Our bear rally is bringing out the flippers. Will they turn a quick buck? or will they get stuck with overpriced properties due for another fall?
Asking Price: $875,000
Address: 11 LAURELGLEN Irvine, CA 92614
Remember when you were young, you shone like the sun.
Shine on you crazy diamond.
…
Come on you target for faraway laughter,
come on you stranger, you legend, you martyr, and shine!
You reached for the secret too soon, you cried for the moon.
…
Come on you raver, you seer of visions,
come on you painter, you piper, you prisoner, and shine!
Shine On You Crazy Diamond — Pink Floyd
Some people get worked up about property flippers and some do not. Some flippers improve properties and make money through creating value (I am talking about real improvements, not pergraniteel).
Personally, I think flippers who buy properties, do nothing to them, and offer them for sale at higher prices are leaches sucking the value from the housing market. Every penny of profit those flippers make comes at the expense of a normal family that might have save money buying a house. I have reserved a small measure of schadenfreude for these idiots as the market crushes the money out of them.
Yesterday, when I wrote about short sales, I talked about the flippers who are buying at auction. Those flippers are at least providing market liquidity, so there is some value in the service they provide. Flipping an auction property is a profit opportunity even in a declining market because the strategy obtains real estate for under current market value (like today’s featured property).
People who flip in the open market simply rely on increasing prices to make money. Now that our bear market rally is in full motion, flippers are trying their luck again….
It makes me all tingly inside to think about how much some of these flippers are going to lose. And this time, it will be their equity rather than funny-money from the bank.
Are you happy to see flippers active in our market again?
Asking Price: $875,000
Income Requirement: $218,750
Downpayment Needed: $175,000
Purchase Price: $690,000
Purchase Date: 7/27/2009
Address: 11 LAURELGLEN Irvine, CA 92614
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,334 |
| $/Sq. Ft.: | $375 |
| Lot Size: | 6,500
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Traditional |
| Stories: | 2 |
| Year Built: | 1985 |
| Community: | Woodbridge |
| County: | Orange |
| MLS#: | S586791 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 4 days |
Equity Seller. This is not a REO or short sale. Corporate Owned.Turn-key home. Bring your pre-approved buyers and close fast. Great
oppurtunity to get into Landing II, which is one of the most sought
after neighborhoods in Woodbridge. Woodbridge has been named The best
place in America to Raise a Family by Parent’s Magazine and the #1
Planned Community in the Country. Private Cul de Sac location, great
for families. Recent upgrades include casement windows, travetine
flooring,distressed Spanish Hickory hardwood flooring,entertainment
center in family room,custom built child’s bedroom with bunkbed and
cabinets (must see!),plantation shutters,above ground spa (sold in ‘as
is’ condition) recessed lighting,new carpet throughout, new interior
paint. Exterior will be painted prior to close of Escrow.
Corporate Owned? Yes, the corporation you formed to flip properties….
oppurtunity?
Take a good look at this sales price history. This is a mid-range property in one of the most desirable neighborhoods in Irvine that declined in value during a 6 year period.
| Date | Event | Price |
|---|---|---|
| Aug 24, 2009 | Listed | $875,000 |
| Jul 27, 2009 | Sold | $690,000 |
| Jul 14, 2003 | Sold | $722,500 |
If this property sells for its current asking price, the flipper stands to make $132,500 after a 6% commission. Not a bad deal if you can get it.
BTW, I have a major analysis post on Shadow Inventory coming out tomorrow. Here is a teaser statistic for you: 175,000 Orange County homes will go through foreclosure between 2007 and 2013. That is 40% of the housing stock with a mortgage. I will show you all the calculations tomorrow…
People who buy at auction are also accepting a level of risk that the property may have damage that needs repair before resale. In a real market economy, people get paid for taking risks, so that aspect of auction buyers is OK. I say it like that because a bank that loaned 100% on an option-arm with minimum payment of 2-3% was NOT being compensated for the risk it was bearing.
If things like this happen, doesn’t it kill any form of the efficient market hypothesis, at least in housing? Real estate’s low liquidity level, high leverage, using comp sales to establish pricing, and glacial transaction times are just a few differences from what are considered efficient markets.
There’s also a price penalty for being forced to pay all cash. That is, prices at the auctions should be lower because only all-cash buyers can play, so there’s less competition. In fact, most flippers go out of their way to accept FHA and VA loans (provided they offer the most) that the banks poo poo when selling REOs-of course, one of the reason the banks can avoid such is because of the all-cash players in the market, such as flippers, in the first place.
And don’t forget the title risk assumed when buying at a TDS auction.
Flippers at a TDS auction are assuming significant risks that the next buyer will not be subject to, and in this way, are performing a service worthy of some profit.
If I could buy the same house at the foreclosure auction, or pick it up a month later as a REO for 5% more, I’d take the REO every time. Unless you happen to be looking at a foreclosure which is also for sale prior to the auction, you can’t see what condition it’s in.
“175,000 Orange County homes will go through foreclosure between 2007 and 2013. That is 40% of the housing stock with a mortgage. I will show you all the calculations tomorrow…”
Makes sense to me. I’ve been forecasting that 2.5 million of California’s 7 million homes and condos will go through foreclosure or short sale in a similar period. The 7 million units include those without mortgages. Overall, OC probably has fewer units without mortgages than the rest of the State.
Keep in mind that if prices don’t recover to 2007 levels, there will be an ongoing stream of foreclosures past 2017. Those foreclosures will be people who could make their mortgage payments without much trouble, but then encoutered job loss, divorce, a relocation offer, etc.
I’m interested in whether you agree with my other forecast. At the bottom (late 2010 or 2011), the CA single family home market will be underwater. The total of all mortgage debt will exceed the market value of all homes. That includes homes with no mortgages. Thus, the homes with mortgages will on average have loan to value ratios far above 100%. Do you think this will happen in OC?
By the way, Nevada is quite close to this point now. The entire single family home market there may go underwater by the end of this year.
I was hoping you would see my teaser. I am going to email you a draft of tomorrow’s post. I now clearly see why you are so bearish. When I crunched through the numbers I was astonished — and a bit frightened.
You’re gonna cause of Newport Skipper stroking out. No problem, he’ll deny that too.
Sure. Happy to look at it.
I really find this type of sale despicable. The business established itself as a middleman for something that should not be a commodity, a house.
What burns me more is how this corporation may have been formed and financed. My guess, it was probably formed from one of the same people who were playing the “no money down game” and formed a corporate entinty issuing stock and suckering individual investors. They may have put in some of their own money, but I really doubt it.
Is this an LLC?
If it is, that means only the agent is visable in a corporation search. I really detest these things. Tracking down owners is a pain. They often use this as a license to participate in ethically dubious behavior. When you are invisible, who can judge you? A straight corporation at least has listed officers and their contact information. LLC’s are almost completely hidden. If they fold, no one is held accountable. Another LLC can form in its place at any time.
I don’t see any evidence of anything ethically dubious happening here. If the flipper is a corporation or LLC (same thing) they are presumably putting their own money are risk, since no bank is going to lend at too high a LTV ratio to an investing LLC.
I think they will lose money, and sort of hope they do, but I am not going to criticize anyone who is putting their own cash at risk.
When I refer to ethically dubious, I am referring to behavior like owning a property and letting it crumble apart until it sells, using unlicenced repairmen to perform work without a permit, not maintaining grounds, taking out very large mortgages on a property while it is being rented, allowing two buildings in an apartment complex to burn to the ground and leaving the empty shells to stand, shirking required repairs and other such dubious acts that while not completely illegal are definetly wrong. I have seen LLC property owners do all of these things and more. Code enforcement and citizens have a much easier time holding an actual person accountable for this than trying to hold an LLC accountable.
I personally think that no LLC should own real estate. If it is land then there should be a human name or corporate head to hold accountable for it.
So, you are apparently talking about some things that you’ve seen but which apparently are not displayed in this current situation.
I’m sure that LLCs have done all manner of dubious things, as have humans. As a general matter, it is just as easy to get a judgment against an LLC as against an individual. There is the issue of limited liability, which is why LLCs exist in the first place. To ‘pierce the corporate veil’ requires some inappopriate behavior on the part of the individuals who manage the LLC.
You wouldn’t “allow” LLCs to own real estate? You might as well argue that corporate entities shouldn’t exist, period. Besides, the massive HELOC abuse that turned the credit bubble into a home mortgage disaster was done, pretty much exclusively, by individuals.
You can make the argument that the flippers are adding equity to the neighborhood homes when they sale the house at a higher price.
Actually, I like that argument. It sounds very reasonable, and it also demonstrates how illusory equity really is.
I suppose in a HELOC addicted world, a flipper may add $20,000 per household to the neighborhood HELOC capacity by driving up values. Flippers are heroes supplying spending money to the masses.
If lenders are stupid enough to go back to 100% financing and HELOCs at or above 100% LTV, then flippers will be a huge economic stimulus.
Hmmm… I should write a post about this idea.
Bring on the Flippers! They are providing cash to the banks and will absorb the next wave of losses. Every dollar of loss to the flippers is a dollar the government WON’T have to provide in the next round of bank bailouts.
Come on flippers, bring on your cash and help the taxpayers save a few bucks!
I’ll have a good cup of coffee ready for tomorrow’s post.
You might need a coffee boost as the post is quite long. Actual text is not that many words, but the subject matter and calculations are complex, and I have included many charts. It may be the longest scrolling post I have every created. I am very excited about it, and I am going to spread the word about this one.
I’m looking forward to it!!!
I’ll spread the word at my local housing blog.
I bet you wish you had this data when you wrote your book.
Maybe there will be a second edition when this bubble is becoming history…
IrvineRenter,
I’m very much looking forward to tomorrow’s post. In my opinion, this blog is at its best when you publish your analysis posts.
I gotta say, though, I’m skeptical. 40% of mortgaged OC properties will go through foreclosure?
*pulls up chair and cup of coffee…*
I guess I know what I will be doing tomorrow morning. 🙂
Same here.
Thanks for doing the research IR.
“You can make the argument that the flippers are adding equity to the neighborhood homes when they sale the house at a higher price.”
I suppose they could also do just the opposite if they can’t sell it for what they bought it for…
IR,
You are such a tease. I can’t wait to see
all your carefully crafted chart pr0n tomorrow.
Your work is always so thought-provoking and thoroughly researched; I’m sure it will be a sobering analysis.
Does this guy really think general populace is that stupid; or are the general populace really stupid and going to let this guy get away with this flip…
Yes, depending up how desperate some buyers may be and how flexible the flippers will be on the price.
Unfortunately, yes, I do think this flip will be successful — assuming the seller is smart enough to sell quickly and take what the market bears.
I am somewhat of a flipper. BUT i do the research LONG before I purchase. Concentrate on an area and when the correct house presents itself… purchase. Its not easy and I concentrate on the lower end of things (easier to turn around). The downside is you have to be prepared to hold the asset for a good long while….
If not, I just rent it out.
there’s nothing wrong flipping houses. as long as the flipper puts down own cash and takes responsibilities of the risks.
One could also say flippers improved older homes by fixing them up! I notice when I first moved here in 05′ how many beach homes were being rebuilt and resold. Many over spent on repairs though. Now trying to sell those for still WTF prices. Some of these flippers will get caught holding and some will rent.
This home is very over priced at least by 200k. JMO
http://www.redfin.com/CA/Irvine/17532-Wayne-Ave-92614/home/4657018
not in the same location but much more for your money–fyi
Flipping in general does not bother me as they are taking risk, providing short term employment (for a contractor or laborer) and purchasing product at the local Big Box store. What I have a BIG problem with is that they take all home styles and redo them in exactly the same way. Flippers have single handedly ruined great swaths of homes with character with their automatic insertion of pergraniteel and slate flooring. It is like a manual went out on How to Flip i.e. Flipping for Dummies and every house looks the same. 3 color paint, slate or travertine floor, “distressed” hardwood, blah, blah, blah… For the last 7 years every contractor around thought they were both architect and designer and were neither. Sad Sad Sad
I got on a computer because I have to do my timesheet so I’ll have to make this short. I spoke with the realtor (part owner) about this property and their other properties and it seems like that they a decent business model (although he mentioned that he doesn’t know Irvine as well as he’d like to). They focus primarily on South Orange County and shoot for a 10%+ cash-on-cash return. One of my buyers had put an offer in below the listing price (a good bit below because that’s where the comps were). The counter from the sellers was not much of a decrease from the list price. If they guys had employed the “list it low and let the frantic buyers bid it up” they’d already be in escrow. When you have $700k+ out on the line, every second counts.
I was involved in a transaction recently (Closed around August 10th) in Woodbridge. House sold for over $400 a sqft and was on the market a little more than 60 days.
School District played a big role in the deal.
My sale in Westpark went for over $400 SqFt as well and was on the market for about 30 days. I actually lost out on a full price offer for one reason only. My address had the number ‘4’ in it and the superstitious buyer did not want it for that reason alone.
My neighbor who has the number 8 in his address, had a renter who offered to pay above the asking rent because he wanted to live in a house with the number 8. I am not very superstitious and would not let one number over another drive my financial decisions. Sorry to go on a tangent about superstitions. Just an interesting observation.
sounds like superstitious chinese people. the #4 when spoken in chinese, also sounds like “die” in chinese, thus the aversion to addresses, liscence plates, etc with the # 4. Conversely, the #8 spoken in chinese, sounds like the word for “prosper” spoken in chinese, thus the premium paid by superstious chinese buyers/renters for the # 8.
this is probably good info for all who are interested in marketing to chinese people since a lot of real estate activity in prime southern california neighborhoods these days is from chinese people.
I actually started a thread in the forums about this house a few days ago when this it came back on the market. What surprised me about this was the process that it went through to end up in this flipper’s hands. The house was originally for sale as a short sale with another agent, and there was a LOT of traffic at the open house. According to the agent there were a number of offers above the $750,000 asking price. I usually don’t believe agents, but given the price and location I believe this was probably true. So, how did this end up not selling as a short sale and going to auction to finally end up being sold to this flipper for only $690,000?
In the end, this is a nice neighborhood, but the house has a strange multi-level layout with a sunken living room that is not uncommon in Woodbridge. It also needs some work – the “recent upgrades” that are mentioned in the MLS listing were not done by the flipper. I actually spoke with the guy who runs this LLC and he was actually pretty straightforward. He said that they put in some new carpet and paint and were trying to get approval from the HOA to paint the outside of the house, but these are the only improvements that they were doing.
I imagine that if someone wanted this house they could get it for less than the asking price……
Of course… but I must say… alot of people are not prepared to view this is a purely business transaction. They invest too much of themsleves and don’t look on the purchase in a dispassionate manner. As in anything research BEFORE you buy.
I looked the house.
It is in bad shape.
On the outer wall of kitchen,
you can see bottom of wood beam has been replaced because of termite damage.
On the child room, there are at least 40 naked nails.
In the same room, the fan pose major risk to child sleep on upper level.
Water heater , duct in garage also a mess.
The kitchen is in its original tiles with 20 years history