We have word that this property sold for $750,000. The realtor/seller paid a 2.5% buyers commission plus 4 months of holding costs and closing expenses. It looks like they got out with a $10,000 to $20,000 loss. It could have been much worse. They are lucky they got out when they did.
.
Does anyone remember this knife-catcher? They bought in March and put the house back for sale for a quick profit. In May, they reduced the price to $769,000, and now they have reduced it again to $749,000. Rumor is that this is a realtor flip.
Old Asking Price: $829,000
New Asking Price: $749,900
Purchase Price: $740,000
Purchase Date: 3/12/2007
Address: 11 Glorieta West, Irvine, CA 92620
Beds: 3
Baths: 2
Sq. Ft.*: 1,707
Lot Sq. Ft.*: 6,600
Year Built: 1979
Stories: 1
Type: Single Family Residence
Neighborhood: Northwood
$/Sq. Ft.*: $486
MLS: S480860
Status: Active on market
On Redfin: 6 days
In the forum the question was raised, “I’m dying to understand why there is so much hostility to “flipping homes.”” This is why. Those who are still drinking the kool-aid believe this temporary softness in the market will be short lived, and we will soon return to annual double digit appreciation. Housing bears believe these people are falling into a bull trap.
Let’s assume for a second the kool-aid crowd is right. If they are, potential homebuyers will not get any of the benefit of lower prices because flippers like this guy are going to come in and buy any property selling at a discount and pocket the difference. In other words, the savings that might have accrued to a homeowner is now going in to the pockets of a flipper. This behavior will continue until all the flippers get burned out of the market.
So if the market crashes and these flippers go down in a blaze of glory, you will be the guy on the left being thanked by a desperate flipper for buying him out before he is consumed by the flames of his own greed.
**** UPDATE 1 ****
The price was just lowered, and our flipper wants out. Burn, baby, burn.
**** UPDATE 2 ****
Price reduced to $749,000.
.
I wake up in the morning
And I raise my weary head
I got an old coat for a pillow
And the earth was last nights bed
Am I reading that flip correctly? Bought just 3 weeks ago for 740K and now after less than a month of demolition and remodeling (I’m kidding), they are seeking to sell it for 829K? Almost 89K more than they bought it for less than a month ago?
Pass the crack pipe please.
—–
The redfin link doesn’t show the 3/12/07 sale. Isn’t that lying, or atleast withholding important information?
I think Redfin hasn’t updated their database. You don’t get much day trading in real estate 🙂
Nahh…
The flip job is an alibi. I’m sure this guy did a cash-back deal and wants to look legit to the lenders and investigators, so instead of just abandoning the property, he’ll make a vain attempt to sell it. It’s plausible deniability. I’m sure this is on the REO train… (Speedwagon?)
Flippers are some of the lowest forms of life on the planet. Let me explain what I mean.
Housing, like food and insulin for diabetics is something that we all need. Flippers DENY people access to housing so they can line their pockets with profits because they bid more for a house than a family who would have actually lived there. They contend they’re doing nothing wrong. Aren’t they?
What if one were to buy up all the insulin avialable for sale in the US. And I would simply resell it at a mark-up, say 2,000%, to the diabetics that needed it. If I were to do that, I’d be hunted down and shot. Denying people access to housing is only slightly better.
Housing, food and medicine are all fundamental needs. Denying access to them is unethical and immoral.
I think Redfin hasn’t updated their database.
Oh, I thought that was the site it was listed on.
You don’t get much day trading in real estate
:))
I’m sorry guys, I have to disagree with you all about flippers. Frankly, if I thought I could make money off of market irrationality, I would do it myself. The problem is that it’s difficult to villify the market (irrational people buying the flip), so the flipper becomes the target.
Many long-time flippers are actually great businessmen/women. They see an undervalued home, fix it’s problems, and return it to the marketplace very quickly. This is improving the underlying housing stock. That’s nothing to be angry about. The fact that it only worked for about 2 out of the past 20 years for complete idiots is a testament to how hard it really is.
If you don’t like the irrationality of markets, tackle that, but people that put blood, sweat, and tears into houses to make a buck because the market is irrational is misplaced.
If the house is overpriced, it will sit and crucify the stupid flipper. The creed should be get in, get done, get out. There is no intention to artificially inflate the value of the home. I am sure that if presented with an opportunity to improve your neighborhood and make a few bucks out of it you all would do it too. Flippers don’t ruin neighborhoods, its the FBs that can’t pay their bills that do that.
Sorry, I just don’t see eye to eye with you guys villifying them.
Chuck Ponzi
http://www.socalbubble.com
Chuck,
I agree with your point. I made that same point here:
https://www.irvinehousingblog.com/2007/03/14/where-are-the-flippers-when-you-need-them/
However, with this particular flip, it is obvious the owner did nothing to improve the property.
If you don’t like the irrationality of markets, tackle that, but people that put blood, sweat, and tears into houses to make a buck because the market is irrational is misplaced.
First of all read the post that you are commenting on. Anybody who expects to make $89,000 in less than 3 weeks deserves none of my support.
Secondly what if the “irrationality of markets” was actually caused in great part of because of flippers.
I respect hard work, but I have no respect for flippers whether they get it right or wrong. Flippers will always flourish in a rising housing price environment because fundamentally house prices are increasing. Yes they have added a plasma tv and granite counter tops. But that is not really creating value. Any idiot can do that or hire somebody to do it. What flippers are really hoping for is the 20-30% appreciation annually that will allow them to sell at a king’s ransom.
Sorry, flippers will never get my respect.
Read about this Irvine dude…..pretty funny guy who used to work at an anti-crime division and now as a gym instructor….probably needs to be bailed out. I really wonder what’s going to happen to him….LOL!
http://bubbletracking.blogspot.com/2007/03/american-taxpayers-help-ankur-kumar.html
I will agree with Chuck. The true “House Flipper” sees a house that most people would call an eyesore and never go near as a potential gold mine.
This takes work, planning and having a knack for it. Improving a beaten piece of property bought for UNDER market and then selling at MARKET prices. I kinda like the show “Flip that house” because you see people actually working to make a tired home look really nice. They deserve their profit because they put effort and creativity into their work.
These greedy flippers, buy today and resell tomorrow with no discernable improvement other than fattening their wallet and making the area go nuts creating a bubble.
Same thing happened with tulips, beanie babies and now homes.
Professional flippers: good
Amateur greed flippers: bad
So just what did these well intended, hard working, honest as the day is long people do to increase the value of this wonderful, charming, immaculae home by 12% in 2 weeks?
Steve the Dog
woof.
Where did the March 12 sale info come from?
Zillow and some of the other online sources are notoriously bad at reporting refi’s, divorce settlements and foreclosures as last sale.
irvine_native spotted this on in the forums.
http://forums.irvinehousingblog.com/discussion/181/people-still-flipping-houses-in-irvine/#Item_4
I checked the property records, and there is a sale on 3/12/2007. You are right about the online services being a bit slow at updating their databases.
I think that the term “flipper” is being used to describe two different individuals.
I think that most freedom loving Americans (I won’t get too patriotic) will agree that if you put some effort in a place, you should reap the reward. So, in that respect, the flipper who buys the “over-looked” run-down property and invests time and money in fixing it up should certainly benefit from all of his efforts – I see this a lot in older communities like Playa Del Rey or Sierra Madre.
That is not what we have in Irvine. In Irvine, we have a bunch of individuals that are in large part, buying brand-new homes, and then seeking to sell them 1-year later for very inflated prices. I mean really, just drive through Woodbury, Colombus Grove/Square, Tustin Field…. all you see are for sale signs. I could go on and on. It is these individuals that make my blood boil.
So I call them flippers. Perhaps a different term or a qualifier is in order to distinguish them from individuals that provide an important service by assisting with the gentrification of run down areas.
I was interested in this home when it was first listed. The owner was an older widow. Several people were interested in the property including a nice young family that seemed to be making an offer. I was very surprised to see it sell for such a discount since I’m sure it could have gone for the original owners asking price. Was she taken advantage of by her realtor? Who knows, but this does seem very fishy to me.
So now instead of a young family getting this home, a flipper realtor gets it. Why do I hate flippers? This is why. People who actually want homes to live in are being exploited and pushed aside by flippers like this. It is a rare event in which a nice, well priced (relatively) home comes on the market in Irvine. Thanks to the incestuous real estate industry, normal families don’t stand a chance at getting a good find. Anything remotely resembling a good deal is snapped up by realtors, only to be flipped for a profit to the families that actually want to live here. $90k profit for a couple hours work?
I really hope that this house flops.
Just returned from spending a few days of vacation with the family in Orange County. Driving around in Anaheim and nearby towns left me unimpressed with the size of homes and lots compared to the asking prices. Oddly, driving down Harbor toward Disneyland I spotted a piece of ground with orange trees growing! Mindboggling…that person must be holding out for a really good price.
The canning of all those New Century employees is going to have an effect on OC home prices…those folks are likely to be struggling to make their own mortgage payments.
I can say that In’n Out Burger lived up to its reputation:)
Flippers take risks that no one would dare to take, especially with the most run-down properties. In the previous weeks, OC Renter posted the story of this house in Irvine https://www.irvinehousingblog.com/2007/03/14/where-are-the-flippers-when-you-need-them/ that is being sold for $647,000. That is the type of house I would see in downtown San Bernardino, but not in Irvine. Who in their right mind will buy the set where the Blair Witch Project was filmed? Only a flipper with enough cash and wiliness to sweat. Even then, these flippers stand loose big if things do not go as expected. I think that the most appropriate term for the new bread of flippers is speculators. They buy a property, sit on their ass and speculate that it will go up in price. There is a lot of difference between these two groups. The actual flipper is willing to take a calculated risk and deal with the loose, but a speculator is only willing to take an uncalculated risk without any regard for the lost.
I stand by my assessment. If this fool gets his price, then some greater fool did it.
Noone is putting a gun to your head to buy a house. I know, I’ve been blogging about the bubble before many even heard about it. I sold my house in July 2004 to someone who has since sold it for a higher price. That’s irrational. That’s people.
No sense on focusing on irrationality… there are just too many fools to convince, and frankly, they are going to do what they want to when they want to do it.
They’ll get their just reward soon enough, and they’ll get plenty of it too… seconds and third servings by my estimation.
I too have bought a stock that I thought was overvalued based on fundamentals, and made a bundle on it. I have also lost a bundle doing the same thing.
There is no satisfaction in life in never taking risks if you can. Likewise, you should have to pay for your mistakes.
The first FB that comes looking for a handout, by god is going to get a fist in their face. The same with a Senator who tries to give him/her a free handout. I didn’t get one, so why should they?
Don’t blame the flipper. Pity him for his stupidity and bad luck. Life is (and investing for that matter), after all, all about timing. Timing.
Chuck Ponzi
Chuck,
Flippers today remind me of daytraders during the NASDAQ bubble. Once a trend goes on for long enough the lucky and foolish enter the fray and make money, it takes a massive market correction to crush these players out of the market (which we both believe is coming). Daytraders were reviled in 2000, and people tended to forget the benefits of increased liquidity day traders bring to the markets. Just as you pointed out, flippers have their role to play in a real estate market.
I think you might be missing the reason for the anger among the populace: The activities of these speculative flippers in today’s marketplace is to continue to price average working people out of their homes. If the big market correction does not happen to curb their behavior (by wiping them out), working families really will be permanently priced out of the market. Speculation in a housing market is particularly galling for many because it is a commodity everyone needs. I think people are far less annoyed when the speculators actually improve the property because then they are providing a service.
Should buying a home really be about timing and investment? Perhaps a topic for another day.
Personally, I don’t worry too much about flippers because I won’t be buying during a market phase where these people are active. Bring on the crash!
Irvine Native, what was the older widow’s asking price? I checked the nearest sales listings and $740K seems reasonable, maybe just a bit low by $20K maybe, while $829K seems like a foul offensive belch from a realtwhore.
1 20 Entrada Irvine $739,000 3 2 Active 1561
2 14 W Delamesa Irvine $775,000 4 2.5 Active 2088
3 29 Lucero Irvine $819,000 4 2.5 Active 2086
4 11 W Glorieta Irvine $829,900 3 2 Active 1707
5 17 Hidalgo Irvine $850,000 4 2.5 Active 2400
6 2 Alondra Irvine $899,900 4 2.75 Active 2864
7 10 W Fortuna Irvine $949,900 4 2.5 Active 3000
8 7 E Christamon Irvine $959,000 4 3 Active 2549
9 11 Aldea Irvine $1,068,800 4 2.5 Active 2580
10 10 Ramada Irvine $1,099,000 4 3 Active 2794
Talk about denial, I just got this article in my email box. LOL, LOL, LOL. These guys are in for a rude awaikening.
NAR Foresees Short-Term Impact on Housing Markets from Subprime Reforms
RISMEDIA, April 2, 2007-Current market problems and reforms in the underwriting and pricing of subprime loans, including the tightening of underwriting standards by regulators, will have a short-term impact on housing markets. That will be lessened if Congress enacts legislation to expand the roles of Fannie Mae, Freddie Mac and the Federal Housing Administration to provide more housing opportunities to lower-income homeowners and those living in high cost metropolitan areas, the National Association of Realtors(R) said Friday.
NAR Senior Vice President and Chief Economist David Lereah predicted that tighter underwriting practices may cause total home sales to fall by about 100,000 to 250,000 nationally, or no more than 3 percent a year over the next two years. Many of these households will probably, over time, purchase a home when they have attained the financial capacity to do so by saving for a down payment or growing their income.
“Foreclosures are increasing inventories in certain local markets. The projected flood of foreclosures are problematic and will add to the already loose housing supply in some local markets, but these local markets are exhibiting healthy economic activity, enabling them to be able to absorb increases in foreclosures,” Lereah said.
“From a broader perspective, today’s subprime problems are occurring against a backdrop of cyclically low mortgage rates and a growing, healthy economy. Jobs and liquidity are plentiful in the marketplace, suggesting that the subprime problems may be a manageable problem within our $10 trillion-plus economy,” said Lereah in a commentary distributed to NAR members recently.
“Many of these households will seek mortgage loans from a revitalized FHA, from lenders making loans that meet Fannie Mae and Freddie Mac standards, and from other lenders offering fair and affordable mortgage options to subprime borrowers. Remember, many of these borrowers are low-income, minorities and first-time buyers — all important participants in the home buying marketplace.”
Lereah warned against overreaction to the situation. “Tougher lending standards imposed by the marketplace and the regulators are necessary, but we need to be mindful of overcorrection. Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,” Lereah said.
NAR President Pat Vredevoogd Combs has led a campaign to modernize and revitalize the FHA mortgage insurance programs, providing subprime borrowers with a safe and affordable alternative to problematic loans and helping bring stability to the whole subprime market. “FHA mortgages can help meet the demand for subprime mortgages and help fill the gap in the mortgage market left by the decline of subprime and nontraditional products. A few simple changes can make a big difference. NAR supports increasing FHA loan limits, allowing risk-based pricing of mortgage insurance premiums and reducing down payment requirements to reflect today’s mortgage market,” Combs said.
As the first point of contact in the real estate transaction, Realtors(R) are uniquely positioned to inform and guide consumers through the maze of financing alternatives to make sure a home buyer’s mortgage meets his or her financial needs. NAR distributes four brochures in its Shopping for a Mortgage? series to help Realtors(R) educate homebuyers about today’s mortgage options. Three of the brochures, Specialty Mortgages: What are the Risks and Advantages? Traditional Mortgages: Understanding Your Options, and How to Avoid Predatory Lending, were produced in partnership with the Center for Responsible Lending. FHA Improvements Benefit You: FHA Insured Mortgages was created in partnership with the Federal Housing Administration of the U.S. Department of Housing and Urban Development. All are available online in the Housing Opportunities section of http://www.realtor.org/.
Hey all,
Remember one thing about real estate : the buyer of a property is the one who is willing to spend the most to acquire the property. By default, the buyer always OVERPAYS for the property – because no one else was willing to pay that price at that time.
So what happens after one OVERPAYS for a property is subject to market risks. Call them flippers, fixer-uppers, speculators, live-in families, or whatever. But the reality is that purchasing a property means taking on risks associated with those prpoerties.
Don’t get all sobby about families needing housing – there are always rentals. And from other information / doom predictions on this site : you should be happy that families are barely priced out by flippers – as renting saves money, right? And the eventual housing crash will let them enter the market at a great savings.
Now that being said – criminals are a different story. People buying a property after lying on the loan apps and then getting a renter on top of that – or people selling within the family/friends to pocket commisions and profits and then pushing the bankruptcy onto just one party : well feel free to hate those people and go down to court when they go on trial. But don’t hate the flippers – eventually if all predictions are right, they will end up holding the bag.
I worry about the housing bubble, but cannot bring myself to sell my house. The thought of the RE industry getting commissions on my house purchase and sale in such close proximity makes me sick. The RE industry reminds me of the wedding industry – both of them take advantage of rare large price purchases tied to emotion…
Mmmmm, granite counter-tops!!!!
Nuke the Flippers from orbit.
It’s the only way we can be sure.
Seriously though, the flippers need to get burned. If the market has any chance to correct to normal levels these realestate version of day traders need to get beaten out of the market. In order for that to happen there must be at least a year or two of nothing but losses. If this market makes a turn around next week the flippers will jump right back into the market. They need to suffer so that when they unload thier last home at a loss they will thank god they are out of the mess and loose thier tast for realestate.
Flippers intent on fixing homes that actually add value might survive but its not that big of a loss if they go away for a few years. We can just make more, its not rocket science, you buy a house and fix it up. Seriously normal people can buy a fixer upper and fix it up on thier own. Happens all the time too.
1 20 Entrada Irvine $739,000 3 2 Active 1561
2 14 W Delamesa Irvine $775,000 4 2.5 Active 2088
3 29 Lucero Irvine $819,000 4 2.5 Active 2086
4 11 W Glorieta Irvine $829,900 3 2 Active 1707
5 17 Hidalgo Irvine $850,000 4 2.5 Active 2400
6 2 Alondra Irvine $899,900 4 2.75 Active 2864
7 10 W Fortuna Irvine $949,900 4 2.5 Active 3000
8 7 E Christamon Irvine $959,000 4 3 Active 2549
9 11 Aldea Irvine $1,068,800 4 2.5 Active 2580
10 10 Ramada Irvine $1,099,000 4 3 Active 2794
Oops submitted the above post before adding my comments. That is the list of all the nearby sales listings, seems like the realtwhore is hoping for a fool who doesn’t know what the comparables are going for. Asking $829K for 1707 sf when bigger homes are available for less and much bigger homes available for just a little more. Hope the carrying costs take a chunk out of his backside.
I understand the anger about flippers. It’s still misplaced.
I think up until a year ago I had the same misperceptions.
Everyone wants to get on with their lives and buy a house. But, even flippers are people too.
I realized that life is too short to be wasting energy on such obvious tools. I have two kids and a wife to worry about, for goodness sakes. I can’t be responsible for crashing the local housing market after all of the other things I do.
I remember a saying that my mom used to say, it went something like, “May God give me the strength to change the things I can, humility to accept the things I can’t, and the wisdom to tell them apart.”
You can’t change the stupid. I’m reminded of a quote by Dr. Housing Bubble today:
“Much has been written about panics and manias, much more than with the most outstretched, intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money”
–Walter Bagehot
This is that time. It’s not about being patient, it’s about moving on with life even though life is not moving on with me. Some call it making lemonade out of lemons. I’ve been negative as negative can be about the housing market… it doesn’t change people’s basic stupidity. The only thing to do is to try to figure out a way to make their sorrow your happiness… and I don’t mean laughing at them. I mean making a killing on other’s stupidity. I made a lot of money in the stock market by seeing where irrational people headed. I also lost quite a bit, but I’m much farther ahead after both.
Like I always say, “It’s all good.” Yes, a tired, worn out phrase, but nonetheless true at all times.
Chuck Ponzi
http://www.socalbubble.com
You guys are confusing flippers with re-habbers.
A flipper simply buys the home purely as a speculative device, basically counting on the ever-rising tide of home appreciation to make him richer. These guys are NOT interested in fixing anything, or property management (e.g. landlording or renting): they want to buy and sell the home purely as an investment as quickly as possible. As a result, the property might remain vacant for some time (especially when the market has an abundance of inventory, like now: I’ve seen vacant homes sitting for months-year while it’s on the market).
Is this bad for other buyers? What do you think? If it’s overpriced, it’s not going to sell…. This deprives buyers of a potential residence, AKA a home to live it. Damn straight it’s greed….
Turns out there was no “fundamental housing shortage” in California after all: it was artifically induced in many places by investors who gobbled up available iventory in many towns (like in the Central Valley), and the dwindling supply supported elevated prices. It was market manipulation, in classic “supply and demand” style.
A re-habber buys an undervalued property that needs extensive work to be sold competitively on the market. They’re actually adding something of value to the property, by gutting and re-building, adding the expensive granite counters and Sub-Zero refrig (that everyone demanded, it seems) and being able to do it well is a skill. If you’ve seen the idiots on T.V. (“Flip This House”) who did it poorly, you’ll appreciate the difference.
HOWEVER, notice that alot of rehabbers WON’T be operating during the downslide of the housing boom: as much as they claim to do it for LOVE, they’re also aided by depending on the ever-present price appreciation. The smarter ones worked hard during the upslope, and are now kicking back and enjoying their profits waiting for the next boom.
A shame, as there is going to be a strong need for rehabbers when homedebtors trash the homes on the way out the door when they’re evicted and foreclosed on….
FWIW, here’s podcasts that explain why people are laughing at flippers and the REIC:
http://www.flippernation.com
I lived in that tract for many years. We leased a 3 bedroom, 2.5 bath, 1900 square foot SFR for $2,500 a month. I moved last April.
The listing agent told me the owner wanted to list it for $780K. They started at $760K, then dropped to $740K, then $720K.
Get ready…it sold for $680K in November 06 (he bought it many years ago for $125K.)
The agent told me he was selling all his Orange County properties (including 4-plexes.)
I love this!
We all get to watch and commentate as this thing rolls over during the next few years.
Like Neil says,
Got Popcorn?
Flippers,
They remind me of my first funeral I went to when I was a young girl, and all my familiy members were looking at my dear sweet Aunt Edna’s dead body saying “doesn’t she look lovely, they (the flippers) did such a wonderful job on her make up!” Meanwhile underneath all that make up is nothing but a rotting corpse.
also like Neil says,
Got Popcorn?
P.S. Love this blog!
Sit in the Lotus position, take a deep breath, now let it out slowly, say Oummmmmm…
Irvine_Native posted this:
“People who actually want homes to live in are being exploited and pushed aside by flippers like this. It is a rare event in which a nice, well priced (relatively) home comes on the market in Irvine. Thanks to the incestuous real estate industry, normal families don’t stand a chance at getting a good find. Anything remotely resembling a good deal is snapped up by realtors, only to be flipped for a profit to the families that actually want to live here. $90k profit for a couple hours work?”
I could not have said this better myself. The people that want/need housing are being denied by the RE industry to pad their pockets at the publics expense. And the industry wonders WHY they are getting a bad reputation? UFB
One poster noted the knife-catcher on this property was indeed a realtor. It would be a shame if they lost a lot of money… not.
Don’t call them flippers… They’re speculators.
What they do is go to brand new developments with the idea of holding onto the property for the mininum amount of time required ( usually one year). The idea being that they will be rewarded with the “price pop” of new homes.
Short term speculations of new home stock add an fake, inflated buying pressure so the builders raise the prices and institute a lottery system to allocate homes
The higher price prices out real homebuyers and decreases the possibility that a buyer, any buyer, will get a house.
Also, it destroys the neighborhood. How can you have a nice neighborhood when half the homes are occupied by renters or people who have no interest on living there?
It also affects older neighborhoods to a lesser degree.
A real flipper actual does a service to the market, but I would be very wary of buying a house from a professional flipper because I would question the quality of the repairs and modifications.
Don’t judge South and Coastal OC by Anaheim and North OC. They’re worlds apart.
That orange grove is likely zoned as agricultural and its taxes are nil, zip, zilch, nada! There’s simply no hurry to sell
The staff at New Century and all of those other companies are a drop in the bucket. It isn’t like 99% of OC works at mortgage companies, you know?
Did you know about the secret menu at In’N’Out? Really, truly excellent burgers all around. We got one down the street from us. That’s why our TR Real Estate prices are higher! 😉
I’m not a flipper, never was, never will be. But to berate the flippers for our affordability woes is like blaming the day traders for the dot com crash. That money follows great returns on investment is fundamental to capitalism. We cannot wish moral self restraint when it comes to housing : investors will always look for a buck to make and they will stay in the investment as long as it is profitable. Let’s face it, despite all the talk of a housing crash, the correction thus far is negligible in comparison to the runup in the last few years – and the investor (flipper or the long term investor) have not lost interest in this investment avenue yet. We have to learn from the dot com crash that the investors exited only after a significant correction was underway. When and if we see that impending correction clearly written on the wall for housing, we will see investors flee and a return back to sanity.
Krip
You make a great analogy.
While prudent middle-income buyers like myself were merely priced out of a decent condo at a price reasonably related to either our incomes or the rental value of the place, the people at the bottom were priced out of even rentals.
Since 1999, rapidly inflating house and condo values here in Chicago have priced low-wage workers out of housing completely, as tens of thousands of units were lost to condo conversion and taxes, increasing in lockstep with rapidlly inflating home and building prices, drove rents northward. Apt rents increased over 40% between 1999 and 2001, driven mostly by increasing taxes, based on inflated values. Additionally, many lower income homeowners who struggled for 20, 30, 40 years to actually OWN their homes were blasted out of them by rapidly increasing taxes.
It has now been determined that people who make less than $11 an hour are priced out of rental housing in Chicago, unless they belong to the small lowlife minority that lives on welfare in Section 8 housing. Section 8 is another factor driving rents northward, in that the government guarantees a landlord the “market” rent of a seedy apt. that would probably rent for half as much (if even) left strictly to market forces.
I’ll differ with you on only one small point. While the flippers are reprehensible, and it is enormously satisfying to watch them get their heads handed to them, we have to consider who created the conditions that made the flippers possible.
Look no further than the Federal Reserve and the HUD, and FNMA and the other loan guaranteers. Were it not for the Fed’s determination to keep E-Z money sloshing through the economy no matter what the future cost of that might be, and the willingness of Fannie Mae and Freddie Mac to guarantee bad loans, we would never, ever, ever have had this runup in prices, and it would not be possible to think you could make a living flipping homes like they were S&P contracts, or something.
Just as if the HUD were not guaranteeing bad landlords a “market” rent no matter how substandard the property, you would have to operate a decent apt building in compliance with local codes and community standards, and not be able to live in a suburban palace off the proceeds from a ratty apt. building that is three quarters vacant but which you are nevertheless collecting a full building’s worth of Section 8 subsidies on. This is happening here in Chicago! Some famous slumlords are collecting Section 8 rent subsidies for vacant apartments!
Get the government guarantees and subsidies out of the housing market, from loan guarantees for houses and condos in all price ranges, to tax abatements for development in certain locations, to Section 8 subsidies for bad landlords, and you will see a massive adjustment in housing prices and a major shift in the way business is conducted at all levels of the industry.
Flippers are parasites. I think the distinction made above about the differences between rehabbers and flippers is an important one. I know one realtor who rehabs stuffs and resells it. He puts a lot of time doing decent, quality into the homes and sells them. He makes decent money buying the right, decrepit houses and making them better. A flipper utterly counts the market upsurge as the prime way to make a profit on a property. Whatever work is done to the flipped home is incidental. Come on, admit flipper defenders, if a flipper could buy a home and then relist and make a profit with no work done whatsoever, they would. That’s not value enhancement, that doesn’t contribute to the neighborhood, it’s just cashing in on value inflation.
I’m not a realtor. I know little or nothing about this industry but enjoy this blog because I’m learning. But I know enough to call a parasite when I see one. Flippers are parasites and as such, they’re hurting a lot of people. Whether or not it’s legal, or even ethical isn’t the question. It’s uncivil, anti-social and uncouth. And for as long as there has been money, humans willing to adopt those attributes have been able to suck a points here and there from other suckers…errr…humans.
Great Blog, IR. Glad to see it finally getting the attention it deserves.
Regarding flippers, I suggest that for those of you that are new here or regulars who may have missed it, go back and read IR’s “Land Value 101” in the July archives. It’s quite an education packed into one blog post, but one of its main points is to show the reader where the REAL money is made dealing in real estate.
Flippers (and to a certain extent, legitimate re-habbers) are products of just how much of the REIC kool aid they have drunk. The point being that they are taking huge risks in a cyclical market that is highly illiquid by its nature and one that is already at sky-high levels this time around. And to top it all off, they are doing it at the RETAIL level.
Much of the current Wall St. worry and angst is the “re-pricing of risk” of highly leveraged MBSs and the inability of the major investment houses to “mark them to market.” Before your eyes glaze over, this just means that no one knows how to price (mark) the value of this paper because it rarely trades. Now, nervous (bag) bondholders are calling for a “bid wanted” on their paper (think Bear Stearns) so they can sell. Since the top three “rating” agencies, Moody’s, S&P and Fitch had all these bonds AAA rated and have only recently downgraded them, the broader market is just now wising up to the fact that these bonds are worth pennies on the (ever shrinking) dollar.
Now, how does this affect flippers? As has been discussed here many times, s.cal prices are “sticky.” I.e., a standoff between buyers and sellers. What will ultimately cause these prices to be “marked to market?” It will be the foreclosures. At first, as Warren Buffett likes to say, “we won’t know who’s been swimming naked ’till the tide goes out,” the REO departments of the banks will hold out for wishing prices. As they are pressured to get the “inventory” off the books, they will start cutting prices.
Then, the foreclosures start kicking in after the ARM loan resets tied to the LIBOR (Britain, who have been raising rates.) These two events, or rather, processes, “mark” lower prices. The only way appraisers can stay in business is to use comps and these bank owned REO’s and short sales will let the market do the “marking” lower for them. It’s called fundamentals.
When you have a government central bank that is willing to print a fiat currency and loan it out to anyone with a pulse, you are going to get plenty of takers. That is simple human nature. Throw in a dose of Tony Robbins type hucksters, “Flip This House” teevee shows, multi-level marketing types selling $5000 “courses” on how to get rich quick in real estate along with a large helping of old fashioned greed, then you have a recipe for disaster.
I truly can’t believe this can come as a shock to anyone. Just MHO, of course.
Great commentary. Thank you.
Don’t pick on the kid. He could always move back to his parents’ home and rent out the remaining bedroom.
Or he could finish the garage and move in there himself.
Having “flipped” a house on account of other circumstances I agree with SoCalWatcher.
We took a house that was a disaster and fixed it up very well. All the work that went in was high quality and a big chunk went into stuff you don’t see: attic insulation, 30 year roof, high quality carpet, tile, water heater, quiet AC compressor, etc, etc..
We didn’t put fancy crown molding or paint, instead putting money on new rollers for the sliding doors and braided stainless steel lines on the bathrooms and sinks, and adding GFE circuits to the kitchen and bathrooms.
We ended up putting over 65K of money into the house. And it didn’t look fancy. Indeed one of my dull witted neighbors said that “nothing had been done” to the house. He said this at an open house and he didn’t know it was our rental. I was just standing around and heard our agent show him the list of upgrades. The guy couldn’t believe it.
I think most buyers are idiots and lack imagination anyhow. They fall for the furniture and ignore the house they’re gonna buy.
A true flipper has gobs of imagination because he/she sees past the present, understands the bones of the house and imagines the potential.
BTW, we bought our own house the same way. It was a “fixer upper” when we first saw it and we saved like 10% off the comps.
The OC register shows that house sold for 689K as of 7/5/2007
hhttp://www.ocregister.com/news/irvine-home-sales-1754631-by-address