Flipped Off Flipper: UPDATE

The status was "Active" and changed to "Contingent"

I don't buy it. This apartment has been rotting on the MLS at $299,500 since November, and now it suddenly goes contingent after a measly 3% price reduction? I smell horseshit.

Anyhow, the current list price of $289,500 is just $27,000 more than what this flipper paid for it in June of 2009 -- a far cry from the $62,500 premium he tried to get last summer. Factor in about $17,000 in commissions and we're looking at a razor-thin profit margin.

Oh, but don't forget about the 13 months of carrying costs, including $5,460 in HOA fees, for this unoccupied unit. I think it's safe to say this flipper will absorb a loss in the tens of thousands for his delusional attempt to make real estate riches by "buying at the bottom" of '09.

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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

Oops.

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.

YNGFR: CAPITULATION

The price was "$219,900" and changed to "$199,900"

$220 per square foot for an apartment just 1,000 feet from the sand. This is officially cheaper to own than rent -- even before the tax write-off.

But the bank has no intention of letting the property go for this bargain basement price. Because that would mean recognizing a horrific loss on the books.

So I expect this charade to go on and on and on...with a few price increases thrown in along the way to restart the process. It's been two-and-a-half years so far...I wouldn't be surprised to see this go on until 2012. As long as there are acronym-filled horseshit government programs left to exploit, this could go on indefinitely.

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The price was "$250,000" and changed to "$225,000"

In case anyone is operating under the misguided belief that the banking system has stabilized and housing is poised for a big comeback, I want you to consider that this shitty apartment is still booked at full value on the lender's books -- despite the current asking price being $114,000 less than the 2004 appraised value.

As long as that bullshit is allowed by the government (and in fact actively encouraged by way of mark-to-fantasy FASB policies and various extend-and-pretend programs like HAMP, HAFA, etc.), it will take YEARS for this inventory to actually hit the market. Meaning, returning to true values (based on actual incomes and sizable down payments) will take ages.

I'm tired of waiting -- exhausted, really -- but I'm also no fool. If I could use Other People's Money, this would be a no-brainer. Buy now and walk away if things go south. But I have my own cold, hard cash on the line and as long as countless properties like this are still rotting on the MLS, the buy signal is a long way off.

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The price was "$289,000" and changed to "$250,000"

Well that's one way to get buyers' attention! I guess now the question is whether the bank will actually let it go for nearly $100,000 shy of the original loan amount. I somehow doubt it. But maybe in light of the first-time homebuyer tax credit expiring, they're getting out while there's still some demand left. We'll see.

Sorry for the sporadic posts...I've been on the road all week.

Every time I travel I can't help but observe the local real estate situation. The last time I was in Miami was the summer of 2006, and as I drove around I remember marveling at the incredible number of construction cranes piercing the horizon. At the time I said to myself, "Who are these being built for? Is there that much demand for new housing or even rentals? How does all of this construction make sense?" From what I could tell, the completed towers seemed empty--why build more?

Anyhow, today the cranes are pretty much extinct but at night many of these new buildings were dark, reminiscent of the North Korea Towers in Irvine. Pretty crazy.

South Beach was still fun--it hasn't lost any of its swagger in this downturn.

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Address: 1318 East 2ND St #9, 90802
Asking Price: $289,000
Purchase Price (2004): $329,000
Beds: 2
Baths: 1.75
Sq. Ft.: 909
$/Sq. Ft.: $318
Year Built: 1964
MLS#: P701097
On Redfin: 131 days
HOA: $156
Down Payment: $10,000 (FHA)
Income Requirement (4x income): $72,000
Monthly Nut: $1,700 (FHA)
Description: Sunny & bright, this lovely condo has tons of storage space, a spacious dining room and living room, a separate master bathroom AND A PRIVATE GARAGE with storage that is big enough for an SUV! The home has large rooms that make the entire condo bright and roomy. Located just 2 blocks from the beach, this is perfect as a second home, vacation property or a retreat to enjoy every day!

"perfect as a second home, vacation property or a retreat to enjoy every day"? Looks like this bathroom took a vacation to the 1960s:

HORF!

And when was the last time you saw a white refrigerator?

Maybe I've just become accustomed to stainless fridges, but for some reason that outdated clunker is really jarring!

Pssst! Wanna see the secret to selling a tiny, dumpy apartment with original bathrooms in a shaky economy? Here you go:

December 30: The price was "$239,000" and changed to "$289,000"

Genius!

This short selling grifter has been priced below $270,000 for the last 75 days (50 of which were spent begging for $239,000) with no luck, but for some insane reason decided what this listing really needed was a price jack to $289,000. Because there's nothing buyers love more than a good ol' fashioned cornholing.

Dec 30, 2009 - Price INCREASED $289,000
Dec 30, 2009 - Relisted
Dec 03, 2009 - Delisted
Nov 12, 2009 - Price Reduced
Oct 30, 2009 - Relisted
Sep 23, 2009 - Delisted
Sep 18, 2009 - Price Reduced $249,000
Sep 14, 2009 - Price Reduced $270,000
Aug 28, 2009 - Listed $319,900
Aug 01, 2008 - Delisted
May 06, 2008 - Listed
May 06, 2008 - Delisted
Mar 30, 2008 - Listed
Mar 29, 2008 - Delisted
Feb 29, 2008 - Listed
May 25, 2004 - Sold $329,000 ($270,000 puts it firmly in 2002 pricing--the true market value, judging by the failure to sell for $249,000 is likely 2000/2001)

What kind of sales strategy is that? To paraphrase a line from Tropic Thunder, When trying to sell a house, "everyone knows you never go full retard."

Because that's the only explanation for the current price. All the loanowner has to do is click on their own Redfin link to see that nearby properties are selling for nowhere near this amount:

Downtown: $243,000; $271 psft
Alamitos Beach: $225,000; $262 psft
90802: $249,000; $276 psft
Long Beach: $229,900; $256 psft

And here she is, demanding $311 per square! Based on what, honey?

Anyhow, the point of this post isn't about greed or stupidity, or the living hell of two shared walls, or the difficulties involved with short sales, or the insanity of sellers having negative equity after FIVE FUCKING YEARS OF OWNERSHIP yet simultaneously driving $45,000 luxury SUVs...

No. Although all are at play here, this post is really about pent-up foreclosures.

You see, this property is just two months shy of its two year (!) anniversary on the MLS. It's technically not "shadow inventory" because its been out in the open on the MLS, right? But given the lender's failure to approve a sale in 22 months, it has never actually been "for sale." Meaning it's a bank-owned property in denial.

A monster loss is guaranteed, it just hasn't been booked yet.

And after it inevitably goes back to the bank, it will come back on the market at a greatly reduced price (it seems that most times, once the loss has been realized banks just try to unload). However, REOs dumped on the market crush values, putting everyone else in the area (further) underwater and perpetuating the cycle. It makes perfect sense why lenders are intent on keeping these phantoms in real estate limbo for as long as they can.

And without a mechanism to force lenders to actually approve short sales and process foreclosures (read: recognize losses) instead of extending and pretending for eternity, the market will be absolutely surrounded by these phantom properties for years and years, with no opportunity to actually buy them.

If this seller were smart (ha!) she would have stopped paying ages ago and lived rent-free this entire time. If her lender isn't interested in selling short after two years, they certainly aren't keen on foreclosing.

Well, It Was Worth a Shot: UPDATE II

The price was "$279,000" and changed to "$269,000"

I've been seeing $10,000 price reductions ALL OVER THE PLACE since the Federal tax-credit expired, and all it really tells us is that the free government ponies make housing that much more expensive.

I'll remind you, this flopped flip first arrived on the market in March with a wishing price of $339,000. And since then he's been gingerly chasing the market down, perpetually 10 steps behind the curve. Thus far his lackadaisical pricing strategy has resulted in being forced to cut 60 Grand from the original ask -- all to no avail.

And now that the tax credits are history, you have to wonder how much more cold, hard cash his ridiculous strategy will cost him.

Factoring in commissions, he is looking at a profit of $28,000 for this exercise in futility. A pittance compared to what he could have walked away with, but at least it's not a loss, right?

Oh, but we forgot to factor in the ~$10,000 spent sprucing it up and the last eight months of carrying costs. If this fliptard doesn't get real -- and real soon -- it's gonna get real ugly.

The end of The Super Summer Selling Season(tm) is coming up quicker than you think, pal...

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On March 30th I said, "Hey, Flippy, Price Reduction's on line #2. Says it's urgent."

Well, the capitulation has begun in earnest:

May 10, 2010 - Price Changed $309,000
Apr 28, 2010 - Price Changed $319,000
Apr 12, 2010 - Price Changed $325,000
Mar 27, 2010 - Listed $339,000

Those dreams of stacking flipper cash are quickly disappearing like a parakeet fart in Tornado Alley.

And check out this updated description:

Agents Owner Financing available with 20% down 8% rate for 30 or 40 years due in 5. Easy qualifying on credit and income. No appraisal needed or tax returns fast approval no hassles or time delays. Corner-front Condo unit with city views and cool ocean breeze. Two bedroom and two baths newly remodeled. Convenient location close to beach, parks, public transportation, Belmont Shores [SIC] and Shoreline Village. On site laundry facility with 1 car underground parking. Granite, new appliances, carpet and building security with plenty of storage space in unit. Private balcony off of living room. No pets allowed unless buyer has doctor instructions for medical reasons.

First of all, can someone translate those first two sentences for me? You can get financing through the flipper's agent? And despite 20% down you still have to pay an 8% interest rate? And the principal is due in five years? The way it's worded is a complete mess.

And the whole "No appraisal needed or tax returns fast approval" thing makes it sound shady as hell. The only people who care about that stuff are deadbeats with suspicious money issues. And the fact that this flipper is catering to those types makes you wonder about this neighborhood.

And who the fuck wants to buy a place in a declining market WITH NO APPRAISAL?!

That last line is a head-scratcher too. What "medical reason," other than blindness, could someone have that would require them to have a pet? And what about the fellow residents who may have medical reasons to NOT want pets around? So weird.

Whatever. This flipper is in deep shit if he doesn't get his act together soon. I can't wait to see how much he slashes the price next month! Stay tuned.

P.S. If you were stupid enough to buy in March, you would already be $30,000 underwater on your purchase. Good thing you read this blog!

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Not sure if you remember this dump from October 2009, but it turns out just a month after my post a flipper swooped it up from the bank for $225,000 (the lender ate a $200,000 loss on that one).

As crusty as it was, $225,000 was a pretty good deal (in October I said I thought $250,000 penciled out). And like most sales so close to downtown, it represents a 2002 price.

Anyhow, this flipper, instead of taking a shitty property, sprucing it up, and extracting a reasonable profit, has turned out to be just another gluttonous pig with his greedy, money-grubbing snout buried deep in the quick-money trough.

After slapping on some paint, pergo floors, and cheap carpeting, he dumped it on the market with a $114,000 built-in profit.

$114,000!

What a jackass.

Let's see...community laundry, only one parking spot, and located all the way the hell down on Esperanza? For $339,000?!

The average price per square foot in this neighborhood is $274 and he's asking $355?

What the fuck for? Fake wood floors and repainted cabinets (oh, you didn't think we'd notice that)?



And he might have just painted over the pink tiles!

Other than money spots on Ocean, nearby properties don't even come close to asking this kind of money. What a dolt.

Look, I'm cool with flippers improving rough properties (and, in some cases, improving the neighborhood as a result) and making a little dough. Hell, in this environment you gotta have a set of dangling bowling balls to try your hand at flipping, and you should be rewarded for the risk you're taking. As far as I'm concerned, party on Wayne.

But what I can't get over is the utter contempt some of these flippers have for potential buyers. I mean, he truly believes you and I are complete rubes and that he deserves $100,000+ for doing little more than putting lipstick on a warthog.

Hey, Flippy, Price Reduction's on line #2. Says it's urgent.

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I'm back from Chicago, and let me tell you, there aren't many better cities to celebrate your birthday. And speaking of cities with a condo problem:

1329 E 1st St #18, 90802
Price: $250,000
Beds: 2
Baths: 2
Sq. Ft.: 954
$/Sq. Ft.: $262
Year Built: 1959
MLS#: T09106531
On Redfin: 5 days
HOA: $150
Down Payment: $50,000
Income Requirement: $71,000
Monthly Nut: $1,500
Description: 2 bedroom, 2 bathroom front, corner unit condo in the Startdust Condo Building with city lights view from private balcony and master bedroom and view of the ocean from the rooftop deck. Located in gated community with underground parking and only 1 block from the beach. Unit has a lot of closet and storage space. Conveniet location. Close to park, shopping, public transportation, downtown Long Beach, Belmont Shore, Shoreline Village and the Pike Center.

"Conveniet"?

It appears the bank took this puppy back in February of 2008 for $375,000. The play seemed to be, "Bubble pricing will be back in no time...let's just wait this out. It can't possibly go any lower!"

Well, they successfully kept it off the market for ONE AND A HALF YEARS (Anybody still believe shadow inventory doesn't exist? Really?) before throwing it on the MLS for--take a wild guess!--$375,000.

I guess it was worth a shot, eh?

Because yesterday (just four days after relisting at that hilarious wishing price) the price was dropped a mind-blowing -$125,000. Ploy to garner a bidding war? Typo? Or the result of actually looking at comps and accepting reality?

Who knows, but that is one hell of a price cut. Check this out this history:

Oct 06, 2009 - Price Changed $250,000
Oct 02, 2009 - Listed $375,000
Feb 22, 2008 - Sold $375,000
Nov 04, 2007 - Delisted
Sep 30, 2007 - Listed
Mar 09, 2006 - Sold $418,000
Sep 27, 2002 - Sold $227,500
May 08, 1990 - Sold $132,500
Apr 19, 1989 - Sold $120,000

Yep, this is a 2002 price! And it's still no guarantee of selling in this market. Because regardless of that aggressive pricing, there is no escaping how dumptastic this place is:



Good grief, Charlie Brown, what a crap shack.

BUT, it's approaching rental parity, so this might be a decent buy.

Think about it: Get an FHA loan, use the (coming) $15,000 homebuyer tax credit for your down payment, and when you fall deep underwater, stop paying and live rent-free for a while, and just walk away with a wad of saved cash and a dinged credit score when they finally kick you out. If anybody gives you static about your FICO, just tell them, "Hey man, it was 2010."

Believe me, everyone will understand.

Mortgage Interest Deduction: Myth or Freaking Awesome?

Mike in LBC wrote in with a great question. In case you don't read the comments (come on, join the discussion!), here is what he asked:

El Bee, could you school me on a blog when you have a few?

This article will probably interest you regardless:

http://finance.yahoo.com/news/5-Home-Ownership-Myths-to-usnews-3874381652.html?x=0

But I was particularly interested in the "myth" that you don't save in tax deductions from the purchase of a home.

I'm really scratching my head about THAT one.

Here is what that section said:

"I'll get a tax deduction." While the government provides a tax deduction for mortgage interest as well as other tax credits related to energy-efficient appliances and other green technologies, these benefits do not outweigh the expenses. Many homeowners find that even with the availability of a mortgage interest tax deduction, their tax return isn't affected because they are better off taking the standard deduction.

Below is my response.

Mike,

I don't own, so I can't relate any personal experience. But I have heard from some people that the mortgage interest deduction isn't all that great. The primary reason is that there are so many other ancillary costs associated with homeownership. Lawn care, repairs, upgrades, pool maintenance, special assessments, busted appliances, leaky roofs, insurance, [edit: HOA fees,] etc. etc. It makes it pretty much a wash.

When you are a renter, you don't have to worry about any of that shit except for some utilities (homeowners have to worry about ALL utilities). And homeowners have to fret about special assessments, future increases in parcel and property taxes, increased utility rates, etc. You don't find that stuff on a bank's mortgage calculator.

And the article doesn't mention any of that! Meaning buyers aren't thinking about it either. The one I consistently hear from my homeowner friends and family is: "You have no idea how many, and how quickly, little expenses add up when you own."

That is why I personally calculate the pre-tax payment as a better comparison for rent vs. buy. That's more "real-world" and provides some cushion for unanticipated costs. That way, any tax write-off not offset by ancillary costs is pure gravy.

You can calculate the after-tax payment, but you can't COUNT ON IT, know what I mean? Like the article said, some people find out (after they've purchased, mind you!) that there is NO BENEFIT to itemizing and taking the interest write-off -- they're better off just taking the standard deduction! Could you imagine?!

As we're seeing in this current economic bust, too many people lived on the edge. And they are one unemployment spell or pay cut or busted water heater away from losing their house. Always always always plan for the unexpected.

I welcome any input from readers (especially those who enjoy the interest deduction every year) regarding your experiences/perspectives.

A Collection of Animals in Real Estate Listings: Part II