRICAL-ON SITE MAINTENANCE PERSON and MORE!!! GARAGE directly UNDER unit & NOBODY BELOW!!! Come and make it yours!!!

Look, I'm fine with rounding up square footage just to make it easier, but this idiot is taking it to new heights. The listing information clearly states it's 1,241 square feet, meaning you can reasonably round up to 1,250. This jackhole for some reason decided rounding up to "1300" was appropriate.

Yes, it's not exactly the height of dishonesty, but it gives you an idea of the type of realtor we're dealing with.

This apartment in the Los Altos area would make a fantastic rental for college students. In fact, when I went to CSULB I lived right down the street and really enjoyed it.

However, the area is lousy with drunk college kids, so I doubt an owner-occupier would be interested in living here.

And although the $420 HOA fine seems outrageous, keep in mind cable, water, trash, and insurance are included. Best of all, on-site maintenance (much like living in a rental apartment) is included. That means this truly is approaching the "hassle-free" living all HOAs promise but never quite live up to.

Plus, given the 1965 build date, that maintenance accessibility might come in handy.

Anyhow, I guess the question is whether $2,000 a month is a reasonable monthly nut for this unit. This flipper sure hopes so.

You see, according to Redfin Flippy McDumbstain purchased "at the bottom" in June 2009 for $262,500--a massive $117,400 discount off the original 9/2008 asking price. Given that, he probably thought he got a smoking deal.

Nov 02, 2009 - Price Changed $299,500
Oct 01, 2009 - Price Changed $309,500
Oct 01, 2009 - Relisted
Sep 18, 2009 - Delisted
Jul 14, 2009 - Price Changed $324,950
Jul 14, 2009 - Relisted
Jul 10, 2009 - Listed $325,000
Jun 30, 2009 - Sold $262,500
Mar 14, 2009 - Price Changed $325,000
Dec 16, 2008 - Price Changed $350,000
Sep 27, 2008 - Listed $379,900

And so after holding it for a whopping 10 days and calling a cleaning lady, he quickly slapped it on the market for $325,000, hoping to make a nice chunk o' change.

The buying public's response?

Not surprisingly, nobody was interested in paying a $62,500 premium over what he paid just a week and a half earlier. And now, 222 days and $26,000 in price reductions later, he's coming awfully close to just breaking even on his "investment."

It appears he has come to two harsh realizations:
1.) In 2009 the bottom most certainly wasn't in, and
2.) Destitute college students can't afford $2,000 a month in rent


In fact, the most expensive rent I've seen in this area is under $1,600 and that's in Marbrisa (i.e. gym, pools, in-unit washer and dryer). That $400 - $600 monthly deficit means that even at $262,500 (which, on paper, seems like an okay deal for a two-bedroom), he grossly overpaid.

Worse yet, in November a nearly identical comp in the same complex sold for $282,500. You really think real estate values have shot up 10% in just four months?

Uh, okay.

As I've said before, flipping in this economic environment is A Man's Sport. It takes real stones.

In the coming months we'll see if this flipper has the minerals to keep his wishing price steady as the market continues to fall, or if he finally capitulates, drops the price, eats a financial loss, and retreats to lick his wounds and reconsider whether he's really cut out for the flipping business.

It's going to be an interesting year.


  1. Nice neighborhood, but what a piece of crap.

    The ONLY way you'd want to buy this piece, is if you could rent it out.

    I haven't thought this through, but I GUESS that even if the rent doesn't fully cover the "monthly nut", that you're still coming out way ahead, because the money you're spending goes into equity, assuming that this place will at least stay the same in value over the next 10/20 years (let alone increase in value).

    So if the nut is $2,000 per month, and you could get $1300 in rent, you're left spending $700 per month, but do you not come out ahead in regards to a long-term investment?

    Again I haven't thought this through and this is off the top of the dome, but if you're only spending for 1/3 of the place, doesn't that equate to a 401K plan where you are tripling your investment every month?

    Then again, I guess I just though about the financing charges.....

  2. Those apts are very old and will probably require some serious repairs soon. I do have fond recollections of mind numbing "encounters" with a girlfriend that lived in that complex some time ago. I grin every time I think about it. Good times indeed! Oh, and mind numbing sex would still not be enough to convince me to ever live in that "60's swinger" condo.

  3. El Bee, not sure if you check the comments on previous blogs, so just in case, I'm reposting this here:

    This is a MUST SEE, regarding HOAs!!

  4. Mike,

    Wow, that is great information. Back in the early days of the Long Beach Housing Blog, that lady who wrote the article would come here and berate me...but she never managed to ever disprove any of my calculations, assertions, opinions, or data.

    I give her credit for her honesty--that takes guts in this environment. Hopefully it pays off for her in the form of new clients (kind of like Jim the Realtor).

  5. Anonymous,

    LOL! Once I saw the proximity to my old college apartment, I had an ear-to-ear grin myself.

  6. Wow.... well like so many these days in this new liberal PC era, being emotional and passive-aggressive is the play of the day, but when you stand your ground and bring up the real issues, they run like the wind.

    You being a strong man, and speaking a strong and independent opinion, I'm sure you've faced your portion of the passive-aggressive ploy.

  7. Oh yeah, and this is off the subject too, but thought I'd pass the word and share with you guys:

  8. $400++ per month for HOA? On my 4bd/3bath house, I pay about $100 per quarter for water, $500 per year for full insurance, etc.

    So they throw in cable. Is it basic cable?

  9. Anon,

    I'm sure it is basic cable, but the real bargain is the on-site maintenance, much like what you get renting an apartment. Homeowners tell me all the time how small maintenance jobs add up when calculating the monthly cost of homeownership.

    People who defend exorbitant HOA fees commonly argue owning a condo is preferable to owning a home because the condo's HOA fees "take care of everything." Although not even close to being true, that argument actually seems to have some legs with regards to this property given the included maintenance.

    All I know is that the HOA fee blows any rent vs. own calculations out of the water. The price must come down to counteract that high (and likely to be higher in the future) HOA fee.

  10. love to see a flipper take a flop. There's been a lot of them recently, and a lot more to come.

  11. El Bee, I'm an amateur, so forgive me if I make some foolish logic here, but I was just thinking (uh oh).........

    Let's say you could BUY a property for $2,000 a month, but rent an equal property for only $1,500 a month. Wouldn't it still be preferable to buy, because when you are buying, the money you're spending (the majority of it) goes to equity, which is almost like putting it into a savings account?

    So in this example, you'd be spending $500 more each month, but conversely, you'd be putting your payment towards equity, while the rent money just goes out the window.

  12. Mike,

    The fact is, if anyone pays significantly more to own than rent the same property, they are overpaying.

    That doesn't bother some people, but I personally want to pay the lowest price possible for something (within reason--2010 Porsches aren't going to sell for $15,000 no matter how bad the economy gets).

    But that's just me. I value my hard-earned dollars, and that extra $500 a month can make a HUGE difference in lifestyle (retirement, vacations, saving, general comfort).

    You are correct that loanowners will be building equity, but ONLY if they buy near the bottom. If they buy while prices are still falling, they'll spend the next few years trying to stay above water building zero equity.

    If rent money "goes out the window," what happens if I buy this apartment for $300,000 and the value drops to $270,000? Where does that $30,000 go? The same place my $18,000 a year to rent the same place went--right out the window.

    And I think a further 10% decrease in home values is IN THE BAG once interest rates climb, housing incentives fade away, and inventory increases--meaning that $30,000 loss in equity is guaranteed.

    People keep claiming this is a "new paradigm" and that rents and ownership costs will never again align (and in Naples and Belmont Shore that's probably true), but I disagree.

    A return to fundamentals has already occurred in many parts of the country--places where it was once believed values would always go up. It used to cost TWO TO THREE TIMES as much to own than rent in S.F. and O.C., and we've seen that come down substantially (in Riverside County it is cheaper to BUY a home than rent in many cases) but people always love to draw lines around their little area and say, "Well, that could never happen here."

    Look, I'm not saying anyone should wait until prime properties in prime areas cost the same to own as rent because that may never happen. Supply and demand.

    But what WILL happen (eventually) is that rent vs. own will get awfully damn close.

    And when it's awfully damn close, if you love the property you should go for it.

    But as far as I'm concerned, paying an extra $500 more than it would cost to rent is an insane waste of money.

    If we were talking about a $150 between rent and a full monthly payment including Principal, Interest, Taxes, Insurance and HOA (factoring in future tax returns is cheating--I'm talking about your TOTAL MONTHLY NUT, not what you might get back at the end of the year because most of that will be eaten up by maintenance/special assessments/tax increases, etc), it makes more sense.

    But also consider two things:

    1) Rents are going down/flattening at low levels, making it even more expensive to "own," and
    2) Many properties aren't worth any ownership premium whatsoever. For an old, run-down apartment surrounded by drunken college-age renters, why on earth would you pay ANY premium? The only way I would live in this place is if it was much cheaper to own.

    That's just my opinion. I'd like to hear other people explain when they think is the right time. There's no wrong answer really, because like I said there a million justifications for buying.

  13. El bee, I've been catching up on the archives, and back in March 2009 you featured Flippy with the $599k bungalow on the corner who had picked it up for $80k less 2 months prior and did some work to it.

    I clicked on the old redfin link just for fun and was amazed to find he actually unloaded it for $588k. How is that possible?

  14. Anonymous,

    Answer: Buyers are idiots.