Happy Presidents’ Day! I hope you are enjoying all our great country has to offer on this special day.
The featured property is an Irvine flip asking for a 20%+ profit for doing nothing.
Asking Price: $739,000
Address: 11 Montage, Irvine, CA 92614
{book4}
Peaches — Presidents of the United States of America
Millions of peaches, peaches for me
Millions of peaches, peaches for free
There are still people successfully flipping properties even in our declining market. It isn’t the usual suspects from the bubble, no-money-down fools, it is the moneyed professional with plenty of cash. During the bubble, banks were handing out 100% financing to anyone who wanted it, so flippers everywhere bought and sold properties at will.
Now that banks are paying a heavy price for their foolishness, they are no longer loaning money to flippers. Being a flipper requires more cash–much more. In fact, the only way to flip today is to go to a foreclosure auction with 100% cash and buy properties on the courthouse steps. Needless to say, this greatly diminishes the buyer pool.
The auction flip works due to the fact that the diminished buyer pool makes for depressed pricing. A flipper can obtain a property at auction for 10% to 20% less than its resale value in the finance-dominated market. If a flipper can obtain a property cheaply and sell it quickly, there is an opportunity to profit.
This kind of flipping is not for the foolish amateur or the faint-of-heart. If you overpay, you will lose money. If you overpay and hold on, you will lose even more. Prices of these properties are still well above rental cashflow levels, so holding them as true cashflow investments is not a viable option. These are pure speculative flips.
I wouldn’t do it.
Today’s featured property was purchased at auction, and the flipper is trying to make a quick 20%. Good luck with that [As I secretly hope this flipper goes down in flames].
Asking Price: $739,000
Income Requirement: $184,750
Downpayment Needed: $147,800
Monthly Equity Burn: $6,158
Purchase Price: $600,000
Purchase Date: 12/29/2008
Address: 11 Montage, Irvine, CA 92614
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,372 |
| $/Sq. Ft.: | $312 |
| Lot Size: | 3,484
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Mediterranean |
| Year Built: | 1990 |
| Stories: | 2 |
| View: | Treetop |
| Area: | Westpark |
| County: | Orange |
| MLS#: | S563636 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
Ceilings Spacious. Kitchen Opens to Large Family Room with Fireplace.
All 3 Bedrooms Upstairs with Loft/Den as 4th Bedroom, Office or Gym.
Master Suite has Separate Tub/Shower and His/Hers Walk-In Closets. Nice
Back Yard with Built-In BBQ, Spa, Landscaping and Sprinkler System.
Community Pool and Tennis Courts. Award Winning Schools. Great Parks.
Close to Shopping and Entertainment. Low Association Dues. A Great
Place to Live on A Quiet ‘Cul-De-Sac’ Street. Not a Short Sale! Not an
REO, The owner is in process of Upgrades, Flooring, Countertops,
Appliances, etc. CAN MAKE ‘AS IS’ OFFER NOW BEFORE WORK BEGINS!
Notice how the seller would generously consider offers before putting more money into the property? I will offer $475,000. That is where the resale value is headed. Somehow, I doubt he will take it.
Presigous?
Why Is This Description Written In Title Case?
Actually, buying a house from an auction flipper is not a bad way to go. If you can get the property renovated to your taste prior to move in and have these improvements rolled into your loan, you can have an at-market property that is exactly what you want. You won’t get a good deal, but you can at least get what you want.
The previous owners of this property spent their house. Are you surprised?
- The property was purchased on 9/5/2001 for $465,000. The owners used a $372,000 first mortgage and a $93,000 downpayment.
- On 4/16/2002 they opened a HELOC for $80,000.
- On 5/28/2002 they opened a HELOC for $100,000.
- On 11/6/2003 they opened a HELOC for $108,000.
- On 11/17/2003 they opened a HELOC for $248,000.
- On 6/2/2004 they opened two HELOCs for $195,000 and $67,000 respectively.
- On 6/24/2004 they opened a HELOC for 67,000 (probably redid the last one).
- Total property debt was $634,000.
- Total mortgage equity withdrawal was $262,000.
That explains why this property went to auction for $600,000. At least the lender didn’t lose too much. Wells Fargo was lucky these borrowers were not even more aggressive. The borrowers are members of an ethnic minority known for their frugality, so perhaps this is being conservative. I can’t say…
{book3}
Movin to the country,
Gonna eat a lot of peaches
Movin to the country,
Gonna eat me a lot of peaches
Movin to the country,
Gonna eat a lot of peaches
Movin to the country,
Gonna eat a lot of peaches
Peaches come from a can,
They were put there by a man
In a factory downtown
If I had my little way,
Id eat peaches every day
Sun-soakin bulges in the shade
Take a little naps where the roots all twist
Squished a rotten peach in my fist
And dreamed about you, woman,
I poked my finger down inside
Make a little room for it to hide
Natures candy in my hand or can or a pie
Millions of peaches, peaches for me
Millions of peaches, peaches for free
Peaches — Presidents of the United States of America
“The borrowers are members of an ethnic minority known for their frugality?”
Oh God. How’d you figure that out?
Was their last name:
…Patel?
…Goldstien?
…Wong?
…Glen Fidditch? (Scotch, in case anyone is wondering.)
Sometimes, this blog cracks me up!
I was thinking it was an Amish family.
Considering this is Irvine, I would go between Patel or Wong.
Is there really that many Patels in Irvine?
I thought only San Jose has the majority of Patels 🙂
These people provide more liquidity to the real estate market, but there’s something about what they’re doing that seems inherently wrong.
Gosh … I know it’s not nice and I probably shouldn’t say it … but … I hope these people are unable to flip this house at a desired asking price, and they chase the value all the way down to a loss.
There, I said it, now I feel better.
I think the schadenfreude is a little thick today. ASSUMING that the flipper is using their own money, this is exactly what should be happening in the market. And it is exactly what we need.
Bank wants to sell the risk/reward, and the flipper wants to buy the risk/reward. Since the courthouse step auctions are not a good way to get the top dollar for a property, there should be room for flipper’s to make money this way if they are smart enough and well financed enough.
This is the sort of behavior that will help prices settle at a natural level.
Yes, I agree, particularly at lower price points. Most flippers doing this are buying the worst properties in the worst areas because these are trading at such low prices that if the flip fails, it is still a good cashflow investment. These guys who are paying above rental parity are just preventing prices from falling faster in inflated neighborhoods.
.
http://www.crackthecode.us/images/flipper_underwater.jpg
I saw this listing and was wondering about the transaction history. Thanks for posting this one IR.
If this flipper doesn’t dump $100k into this property he/she should make some money.
It would be interesting to see what the real estate agent said if you went to view the house and asked him/her “I see that the current owners bought this for $600,000 in December. What has happened since then that has caused the value to increase by 139,000? I thought home values were continuing to go down?”
I confronted the flipper of a home in Woodbridge last year with a similar question as he was attempting to make a similarly quick profit from a home bought at auction and it was fun to see him squirm and attempt to answer the question. In the end he ended up saying that he was just the agent and he didn’t really know the details concerning the previous sale. Right…..
Fed should make some restrictions such that
1. Can’t resell a house bought from auction market within a year.
2. Otherwise, the seller can at most raise 10% of purchase prices.
I don’t see why there should be Fed restrictions… if the flipper is using his own money.
An easy legal solution for this:
Fed can make a new tax law, for selling a house bought within a year need to pay 80% tax on the profit.
Fed shouldn’t do a thing.
In fact, Fed should stay out of RE altogether so that prices may return to “fair market value” as soon as possible.
Same with banks, auto industry, almost everything.
Let’s make a law against making pointless laws!
Hey…. Wait a minute!
Too late, already done – federal paperwork reduction act
More laws, less justice. – Marcus Tullius Ciceroca (42 BC)
Looks like when the old owners left they took the driveway with them. Is that legal?
“Looks like when the old owners left they took the driveway with them. Is that legal?”
This is Irvine dude, we don’t do driveways here.
DocBrown LOL. I am renting this same model and feel like this happened every day. Very funny observation !!
Obviously this is a professional. Did you notice how they wetted down the back patio? Niiiiice!
IR I went to one of these auctions to see how this process plays out. You are 100% it is one risky game. The pro I spoke to there told me they immediately re list the home at well below any comps for the area. This time it worked. They bought (cash) a TR house that was listed at $2.150 million for $1.375 million and sold it in 2 days for $1.639 million. Not bad but risky. Hopefully these opportunities are getting less and less.
Wow, it looks like these TR flippers got lucky. The Woodbridge flip I referenced above actually cut it a little closer…a group of “investors” bought 15 Bayview at auction in mid May for $890,000 and tried to sell it for over $1.15 million without any improvements, but there were no takers. This house was actually profiled on this blog at https://www.irvinehousingblog.com/blog/marble-house.) They then ended up putting a LOT of money in to new paint, flooring, bathrooms, etc. and eventually sold it in October for $1.05 million. Still a nice profit for 6 months of work, but then again they did have real estate commissions/closing costs, 6 months of holding costs and the costs of their improvements… I doubt they could do this now….
If this was bought on the courthouse steps, it would not be considered a good comparable sale. With these auctions you must pay cash on the barrel head, you are not assured clear title, you do not get the standard disclosures, and may, or may not, have had opportunity to inspect the property.
Not your standard arms length transaction desired of good comparable sales. The thrill seekers that buy at these auctions take on huge risks and deserve a nice profit if they can flip it. Problem is, if they do many of these, at some point they will walk into a minefield of a property that burns up profits from other flips.
IR,
Just came across this PayVsWalk calculator:
http://www.payorgo.com/
maybe you could add it your RentVsOwn calculator
http://www.redfin.com/CA/Irvine/24-Perennial-92603/home/5921500
i wonder if this owner is chasing the market down…
Feb 10, 2009 Price Changed $430,000 — SoCalMLS #S542892
Jan 16, 2009 Price Changed $435,000 — SoCalMLS #S542892
Jan 10, 2009 Price Changed $437,500 — SoCalMLS #S542892
Jan 04, 2009 Price Changed $438,000 — SoCalMLS #S542892
Dec 29, 2008 Price Changed $439,000 — SoCalMLS #S542892
Dec 23, 2008 Price Changed $440,900 — SoCalMLS #S542892
Dec 16, 2008 Price Changed $441,000 — SoCalMLS #S542892
Dec 14, 2008 Price Changed $442,000 — SoCalMLS #S542892
Dec 11, 2008 Price Changed $444,000 — SoCalMLS #S542892
Dec 05, 2008 Price Changed $448,900 — SoCalMLS #S542892
Nov 29, 2008 Price Changed $448,950 — SoCalMLS #S542892
Nov 25, 2008 Price Changed $448,949 — SoCalMLS #S542892
Nov 24, 2008 Price Changed $448,950 — SoCalMLS #S542892
Nov 19, 2008 Price Changed $448,990 — SoCalMLS #S542892
Nov 15, 2008 Price Changed $448,950 — SoCalMLS #S542892
Nov 13, 2008 Price Changed $448,920 — SoCalMLS #S542892
Nov 12, 2008 Price Changed $448,925 — SoCalMLS #S542892
Nov 10, 2008 Price Changed $448,950 — SoCalMLS #S542892
Nov 03, 2008 Price Changed $449,000 — SoCalMLS #S542892
Nov 02, 2008 Price Changed $458,000 — SoCalMLS #S542892
Oct 24, 2008 Price Changed $459,000 — SoCalMLS #S542892
Oct 22, 2008 Price Changed $461,100 — SoCalMLS #S542892
Oct 20, 2008 Price Changed $461,000 — SoCalMLS #S542892
Oct 16, 2008 Price Changed $462,000 — SoCalMLS #S542892
Oct 16, 2008 Relisted — — SoCalMLS #S542892
Aug 05, 2008 Listed $479,000 — SoCalMLS #S542892
Most likely the agent is doing this so that agents and clients who have alerts set for that area get a “price change” alert each time he enters a new price. The changes just seem to frequent and too small for “chasing down the market”.
Did we ever determine which “ethnic minority” these owners were? I have a lot of Scottish ancestry, so I’m rooting for the Scotsmen here.
However, I don’t think my Grandpa McPhee would have approved of the ridiculous HELOC abuse these folks engaged in. Still, the frugal Scotsmen is an old stereotype we don’t hear about much anymore, and it always makes me chuckle.
Someome please tell me these folks had a Scottish surname, just so I can laugh!
“The borrowers are members of an ethnic minority known for their frugality, so perhaps this is being conservative. I can’t say…”
Pretty funny stuff. I think from now on all housing sold data should include buyers ethnicity.
Keep it up!
What is everyones thought on the real value of 8 Whitecloud in Woodbridge?
http://www.redfin.com/CA/Irvine/8-Whitecloud-92614/home/4693236
A racist smarmy blog guy…
Your lack of class continues…FYI, forwarding this on to the OC register/lanser to show what a puke you are blog guy.
Take it easy fella. You sounded like the previous owner of this property 🙂
Get after it, Cindy Brady!
This is one of the funniest strings in months. $318 psf plus for an almost 20 year old house is still high. Is there a general formula for what a bank will not bid on a auction? Say loan less 10% for sales cost? Market less 8%?
On risk, can the original owners buy back the property within x days in CA? Who is responsible for back taxes?
I have 4 memberships in groups known for frugality and proud of them. :}