Originally posted December 30, 2006
The first casualty reported by us in the Collage tract was 714 Timberwood. And yes, these are the actual pictures advertising this property. Kinda crappy huh? You really need to evaluate the smaller no-name real estate brokers/agents before you entrust them with your $500k+ sale.
On to the details:
Address: 1602 Timberwood, Irvine, CA 92620 (Northwood)
Plan: 1267 sq ft – 2/2.5
MLS: S467201 DOM: 43
Sale History: 02/21/2006: $560,000
10/31/2003: $300,000
4/18/2001: $240,000
Current Price: $560,000
So what happened here? Well our flippers got in over their heads. They purchased in February 2006 for $560,000 using 100% financing. How common is this?!?! 😉
What I find interesting here is that in the 2.5 years from the original sale in 2001 to the 2003, the price went up $60,000 (25%). And then in the next 2.5 years from 2003 to 2006, the price went up $260,000 (87%).
The buyer in 2003 put down about 27%. The flipper in 2006 put down 0%.
In a rapidly appreciating market (from 2003-2005), flippers used other people’s money and made out like bandits. They were looked up to as ‘real estate gurus’. My guess is the current seller wanted to get in on the game and not be left behind. Too bad for them. At the current asking price, they are facing a loss of about $33,000 (assuming 6% in selling costs). Oh wait! They didn’t put anything down.. I suppose the lender (Fremont Investment & Loan) will be the biggest loser given that the private remarks state: “ALL offers need short sale approval from mortgage holder.”
UPDATE #1 – February 5, 2008
Yes, it has been over a year since this property was featured. It looks like the property went back to the bank (La Salle Bank) on 5/25/2007 at a price of $484,358.
It was then listed as a REO on 6/5/2007 for $532,500. The price kept dropping over a few months and it finally sold on 12/27/2007 for $447,000 (~20% off the 2006 price).
My guess is that a knife-catcher will buy this for $535,000. It’s probably worth about half that as a rental.
—–
4/18/2001: $240,000
Current Price: $560,000
WHY? … do the fundamentals support this? … HELL NO!
The asking price on 714 Timberwood is $529,900, or $378/SF. The subject property’s asking price is $441/SF–good luck!
I know a couple that purchased a 1,500 SF Redondo Beach condo for $750,000 in Feb-2006. I was floored that they did that…$500/SF…ouch! She is “in the business” and told me at their housewarming party that she “wished she had a backyard…but by 2008 they plan to sell and upgrade to a single family home”, which would be possible due to the appreciation. When they bought, they paid $10,000 over list price to “take it off the market so no one beat them out”. They put on an 80% first TD and a 20% second TD…no money down at all. Right now with selling expenses I figure they have no less than a $120,000 capital loss. Add to that the $47,000 they have paid YTD in interest expense, $1,100 in HOA dues, and $10,000 in property tax…they have a running loss of no less than $178,000.
This young couple had a nil net worth prior to the purchase. They were paying $1,600/mo in rent and were saving a lot of money per month…which they spent on their wedding. I fear the worst for this couple…they are nice people but got completely in over their head. This is just another data point in the housing bubble. Here is the interesting point: She works as a financial analyst for a real estate developer and he is a financial advisor for one of the largest investment banks in the world. Shouldn’t these people have KNOWN they were heading right into the storm???
This is my first post here, even though I have been silently reading for some time now. Generally, I see a rollback to 2003 prices for most of OC.
Specifically, I have calculated that prices would supportable at approx. $300/SF for most of Irvine. Strong beach cities would be a little more, inland cities would be a little less.
I see many homes listed around $450/SF…so going down to $300/SF is a 33% drop. That is a steep and seems improbable to me without a deep recession.
We are living in an interesting economic time. Have any of you read the book “Extraordinary Popular Delusions & the Madness of Crowds”? It details such craziness as the Tulip craze and the pre-1929 stock market. Remember the tech bubble? The Nasdaq was 5,000…six years later it is only 2,415! Well, the California housing market is the next chapter.
It is important to note that the majority of U.S. states did not have crazy appreciation as California did. Sure prices went up, but not too terrible. I read somewhere that 40 states did not participate in the very high annual growth rates such as places like So Cal.
It will be interesting to how this comes out….
Thank you Zovall and IrvineSingleMom for you work in bringing this site to us!
Happy New Year!
Just FYI, a similar model was sold on end of 2004 for around $440K that is because seller has to move (I was contacting sell agent and consider to give an offer), and just around middle of 2004 the prices still around $500K – $550K, so I guess the prices fluctuates more than others. IMHO,walking distance to Northwood high is the biggest advantage, since rates so low,it can be a good investment if you can get it under $380K, but I doubt this will happen before mortgage rates move higher.
This is what is wrong. People that think 380,000 is a good price. It is 2 bedrooms and common walls. That is called an apartment. Why do people insist on paying so much for a roof. There are jobs and more importantly a life in other places.
This place would probably rent for about $2,250. Take out $250 for HOA, insurance, taxes, expenses, etc. and you are left with about $2000 positive cashflow. That’s an annual income of $24,000. Apply a 12X multiplier (being generous) and you get a value of $288,000. So this place needs to get below $300,000 before an investor (not a speculator betting on appreciation) would be interested. Notice this would be about the 2001 price of $240,000 adjusted for inflation.
IMO, once the downward spiral begins, it will not bottom until investors come in to buy the cashflow because speculators will not be attracted to dropping prices. There will be a lot of fools, knife-catchers, and dip-buyers crushed along the way.
Because rates is so low, I will use different method to access its values. $380K with 6% rate for 30 year, owner pay $2280/month. After 5 year investor can make even if rent go up 3% every year, and this is very likely because of very good schools. However, this is just a C+ score in terms of investment.
Hi Zovall / Irvinerentermom:
I had a quick question and that is how are you able to find out what the financing and downpayment the borrowers in your examples actually made?
Much thanks!!
Anon1234, thanks for the kind words! Sorry to hear about your friends. It seems they’ve gotten in over their heads. Sadly, a lot of people make assumptions about how future appreciation will carry them financially.
BubbleButt, we get the financing/downpayment information from the databases of various title companies (First American, First Chicago, Stewart, etc). Unfortunately, I don’t know of any free source for this information. The title companies provide this information to real estate agents as a complimentary service.
Hey Guys,
You all seem to know how things work with OC real estate. I don’t at all.
I read the post about the young and dumb couple that lost a crap load of money trying to flip a house….and now that I’ve read it I don’t plan on making the same mistakes. I don’t know if I can handle flipping just yet….my mom told me that you have to stay in a house for five years to make some money back….is that a load of crap???
I just got my first job out of school, and I’m saving like mad. I don’t want to rent because it just feels like I’m flushing money down the toilet. I may be able to afford something in the $300-$400K range. How do I go about not losing all my cash? Do I buy an older condo? Do I buy a tiny new condo like in Avenue One or Watermarke??
Don’t steer me wrong, guys…I know you know what’s up.
“my mom told me that you have to stay in a house for five years to make some money back….is that a load of crap???”
In a normal real estate market, houses appreciate at about 1% over inflation. It usually takes about 3 years of appreciation to cover your commission to get out, and 5 years to actually make any money. Obviously, the last 5 years were not a normal market.
“I don’t want to rent because it just feels like I’m flushing money down the toilet. ”
This is realtor spin. Look at it this way: To “buy” a house, you will need to go to a bank and “rent” the banker’s money. The rent on money (commonly known as interest) is flushed down the toilet every bit as much as housing rent. The government provides a small tax break to make it less painful, but when the cost of interest minus your tax break exceeds house rent, you are actually flushing more money down the toilet on interest than on rent. This is currently true in the market.
Save your money. Those with cash in 3 to 5 years will rule the real estate market.
Thanks IrvineRenter for responding….and, of course, thank you for confirming that, once again, my mom is right.
I did have another question in response to your advice. If you say that in 5 years I’d likely make money on a house, is that taking into account the interest payments????
I guess what I’m really confused about is this (maybe you can clear it up for me) Live in a house for 5 years = make some money……Rent an apartment for 5 years = loose some money. Am I missing the point??? Oversimplifying maybe???
I liked what you said about how interest is just another type of toilet-flushing. I had never thought of it like that.
Just out of curiosity….why in 3-5 years will buyers be in a better position to buy??
Keep the advice coming……(I feel like I should paying for this service…but then again I should be saving it for a house)
YoungNDumb,
Please check out the forums here:
http://forums.irvinehousingblog.com/
There is a lot of information and calculations that some of the members have provided regarding the rent vs buy decision. It should really help you out.
Reading the comments a year later is fascinating. And since there weren’t too many back then, I could feel like I could read them without spending too much time.
IR thought a knife catcher would buy at 535,000. Very optimistic. Instead, the catcher caught at $447,000. I’d say this was a great deal of progress–or regress. Attitudes have really changed a bunch. I wonder how much the buyer put down.
You guys can’t do an on-line title search? I would never rely on this for a closing, I need my info certified, but with the address we can find the legal description, and with the description we can find the deeds and mtges going back for quite a long time.
Could it be that Florida is ahead of California in something?
BTW, Florida (and Michigan) are once again on the road to be election confounders, based on Obama’s success last night. Suppose the forbidden Florida delegates are just enough to put her over the top. . .
Does the Florida Supreme Court and then the Supreme Supremes get to decide an election again?
This isn’t supposed to be the way it works.
This is one of my favorite complexes—–here’s why:
In 2005 I was divorced and the family home was sold. I took my 550K proceeds and put them in the bank at 5%. My ex purchased a place for about 700K in the timberwook complex. Recently one of the same units she purchased sold for about 550K.
Just goes to show that corporate finance does not equal personal finance.
I guess those friends can just go back to renting and *maybe* learn a lesson. And just what is that lesson? Twenty percent down with at least a 30-year fixed, maybe even a 15-year. No crazy DTI. Then dump the stupid delusions about treating their house like an uber-investment and expecting stellar appreciation.
People ARE making tons of money on forclosures and fools:
http://orangecounty.craigslist.org/grp/569066945.html
You guys gotta see this one!
Why do flippers think that they should be rewarded with huge amounts of appreciation for just changing a few bits of stuff here, a few changes there? Watching those stoopid TV shows with gargantuan profit expectations, I’m thinking “those people realy think they should earn xxxx% return on their investment?” Some of those profit expectation, on an annualized basis, were just stratospherically mind-blowing. And the worst part is when people actually bought the sh*t they were selling.
I’m all for some housing arbitrage, and some flippers may even do the community a service, by buying old run-down sh*t holes and fixing them up. But expecting an out-of-this-world rate of return on your time and investment is crack-smoking territory.
That’s just too funny. $350 to ride around with other stoopid people watching somebody property? I really hope nobody is dumb enough to pay, but there are always people ready, able, and willing to part with their $$$.
Have you actually seen Collage? It’s rather hideous. It reminds me of a compound, or some type of “project”. The only thing it has going for it is the location. Otherwise, it looks a lot like the older IACs.
Funny thing you mention the flipping shows – TLC’s flip that house put up a warning before last night’s episodes – “The following program features real people taking risks with real money. Flip at your own risk.” Also on last night episodes both were professional flippers and they warned verbally about the risks.
Also note they always say “projected profit” – and most of the flipping shows do not film up to the actual closing. I think a few months ago they did follow-ups at the end of episodes and several of the flippers said they would not do it again. I am convinced that many of the people on the shows lie about the profits – who would want to go on national television as a chump losings tens of thousands (some probably well over 100K) of your own dollars. That would be so humiliating since the show is about people flipping and making big money.
A great show from TLC is “Please buy my house”. It is about people who need to sell their houses – and the loss they take. Most of the people are ones who bought a new property before they sold their old one – and they actually discuss the financial devastation they face.
Assuming 2001 prices were “fair value” (a big assumption), applying 3% inflation puts it at about $300K. What a steal…NOT!
Schadenfrued much Nano?
lol
Anon,
Thank you for posting that story, as it helps drain my reservoir of schadenfreude to hear that people “in the industry” put their money where their industry’s mouth was during the boom and are now enjoying the “benefits” of homeownership. I would have felt like I committed a crime had I spent a lot of money on my own wedding and ZERO on a downpayment for a house. Hard to believe people did it, but nothing surprises me anymore.
I agree with you that “California Housing is the next chapter”. The Economist magazine this week had an article titled “The Geography of Recession” which concluded that “A downturn centred on housing will have pernicious effects, even on the regions it hits least. That is because it constrains one of the biggest safey vales in America’s economy: people’s ability to move. Previous downturns spawned sizeable migrations from recessionary states to booming ones…This time, that mobility is hampered by people’s inability to sell their homes.”
I disagree with their conclusion because it doesn’t take into consideration the low downpayments that were made. People like your friends will simply walk away and start over. You think a couple that could spend so much money on their wedding (i.e. themselves) and nothing on a downpayment is going to “feel” anything for the lenders they will be cheating?
I think some of the most unrealistic ads for real estate are playing on Craigslist. Maybe to keep advertising cheap or something. Or maybe the agents are too embarassed to ask for some of these prices on the MLS.
Look what you can get in “getaway from it all” Julian for $550.k
http://orangecounty.craigslist.org/rfs/568466150.html
The photos are such a curiosity. even the one of the agent is a little…. odd
I thought you were buying 2009 or 2010? Gonna wait till 2013 now? 😉
Notice how there is no photo showing the front of the house. Makes me wonder if the house is uglier than the agent.
Walking distance to Northwood High. Exactly which schoolteacher or pair thereof can afford this affair? Would you live in a 1200 + square foot condo with a highschooler? If you were a single mom (or, out on the statistical tail, dad) with such a person would you be able to afford this in any case? These places absolutely baffle me.
Well, the house was built in 1925 and depending on the amount of plastic surgery she’s had she might be running a close second!
These people don’t have their own cars? Or maps. Or house ads? Dang.
Check the date on that comment, it was made in January of 2007.
Agent looks like the Cat Lady from those plastic surgery shows !
Yes, serious shadenfreud……