Tonight I will be giving a presentation on the Orange County housing market. Today's post examines why this data is important and how to use it.

Irvine Home Address … 166 West YALE Loop Irvine, CA 92604

Resale Home Price …… $464,900

We been together for a few years

Shared a few tears

Called each other nicknames

Like Sugar Plum and Poo Bear

Like IrvineRenter and Zovall

I know you aggravated

Walk around frustrated

Ya patience gettin' short

How long can you tolerate it

Listen ma I'm just motivated

I do this for us

Step on the grind

tryin' to elevate it now

Busta Rhymes — I Know What You Want

There are too many market indicators. Anyone who has studied technical analysis of stocks quickly realizes there are far too many ways of parsing data, and most of them are useless. As I pondered what I wanted to present to give an overview of the housing market, I considered many ways of looking at the data. I rejected many of the indicators I felt were irrelevant to answer the basic questions buyers have.

What do buyers want to know?

Most buyers want to know two things: (1) am I paying too much, and (2) are prices likely to go up or down in the future. These are important questions. People asked these same questions in 2006 and came up with the wrong answers. The people who answered these questions incorrectly in 2006 have either been wiped out financially, or they are trapped underwater in their homes for the foreseeable future.

Answering these questions accurately is important to any buyer's financial future. It's worth the time and effort to obtain the right answer.

We all know realtors don't have the answers. No matter the time or the circumstances, realtors will always tell you it is a good time to buy or sell. realtors are not concerned with accuracy, only commissions. Don't listen to them.

In all my writings for this blog, I have used accurate market data and formed an impartial opinion about both value and the direction of prices based on my analysis of that data. If the data says prices are too high and they should fall, I say so. If the data says prices are too low and they should rise, I say that too. Many try to stereotype me as a perma-bear because I have been bearish for so long. I'm not a perma-bear. The data has suggested prices are too high and they should fall for nearly 5 years now. When the data changes, so will my opinion — as it already has in Las Vegas.

Rental parity is a measure of value

To answer the first question, “am I paying too much,” I pioneered the rental parity analysis technique I briefly described in Using rental parity to find bargain properties. Rental parity is the best measure of value because it compares the cost of ownership to the cost of rental. This makes sense because either method will enable people to obtain the beneficial use of real estate. Patrick.net has a great rental parity calculator you can use to analyze any property. Check it out.

Rental parity by itself is not enough. Rental parity is not an absolute. Some neighborhoods always trade below rental parity, and some always trade above it. The neighborhoods that trade below rental parity are undesirable. Prices need to be below rental parity to attract owners to want to live there. The neighborhoods that trade above rental parity are very desirable. Buyers will typically take their accumulated equity from previous sales and bid prices above rental parity buy utilizing large down payments.

Even before the housing bubble and subsequent crash distorted the down payment figures, the beach communities had the highest down payments, and the less desirable inland communities had the smallest. Irvine was somewhere in between.

Rental parity will accurately describe the degree of price inflation in the market.

To evaluate individual neighborhoods by city or zip code, the current measure of rental parity must also be considered relative to its historic norms. Basically, beach communities are always inflated, but how inflated are they normally, and how does current pricing compare? Those are the key questions of value.

If a neighborhood or property is trading at or below its historic relationship to rental parity, it is a bargain. If above, it is inflated.

I have been writing for over 4 1/2 years now, and I have consistently made the point that values were inflated. Times have changed. Many neighborhoods are still inflated, but several are not. Further, the degree of price inflation is much smaller than it used to be. With falling prices and historically low interest rates, Irvine is now at rental partiy for a buyer putting 20% down using a 30-year fixed rate mortgage.

Bullishness in a declining market

Many people have asked me how I can be bullish on markets like Las Vegas where prices are still declining. The question reveals an underlying bias toward appreciation I don't agree with. Valuation alone is reason to be bullish.

I am bullish on Las Vegas because properties there represent a great value. The cost of ownership relative to rent is very low. Since my holding time is much longer than it will take to cycle past the bottom, I want to buy while there is still plenty of available inventory and time for me to complete a large number of purchases.

If I attempted to time the bottom tick of the market in Las Vegas, I would undoubtedly miss it. Then I would be competing with more aggressive buyers in a market with depleted supply. By the time I acquired all the properties I wanted, prices would likely be much higher than they are today. Buying at the tail end of a declining market is actually the best time.

Orange County is not Las Vegas

My bullishness in Las Vegas does not directly translate to bullishness in Orange County. We are certainly closer to the bottom than to the top, but the valuations are not good — certainly not so good they would motivate a value buyer to act — and since lenders have not capitulated here, Orange County's housing market will likely bottom later than Las Vegas's. Las Vegas will be the textbook example of capitulation and recovery whereas Orange County will be the classic example of the slow deflation most like Japan's housing market from 1990-2005.

My views on Orange County have migrated from “don't buy” to “buy if you are paying below rental parity and you have a long holding time.” Basically, anyone buying today will have to wait out the bottom. It will likely be three to five years (or more) before prices rise enough to give today's buyers enough equity to sell and pay a broker without losing money.

I guess you could say I am bullish with qualifications.

Measures of price direction and momentum

The other question buyers want to know concerns the direction of prices. As I have stated on many occasions in many posts, I believe prices will decline further before reaching the bottom. In aggregate over the entire Orange County market, that is likely what will happen. However, when you start to localize the data, the price crash has proceeded at different rates in different areas. Only through a more detailed analysis will the truth of market price direction and momentum be revealed.

Some market indicators seek to measure supply and demand and the balance between them. These indicators are as follows:

• Inventory for sale (supply)
• Total sales (demand)
• months of supply (balance)

The months of supply is a useful indicator. To be accurate it be calculated based on total closed sales. One local realtor publishes a widely read and completely inaccurate months of supply based on pending sales. The effect of using pending sales instead of actual closings is to make the months of supply a smaller number. Since months of supply has a commonly accepted interpretation — over 6 months is bad and under 6 months is good — using pending sales always makes the months of supply look better than it really is.

This kind of manipulation of data is at the core of why realtors can't be trusted. I believe the use of pending sales to make the numbers look better is intended to create a false sense of urgency in buyers by convincing them the supply and demand balance is tighter than it really is. Why else would someone use the wrong data, particularly when the right data is easily obtainable?

If the data is accurate, the months of supply provides a short-term gauge of the direction of prices. When the figure is over 6 months, prices generally either flatten or go down over the next 90 days. When the figure is less than 6 months, prices may go up — assuming buyers are motivated and have ready access to financing.

Other market indicators measure price momentum such as:

• Median home price and year-over-year change
• Average resale $/SF and year-over-year change
• Average rental $/SF and year-over-year change

Whenever realtors want to make a bad report look good, they will focus on the month-to-month change in prices, particularly during the spring when this nearly always rises. Housing markets nearly always exhibit a strong seasonal pattern of spring rallies and fall declines. The only way to get an accurate handle on price momentum is to look at the year-over-year change.

At the time of this writing in September of 2011, the market has gone up for the last three or four months on a month-to-month basis. However, on a year-over-year basis, the market is down. The month-to-month increase reflects the seasonal pattern while the year-over-year decline reflects the macro trend in the market. Month-to-month fluctuations only become noteworthy when they move against the seasonal pattern as they did this spring when they declined during a period when prices generally rise.

Of the three indicators of momentum above, the average rental $/SF year-over-year change is the most revealing. As we have seen, resale prices are quite volatile and reflect the irrational exuberance of buyers and the collective foolishness of lenders. However, rental rates closely track wages and the underlying employment picture which ultimately drives resale demand. For this reason, I favor rental $/Sf as the best leading indicator for the direction of house prices.

Monthly presentations and IHB posts

Back in March, I wrote the post The future of IHB news and real estate analysis. In it I spelled out my vision for continuing with the IHB:

Data is important, isn't it?

It's a shame the NAr has gone down the path it has. Few reliable sources of real estate analysis and information exist, and few signs the NAr is going to become one of them. That leaves a void. Uncharted waters buyers must navigate without a reliable guide. It's a void we seek to fill here at the IHB.

We are in the process of assembling our own private database of housing and related economic statistics. Over the next several weeks as I have time to digest the new information, I plan on a number of new analysis posts to truly illuminate the activity in our local housing market.

I have no agenda to spin the data. Let's see what is really going on. I want to be accurate. People can make their own decisions and draw their own conclusions from accurate data. If approached without the built-in bias of a realtor, data analysis can be revealing rather than deceiving.

I will still have a dog in this hunt. I do run a business that makes money from real estate transactions. I am subject to the same biases as any other human being. I sell real estate, but I am not a realtor. The truth needs no salesman. I will present data as accurately as I can. If reality motivates you to buy or rent, the IHB can help you. I have no desire to manipulate data in order to make a quick buck. This is a part-time hobby for me, not my livelihood.

I have assembled enough data to begin more frequent posts and monthly presentations to provide my take on the local housing market. The IHB is poised to enter the next era.

Writing the IHB has been great fun for me over the last 4 1/2 years. I have turned my enjoyable hobby into a source of supplemental income without draining the joy out of the activity. However, there comes a time when I ask myself if it's worth all the work. Am I really providing any value?

Telling people not to by and saving them from ruin was worth the work so far, but without the urgency to save the masses, I need another reason to keep going. If I'm not adding any value, I will just fade away.

Now that I am surrounded by a great team, I feel I am part of a new way of delivering real estate services. We believe buyers and sellers need accurate information to make informed decisions. Our clients approach the transaction with appropriate expectations, and client satisfaction is high because of it. We're not perfect, and we make mistakes, but we offer our honest opinions and advice and do our best to serve.

Presentations tonight

I hope to see you tonight at JT Schmids at the District. I will be there by 5:00 for happy hour. The OC housing market presentation is at 6:00 and the cashflow investment presentation is at 8:00. I hope to see you there.

An “Extremely well priced home”

The agent believes this property is “extremely well priced.” It is a short sale teaser price to be sure, but it is priced to what I believed bottoming values would look like back when I pondered the crash back in 2006-2007. Of course, the numerous government interventions and super low interest rates have prevented prices from reaching reasonable levels, but those low interest rates have also made higher prices more palatable.

Today's featured property is priced at $242/SF in a neighborhood with no Mello Roos. For a conventional buyer putting 20% down, the cost of ownership is under $2,200 per month. If anyone can find a 1,900 SF 3/2 renting for $2,200, let me know because I would take it. This is a typical median-income kind of property asking below rental parity.

Is it just a teaser? Will a bank allow it to sell for this price? Will others bid it up to a higher number? Only time will tell. The effectiveness of the teaser listing is wearing off, and lately, I have seen many properties where low listing prices have been moving even lower. If lenders start releasing these properties rather than holding them in limbo indefinitely, prices will fall to where prices like this are taken for granted.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 166 West YALE Loop Irvine, CA 92604

Resale House Price …… $464,900

Beds: 3

Baths: 2

Sq. Ft.: 1900

$245/SF

Property Type: Residential, Condominium

Style: Two Level, Other

Year Built: 1977

Community: Woodbridge

County: Orange

MLS#: S672608

Source: SoCalMLS

Status: Active

On Redfin: 3 days

——————————————————————————

Extremely well priced home in the highly desired Woodbride area of Irvine. This is a townhome that lives like a SFR with 3 bedrooms and 1900 sqft. Homeowners have done some upgrades but house does need some TLC to show at its very best. Popcorn ceilings removed, pergo flooring, some crown moulding, fireplace in Living room and family room, tile in entry area, updated kitchen with granite counters, nice enclosed yard, master bath with jacuzzi. Needs paint and possible update carpet. Walk to the lake and to the local schools. Close to shopping and easy transportation access.

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

Resale Home Price …… $464,900

House Purchase Price … $635,000

House Purchase Date …. 6/9/2004

Net Gain (Loss) ………. ($197,994)

Percent Change ………. -31.2%

Annual Appreciation … -4.3%

Cost of Home Ownership

————————————————-

$464,900 ………. Asking Price

$92,980 ………. 20% Down Conventional

4.20% …………… Mortgage Interest Rate

$371,920 ………. 30-Year Mortgage

$105,310 ………. Income Requirement

$1,819 ………. Monthly Mortgage Payment

$403 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$97 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$402 ………. Homeowners Association Fees

============================================

$2,721 ………. Monthly Cash Outlays

-$298 ………. Tax Savings (% of Interest and Property Tax)

-$517 ………. Equity Hidden in Payment (Amortization)

$139 ………. Lost Income to Down Payment (net of taxes)

$78 ………. Maintenance and Replacement Reserves

============================================

$2,123 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,649 ………. Furnishing and Move In @1%

$4,649 ………. Closing Costs @1%

$3,719 ………… Interest Points @1% of Loan

$92,980 ………. Down Payment

============================================

$105,997 ………. Total Cash Costs

$32,500 ………… Emergency Cash Reserves

============================================

$138,497 ………. Total Savings Needed

——————————————————————————————————————————————————-

Trapped in houses worth less than their mortgages, many loan owners are unable to move to take jobs or accommodate their growing families.

Irvine Home Address … 134 ECHO Run #48 Irvine, CA 92614

Resale Home Price …… $199,900

Trapped in a box of tremendous size

It distorts my vision, it closes my eyes

Attracts filthy flies and pollutes in the skies

Sucks up our lives and proliferates lies

Trapped in a box

No Doubt — Trapped in a Box

The people who have endured foreclosure, sold in a short sale, or walked away from their mortgage debt are the lucky ones. For them, the ordeal is over. They still have ramifications with bad credit, but they now enjoy the freedom of renting — and lower housing costs to boot. The underwater loan owners who stay in their homes are the ones living in quiet desperation trapped in a stucco box.

Generation of homeowners stuck in first houses

By Rick Daysog

rdaysog@sacbee.com

Published: Monday, Aug. 29, 2011 – 12:00 am

They're trapped, like so many members of their generation.

Steve and Tasha McLaughlin have had two kids since they bought their two-bedroom “Brady Bunch”-style house in South Natomas seven years ago. They need more room, but they can't move: The house they bought for $256,000 is worth just $90,000, and an attempt to sell it failed.

This family would be foolish to remain. The shortest path to equity is through strategic default. It will be 25 years or more before a $90,000 home triples in price to the $270,000 it would need to sell for in order for them to cover their closing costs and get out at breakeven.

“We are literally stuck,” said Tasha McLaughlin, 33. “There's no light ahead.”

The McLaughlins and tens of thousands of others like them in the Sacramento region are unable to take the traditional second step on the American home ownership ladder. They are captive to outsized mortgages born in a real estate bubble, which have balances much higher than the homes are now worth.

During the boom years, young families could sell their first homes to buy larger ones, using the equity they built up in their starter models. But for those who bought at the height of the market, plunging prices have wiped out their equity and then some.

Many of these people haven't lost their jobs and aren't behind on their mortgage payments, so they don't qualify for a loan modification that could shave off big chunks from their monthly housing payments.

“If you bought in the last few years, you're not going to have a lot equity, and you're going to be stuck for a while,” said Andy Thielen, a Realtor with Lyon Real Estate's downtown office.

That's an optimistic assessment. Unless borrowers put 20% or more down, nearly all buyers from the last decade cannot sell their house for enough money to pay off their loan and their realtor. If people feel they have to move, they can either attempt a short sale, or they can strategically default.

Or course, in our culture of entitlement, borrowers who consider short selling believe lenders should approve the short sale and simply eat the loss. Lenders in California now have no recourse after a short sale, so very few will be approved unless borrowers agree to repay what they can. Or course, most borrowers believe they shouldn't repay anything. They liked keeping the upside, but borrowers don't want to take the pain of the downside they didn't think was possible (real estate always goes up, right?) Most borrowers would be far better of strategically defaulting then declaring bankruptcy.

One of the only ways to move with intact credit is to rent out the first house and buy a second, bigger one to live in. But only those owners with enough money for a second down payment can afford to pursue that course.

The forced absence of so many young adults from the homebuying market has eroded demand for move-up houses, a crucial piece of the local real estate economy.

This doesn't only trap young adults. It traps the older adults who went Ponzi and spent their equity in anticipation of ever-increasing home prices.

Andrew LePage is an analyst with DataQuick, a San Diego real estate information firm. He said the lack of move-up buyers can easily be detected by looking at what's happened to sales of homes in the $250,000-to-$600,000 range.

In 2006-07, when the local market was near its peak, that segment accounted for 70 percent to 80 percent of all sales in the Sacramento region, according to DataQuick. These days, homes in that price range account for less than 19 percent.

Part of this reduction in volume is because fewer homes are priced in that range due to the crash, but his point is well taken: there is no move up market because there are so few with any equity to make the move. This has been exacerbated by the way lenders have chosen to foreclose at the bottom of the market first. Lenders have crushed the segment of the market they needed to support in order for borrowers to have equity to afford the more expensive homes to come later. When lenders finally get around to liquidating their high-end properties, the buyers they need will be trapped in their starter homes.

Sacramento-area home sales have picked up lately, but they tend to be for rock-bottom deals in neighborhoods thoroughly scoured by foreclosures and short sales.

Traditional move-up neighborhoods, such as Sacramento's Land Park and Greenhaven-Pocket, are seeing less activity. In the ZIP code that includes Land Park and Curtis Park, for instance, sales volume today is 36 percent below the neighborhood's 10-year average, according to DataQuick. Sales in the Greenhaven-Pocket area are down 31.7 percent.

David Moultrie, 31, a painter who lives in the Pocket, said the sluggish housing market has prevented him and his wife, Emily, from moving into a bigger home. The couple paid about $350,000 six years ago for a two-bedroom, which Moultrie said is now worth about $200,000.

They looked at several homes in the $280,000-to- $325,000 range last spring, but all of them were either “backed up against a freeway or were fixer-uppers,” said Moultrie, who needs the extra space for his growing business and his 2 1/2-year-old daughter.

He's now in the process of adding a bedroom and bathroom to his existing home, paying for the renovations through savings. A home equity loan, he said, is out of the question given his house's loss of value.

“It's just a bad situation,” Moultrie said.

Prior to the housing bubble, people used to fund home improvements from their own savings. It's only the rampant HELOC abuse of the 00s that convinced people houses self-fund their own improvements. Many now view HELOC funding from appreciation as an entitlement.

For Julia Himovitz, the reality check came in June when she and her husband, Gregory Ries, put their two-bedroom, one-bathroom house in Tahoe Park on the market.

They listed it at $269,000, only to discover that a similar house across the street had sold for less than half of that.

LOL! I wonder if they listed it with a realtor who told them they could actually get their asking price? It should be an embarrassment to both the sellers and the realtor to put an asking price in the market so clearly delusional that buyers ask, “WTF?”

They later dropped the price to $240,000 – about what they paid eight years ago – before pulling the house off the market altogether.

Himovitz, 32, an attorney, said she and her husband have decided to rent out their Tahoe Park home and use their savings to help buy one that's big enough to accommodate their family, which now includes a 2-year-old son and a 70-pound golden retriever.

“We love our house and I love the location. It's a wonderful place,” she said of her current house.”But if we want to have more children, it would be hard.”

Tasha McLaughlin, the South Natomas homeowner, says her situation is already hard, and she doesn't know what to do about it. The market fall has left her stuck with a house that's too small and a mortgage that's too big. She and her husband pay $2,000 on their interest-only loan; that payment will rise to $2,400 a month in 2017.

McLaughlin, who runs a small business that organizes lacrosse tournaments and clinics, said she tried to get her loan modified in recent years. The first time, she waited months before receiving preliminary approval, only to find out that her loan was sold to another bank before the modification could be completed. Earlier this year, she approached the new lender for a loan modification but was rejected because she hasn't missed a mortgage payment.

McLaughlin said she and her husband, Steve, also tried to sell their home last fall when he took a job in New Jersey as ticket sales manager for Rutgers University.

But nobody bought. Her husband opted to quit his job after nine months, and the family returned to Sacramento. He now works as an alumni director for a local high school.

How much longer will this family continue to struggle? They will not have any equity in that home in their adult working lives. How much longer will they continue to pay the price for that mistake? How long should they?

I believe they should default. Lenders created this problem, and strategic default is moral imperative to prevent future housing bubbles. The fear of strategic default is a necessary deterrent to foolish lending. Without it, lenders are emboldened to make all manner of bad loans because they believe they will get paid back. Lenders will make nearly any loan if they believe they will get their money back with interest. It's only when they feel they won't get repaid are they prompted to loan responsibly.

Irresponsible lending has trapped the generation of bubble buyers in their homes. These people will not be rescued by rising prices unless we inflate another harmful housing bubble. Lenders must pay a heavy price for the foolish lending of the 00s.

Borrowers must pay a price too or moral hazard will encourage more irresponsible borrowing. Loss of the home through foreclosure, short sale, or strategic default, and damaged credit are appropriate consequences.

Both lenders and borrowers have been soliciting government bailouts to avoid the consequences of what they have done. Moral hazard makes in imperative that politicians do not give in to either side.

How would you like to be stuck in 715 SF?

The former owner of today's featured property had a choice to make: (1) stay in her tiny debtor's prison she couldn't afford, (2) walk away from her debt and escape to renter's freedom. She walked.

This property was purchased on 6/14/2005 for $319,000. The owner used a $255,200 Option ARM with a 1% teaser rate, a $31,900 HELOC, and a $31,900 down payment. The use of the Option ARM strongly suggests she really couldn't afford the property.

On 5/19/2006 she obtained a $55,000 stand-alone second. She quit paying in May 2010 or perhaps earlier.

Foreclosure Record

Recording Date: 12/07/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/24/2010

Document Type: Notice of Default

The bank didn't waste any time once they issued the NOD. This is an instance where the borrower's circumstances were improved by foreclosure. Her payments would have greatly exceeded the cost of a rental, and it would have been quite some time before the value of this property gets back above $319,000. She was spared a decade of renting from the bank.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 134 ECHO Run #48 Irvine, CA 92614

Resale House Price …… $199,900

Beds: 1

Baths: 1

Sq. Ft.: 715

$280/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

Year Built: 1980

Community: Woodbridge

County: Orange

MLS#: S655443

Source: SoCalMLS

Status: Active

On Redfin: 126 days

——————————————————————————

Desirable Woodbridge condo with Huge balcony. Nice sized 1 bed 1 bath condo with laundry hook laundry closet!! Recently painted & new carpet installed!! All you have to do is unpack your stuff!! Be in before summer and enjoy all the amenities that Park Vista HOA has to offer. Why wait on a short sale when this great condo is ready for you now!!

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

All you have to do is unpack your stuff!! And you better not have much if it must fit in 715 square feet.

Resale Home Price …… $199,900

House Purchase Price … $319,000

House Purchase Date …. 6/14/2005

Net Gain (Loss) ………. ($131,094)

Percent Change ………. -41.1%

Annual Appreciation … -7.4%

Cost of Home Ownership

————————————————-

$199,900 ………. Asking Price

$6,997 ………. 3.5% Down FHA Financing

4.26% …………… Mortgage Interest Rate

$192,904 ………. 30-Year Mortgage

$68,045 ………. Income Requirement

$0,950 ………. Monthly Mortgage Payment

$173 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$42 ………. Homeowners Insurance (@ 0.25%)

$222 ………. Private Mortgage Insurance

$371 ………. Homeowners Association Fees

============================================

$1,758 ………. Monthly Cash Outlays

-$150 ………. Tax Savings (% of Interest and Property Tax)

-$265 ………. Equity Hidden in Payment (Amortization)

$11 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves

============================================

$1,398 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$1,999 ………. Furnishing and Move In @1%

$1,999 ………. Closing Costs @1%

$1,929 ………… Interest Points @1% of Loan

$6,997 ………. Down Payment

============================================

$12,924 ………. Total Cash Costs

$21,400 ………… Emergency Cash Reserves

============================================

$34,324 ………. Total Savings Needed

——————————————————————————————————————————————————-

With prices falling during the prime season, market watchers are looking ahead to steeply falling prices this fall and winter.

Irvine Home Address … 10 ROCKWREN Irvine, CA 92604

Resale Home Price …… $999,900

Memories made in the coldest winter

Winter, winter

If spring can take the snow away

Can it melt away all of our mistakes

Memories made in the coldest winter

Kanye West — Coldest Winter

In frontier times if you didn't prepare for winter, you died. The economic cycles has seasons, including a winter. The housing bubble was the endless summer of easy money. The declining market of fall lead to the economic crash and the long cold winter we are enduring now. It seems like the spring thaw will never come, and for most loan owners it won't. The overindebted are not fit to survive the winter, and overly-indebted real estate sellers will endure a very cold fall and winter to come.

Home prices notch third straight monthly gain

A key index of home prices in 20 metropolitan areas rose 1.1% from May to June. Real estate experts say the improvement is seasonal and that prices could fall again as sales slow in the fall and winter.

August 31, 2011– By Alejandro Lazo, Los Angeles Times

With an uptick in June, home prices in major U.S. cities have recorded three consecutive months of gains. But the glimmer of improvement is almost certainly seasonal in nature, real estate experts said, and prices could begin to fall again when the slower sales season begins.

The Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas rose 1.1% from May to June when left unadjusted for seasonal variations. Prices fell 4.5% from June 2010.

Remember last April and May as buyers hurried to obtain the $8,000 tax credit? With prices down 4.5% any benefit obtained was washed away by falling prices in the aftermath.

Prices often increase in the warmer months because of changes in the types of homes selling, particularly in parts of the country that have harsher weather than Southern California. Foreclosures make up a higher proportion of sales during the winter as families take a break from home shopping and cash-rich investors dominate the market. Higher sales volumes in spring and summer also push up prices.

“A seasonal kick accounts for the recent strength in the indexes,” Patrick Newport, a U.S. economist with IHS Global Insight, wrote in a note to clients. “This kick will wear off in the fall, when demand weakens and sellers have to give way on price, and prices will start dropping again.”

Yes, that is exactly what will happen. During the winter buyers are scarce. The properties remaining on the market are sellers who missed the prime selling season. Many will take their properties off the market and wait until next year, but those who don't represent the most motivated sellers. When the market is characterized by a shortage of buyers and a plethora of motivated sellers, lower prices are sure to follow. That's the main reason prices go down in the fall and winter. This year, the circumstances are exaggerated because the GSEs will be selling whether or not discretionary sellers get into the act.

The Case-Shiller index also includes data that is adjusted for seasonal variations, but the experts who publish these numbers have cautioned that the large number of foreclosures on the market have distorted the statistics.

Foreclosures distort nothing. The liquidation of foreclosures are part of the market, and they will be for the next several years. A foreclosure-dominated market is not the old norm, but it is today's reality.

There were some signs of hope.

None of the cities tracked by the index posted new lows. In March, home prices dipped below their recession-era low of April 2009, confirming a much-expected double-dip in home prices, but that was short lived as the selling season pushed prices back above that mark.

This fall and winter the double dip should take out the 2009 lows in any remaining markets. Any signs of hope will be crushed.

Many experts, however, say that the level of job creation needed for steady home price gains is still elusive. For prices to make sustained gains, the market needs a steady supply of buyers and sellers. Holding people back from making purchases, experts say, are factors such as unemployment and the difficulties that people with less-than-stellar credit have getting mortgages.

The buyer pool is seriously depleted because so many have gone through foreclosure or short sale. This is what makes Las Vegas such a great cashflow property market. The disparity between the cost of ownership and the cost of rental is sending a huge buy signal, but since most of the potential buyer pool with jobs has poor credit, they have no choice by to rent. This keeps rental rates high even while the cost of ownership continues to plummet.

In addition, the decline in home equity brought on by the bust has discouraged move-up buyers, a traditional source of housing-market oomph.

Discouraged is the wrong word. It implies move-up buyers still have the equity necessary to move up. They don't. The move-up market is frozen because the ongoing price decline is removing the equity from the household balance sheets of all homeowners. This is more than discouraging, it is debilitating. There will be no move-up market until prices find their natural bottom and prices sustain appreciation for two or three years. Only then will buyers from the bottom have enough equity to cover transaction costs and move into a nicer home — assuming they make more money to afford a larger mortgage.

Although foreclosures have slowed, repossessed properties continue to represent an unusually large proportion of home sales, and those houses tend to drag prices down. The number of foreclosures could increase again if the economy worsens and if banks pick up the pace after working through negotiations with regulators over their repossession practices.

Nineteen of the 20 regions measured by the Case-Shiller index were up in June over May, according to the data released Tuesday. Eight cities remain above their April 2009 bottom, including all of the metro areas in California: San Diego, San Francisco and the Los Angeles region, which also covers Orange County.

Home prices in the California cities are considered relatively healthy, despite the state's high unemployment rate, because they are markets that are close to job centers and near the ocean — where overbuilding was relatively constrained and demand remains healthy.

Wrong! The only reason these markets look healthier is because the foreclosures and resulting REO have not been processed here. Coastal California is the king of shadow inventory. A study by Foreclosure Radar has demonstrated that squatting time increases as loan balance increases. Since coastal California has the largest number of large loans, lenders are simply not foreclosing here in hopes a market rebound will magically produce enough buyers to absorb the inventory waiting in the shadows. It won't work out that way.

The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.

“These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together,” David M. Blitzer, chairman of the index committee at Standard & Poor's, said in a statement.

No. These shifts have shown that the uneven foreclosure behavior of lenders is bifurcating the maket by separating the squatters with large loan balances form the recently foreclosed who used to have less expensive properties.

Recent turmoil in the nation's stock markets also has shaken the faith of consumers in the future of the U.S. economy. A separate economic gauge released Tuesday underscored this fear. That measure of consumer sentiment dropped to its lowest level in more than two years.

The Conference Board's consumer confidence index now stands at 44.5, down from 59.2 in July, a drop of nearly 15 points. The last time the index was near this low was in April 2009, just after the financial crisis had sent markets into a free-fall that had ended that March, when it stood at 40.8.

The group's present-situation index, which tracks how people feel about the current state of the economy, fell to 33.3 from 35.7. The big decline came in people's views about the future of the economy, with the expectations index dropping to 51.9 from 74.9 last month.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, said that consumer confidence should improve now that the gyrations of the stock markets have eased.

“The expectations number is always sensitive to stock prices, so it should now stabilize if the market remains close to current levels,” he wrote in a note Tuesday.

alejandro.lazo@latimes.com

Many analysts have tried to tie the lack of housing demand on consumer sentiment factors. I don't believe it. Very few people delay their home purchase decisions based on macro-economic factors. Perhaps many readers of this blog have, but the cautious readers of this blog are a small minority of the general homebuying population. Most people buy for emotional reasons because they are ready to do so. There are not legions of fence sitters waiting to buy at a later date. The fence-sitter meme is a realtor fantasy, not a market reality.

With prices falling below rental parity in many neighborhoods — even here in Orange County — many buyers will take advantage of the low cost of ownership caused by low interest rates and buy distressed property this fall and winter. It probably isn't the bottom, but for those with a longer holding time who can wait out the decline, taking advantage of the cost of ownership lower than comparable rent may be the right decision.

Paying for someone else's dream

During the bubble the easy access to HELOC money prompted many people to renovate their average homes into palaces. Everyone who creates their dream home falls in love with it and assumes everyone else shares their ideas of what makes a perfect home — and these owners expect others to be willing to pay a premium for it.

In the real world, for every dollar spent on a renovation it adds about seventy cents in value. For those who go overboard and customize everything to their tastes, the actual value added drops off significantly. Of course, owners don't accept this, and most people in Irvine who spent money on renovations believe they added two dollars in value for every dollar they spent.

The owners of today's featured property started with a $473,800 first mortgage, and by the time they finished their renovations, they had a $555,000 first mortgage and a $150,000 HELOC. Of the $231,200 in mortgage equity withdrawal, at least some of it was spent on improvements. The owners hope that between the added value and the residual air of the housing bubble they will still make a profit on the deal.

Is this property worth a million dollars?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 10 ROCKWREN Irvine, CA 92604

Resale House Price …… $999,900

Beds: 4

Baths: 2

Sq. Ft.: 2300

$435/SF

Property Type: Residential, Single Family

Style: Two Level, Traditional

View: Pool

Year Built: 1979

Community: Woodbridge

County: Orange

MLS#: P794914

Source: SoCalMLS

On Redfin: 1 day

——————————————————————————

CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! Located on the corner of two very quiet streets. Totally remodeled in 2006 with nothing left out. This Sunny open floorplan welcomes you with custom features throughout. Travertine floors. High End Remodeled Kitchen with everything you can imagine: Large Island, Professional 6 Burner Gas Stove with 2 ovens & griddle, Wine Cooler, Bar Ice Machine, more Refrigerator Drawers in Island, Miele Espresso Station, Granite Counters with Tile Backsplash, even Dutch Doors to outdoor dining area! Butler Pantry with sink, disposal, 2nd Dishwasher & storage shelves. Open Dining Room with custom pillars. Custom Fireplace with Marble Hearth. Custom Swimming Pool & Large Spa with Pebbletech surface & Waterfalls surrounded by colorful raised flowerbeds. Large lot provides lots of backyard entertainment area with Large BBQ Island with sink & refrigerator. All bathrooms remodeled, New windows. .More, more, more. .Just come & see!

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! — We now know a great deal about the egos of the owners. They probably believe those statements.

Resale Home Price …… $999,900

House Purchase Price … $592,500

House Purchase Date …. 11/15/2000

Net Gain (Loss) ………. $347,406

Percent Change ………. 58.6%

Annual Appreciation … 4.8%

Cost of Home Ownership

————————————————-

$999,900 ………. Asking Price

$199,980 ………. 20% Down Conventional

4.26% …………… Mortgage Interest Rate

$799,920 ………. 30-Year Mortgage

$197,330 ………. Income Requirement

$3,940 ………. Monthly Mortgage Payment

$867 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$208 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$83 ………. Homeowners Association Fees

============================================

$5,098 ………. Monthly Cash Outlays

-$927 ………. Tax Savings (% of Interest and Property Tax)

-$1100 ………. Equity Hidden in Payment (Amortization)

$307 ………. Lost Income to Down Payment (net of taxes)

$145 ………. Maintenance and Replacement Reserves

============================================

$3,523 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$9,999 ………. Furnishing and Move In @1%

$9,999 ………. Closing Costs @1%

$7,999 ………… Interest Points @1% of Loan

$199,980 ………. Down Payment

============================================

$227,977 ………. Total Cash Costs

$53,900 ………… Emergency Cash Reserves

============================================

$281,877 ………. Total Savings Needed

——————————————————————————————————————————————————-

Irvine Home Address … 3922 ALAMO St Irvine, CA 92606

Resale Home Price …… $589,000

Ain't nothin' gonna to break my stride

Nobody's gonna slow me down, oh-no

I got to keep on movin'

Ain't nothin' gonna break my stride

I'm running and I won't touch ground

Oh-no, I got to keep on movin'

Matthew Wilder — Break My Stride

As most of you know, I have been operating a flipping fund buying auction properties in Las Vegas and selling them on the local MLS. The business has had its ups and downs, and I have learned a great deal about Las Vegas and operating in the local business culture.

One of the reasons I selected Las Vegas was due to my own research on the housing bubble. Prices have crashed well below rental parity to price levels where cashflow investors find the returns attractive just as I have described in many posts going all the way back to my first week of writing for the IHB in What is Past is Prologue:

… market prices enter the range of fundamental valuations where they find support. Prices may continue to decline somewhat, perhaps even overshooting the fundamentals due to the foreclosure inventory, but if prices fall low enough, cashflow investors will enter the market in force and create a durable bottom. However appreciation will not return quickly. The market will flatten at the bottom as the Rent Savers and Cashflow Investors absorb the market inventory. The inventory will remain high.

Does that description from March of 2007 sound like what we are seeing in Las Vegas today?

I first wrote about my desire to do something substantial in the Las Vegas market in the May 2010 post How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should.

I am personally buying property in Las Vegas. I intend to keep buying them as long as I can obtain more loans to do so. My parents have bought a second home in Las Vegas. My father is about to close on his first cashflow property, and I have convinced both of my parents to buy properties until they reach their loan limits. With each one returning an average of $300 per month in positive cashflow after financing, they are thrilled to buy these properties to supplement their retirement income. My family is going “all in” on our bet on Las Vegas. I believe in it that strongly.

Now that I have been operating in Las Vegas for a year, I am in a position to help readers like you take advantage of the investment opportunities I see each day. Last week I showed some of these properties in the post Using rental parity to find bargain properties. We have also recently added a new tab to the IHB titled Cashflow. You can find all the properties available as cashflow rentals through my investment fund.

Four ways to invest in Las Vegas cashflow properties

There are four ways I can help you invest in Las Vegas cashflow properties:

• Direct investment at the auction
• Referral to local agent
• Purchase pre-packaged rental from Apple Blossom Arbitrage LLC
• Invest in new fund, Radiant Homes

Depending on how much work you want to put in and how much cash you have, you can select any of the above options. The more work you are willing to do, the greater your returns will be.

Auction investment is the most lucrative. Capitalization rates of 12% or more are quite common. I can refer you to a service to facilitate these sales for a fee, or I can work with you through this service to buy properties for cash directly from the auction site. I have two active investors I am working with in this manner currently, and two who I referred to the service I use. If you have cash and want to select your own properties, perform all necessary renovations and find renters, you will get the best price and make the highest returns. If you have the cash and want me to manage the process, I can do that for a fee.

Another method is to work with a local agent to find your own deals. If you have the time to scour the MLS, make multiple offers, manage your own renovations, and work with the agent or a management company to find renters, you can easily find deals with 10% to 12% capitalization rates. I have two local agents I find reliable I can refer you to. You will have to find your own help to manage the renovations. I keep my own people busy and I need them, so you can't use my project manager or crews.

For those with less time to search for deals — which I suspect is most people — you can buy one of the properties offered by Apple Blossom Arbitrage LLC detailed on the Cashflow tab. Currently, none of these properties are rented, but I am seeking renters for all of them to eliminate that concern and give greater certainty to the cashflow. I can recommend local insurance companies and property managers whom I have interviewed. It's a pre-packaged deal, and although they may not be the best deal on the Las Vegas MLS, the returns are generally between 8% and 10% all-cash and 15% to 30% for financed purchases, and many of the headaches and uncertainties are removed.

For those who don't want to deal with any of the headaches of management issues related to rental properties but would like to obtain the great current cashflow these properties offer, i have formed a new fund to buy and hold these investments: Radiant Homes. Investors in Radiant Homes are projected to make 6% to 8% returns, obtain quarterly checks, and get a K-1 tax statement at the end of the year. There are no management decisions or issues to deal with. If you want to learn more, come to the presentation on Monday, September 12, 2011, or email me at larry@idealhomebrokers.com.

I am not the only one who thinks this business model is a good idea. Others have formed simiar funds, and pension funds are beginning to get involved.

Waypoint Homes buys, fixes, rents foreclosed homes

Carolyn Said, Chronicle Staff Writer

Sunday, August 21, 2011

Rental agent Philip Zulueta drives around Antioch and Pittsburg in a Toyota Prius emblazoned with the message: “Less than perfect credit – You can still own a house.”

It's among eight such vehicles owned by Oakland's Waypoint Homes, which buys foreclosed and short-sale houses, rehabs them and rents them out, often as a lease with an option to buy – and often to people who recently lost their homes to foreclosure or short sale. It now owns 707 properties, mainly in Contra Costa and Solano counties, although it's recently expanded to Southern California.

Waypoint exemplifies a new wave of foreclosure investors who deal in big quantities and are pioneering management of scattered single-family homes.

This is the biggest hurdle for this business plan. It is difficult to scale. It's also why the government shouldn't even consider renting out the GSE portfolio.

The solution to this problem is really to break it down into manageable pieces and use many local property managers who report to a regional manager who oversees the work of the many local ones. My job as manager of Radiant Homes will be primarily to manage the management companies and individuals I use to oversee the properties.

The advantages of using the regional manager approach is the lack of staff overhead, and the ability to easily change out managers who don't perform well. There are many part-time property managers who do excellent work for very small fees. When you have problems with one of them, they are easy to replace. Using larger management companies is often not effective as they merely hire low-cost staff and try to make money on a thin margin. Forming an in-house management staff often ends up turning into a large overhead expense and doesn't necessarily ensure better performance.

As foreclosures continue apace, many experts think such large-scale investors will play an important role in keeping foreclosed houses occupied so they don't contribute to blight. Underscoring that, the government is now seeking ideas from investors on how they could buy and rent out foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Insight for the feds

In fact, Waypoint plans to respond to the government Request For Information with a proposal.

“We now have as much experience as anyone in this space,” said Doug Brien, a former New York Jets placekicker who co-founded Waypoint with Colin Wiel, a former engineer.

That's true enough. Since nobody has any experience with anything like this, anyone with experience acquiring auction properties and managing individual rental homes is ahead of the curve.

“We feel that our insights can help solve a problem that is currently holding back the entire country.”

That problem is the glut of foreclosed homes; its flip side is that people who lost their homes to foreclosure still need a place to live.

That simple fact is why the opportunity exists in Las Vegas. Not everyone in Las Vegas lost their jobs, but nearly the entire housing stock has turned over due to job loss and strategic default. The local buyer pool is very thin which is why prices keep going lower and lower. However, rents haven't declined near as much as house prices because the local workers still need a place to live. The enormous imbalance between the cost of ownership and the cost of a rental would ordinarily prompt renters to buy, but since most of the renter pool has a recent foreclosure on their credit report, they can't buy. Thus we have this unique opportunity.

Harvard's Joint Center for Housing Studies is among those warning that the country soon may face a housing shortage, ironically enough.

“There is a looming housing shortage on the horizon as new household formation continues at full speed while the construction ramp-up happens slowly,” Brien said.

We won't have a housing shortage any time soon.

That equation motivated Brien and Wiel to start Waypoint in early 2009.

“What Colin and I saw early on was that home values had fallen so much yet rents were stable, so they gave better returns than any asset class,” Brien said.

That is exactly why this opportunity is so good. Right now, few asset classes offer much for cash returns. Bank deposits pay next to nothing, bond yields are very low, and the stock market has been very volatile. Real estate prices have been beaten down so much as to make them attractive based on cashflow valuation alone.

Developed software

Waypoint has developed comprehensive software to identify, evaluate, renovate, rent out and manage the properties. Brien said that will allow it to scale up its operations.

You can tell these guys recently made a pitch to raise money. One of the questions I have been asked is how do you scale this operation. I have proprietary spreadsheets I use to evaluate auction properties. These spreadsheets take basic property information and data on recent comps to generate reports I use to evaluate the purchase and establish budgets for repairs. That part of scaling up the operation is not a problem. The more difficult issue is trying to manage 200, 2,000 or 20,000 single-family detached homes across a broad area.

It has put about $100 million to work in the market so far and has another $50 million in capital. Most of its backing came from high-net-worth individuals, but an Ivy League endowment (it declines to name the school) recently invested. It has 65 employees plus scores of third-party contractors who do rehabs for it.

They must have formed their own management company to have 65 employees. If they are operating with a fee for total assets under management, they can afford some staff. That seems like a big operation to me, certainly bigger than I would build and manage.

In the Bay Area, the company pays about $130,000 a house and spends about $20,000 for renovations – paint, landscaping, flooring and kitchen upgrades are the main expenses. On average, Waypoint houses bring in about $1,700 a month in rent, Brien said.

A typical Las Vegas house costs far less than that, but it brings in less rent as well. A prototype property Radiant Homes would purchase is detailed below.

Many of its tenants are what Brien calls “forced renters” – people who would like to own but don't currently have the credit, income or down payment.

That is typical of the Las Vegas renter pool as well.

Tenants have average incomes of $80,000 and an average credit score of 550; many mortgage lenders now require 630 or higher. Waypoint has dedicated credit-repair counselors to help tenants improve their financial profiles.

Most of its renters have chosen a lease-option plan, so they pay extra to lock in a future ownership opportunity. Other renters who stay current on their rent and follow a financial fitness plan can earn monetary credit toward a future home purchase.

The reasons are not just altruistic.

“We focus on creating an alignment of interest with our residents to have them care about the house and take care of it,” Brien said.

I outlined the same approach in How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should.

This approach is not without its problems with moral hazard. The Radiant Homes fund is not offering this incentive to former owners.

Housing advocates were positive about Waypoint's approach.

“A lease-purchase structure makes a ton of sense in this market,” said Ellie Carothers Kelly, project manager at Self-Help, a nonprofit community development financial institution in Oakland that may partner with Waypoint in Self-Help's own program to buy and renovate properties that Self-Help would immediately sell to low-income buyers.

While Kelly said she's not familiar with the details of Waypoint's lease-option plan, she said Self-Help has also explored lease-option and Waypoint's general parameters seem reasonable.

“They are taking vacant, blighted properties, rehabbing them and filling them, while giving families the opportunity to lock in a (future) ownership opportunity with the time to repair credit issues to qualify for a mortgage and build savings for a down payment,” she said.

When Darren Gates' house in Antioch was foreclosed upon last year, Waypoint bought it at a courthouse auction and sent a representative to knock on the door and offer to rent it to Gates and his family for less than half his mortgage payment.

“I couldn't believe it was going to be true,” he said. “We were preparing ourselves to get out. This opened a door that I thought was closed to us.”

So far I have approached around half a dozen former owners of properties I have purchased. Most were unemployed and couldn't afford the rent. None have taken me up on the offer to stay in their former house.

Now he pays extra rent each month so he eventually can buy it again at market value. Moreover, Gates, who owns a construction company, ended up working for Waypoint to renovate the houses it buys.

'Home rescue'

While Waypoint wants to promote “home rescue” – keeping former homeowners in their house as renters – Gates is a relatively rare success story.

About 200 of the homes Waypoint bought were still occupied by the foreclosed-upon homeowners. Some did not want to stay and many were unable to afford the rent or otherwise couldn't qualify. Only 30 families stayed on as renters; nine of those subsequently fell behind on rent payments and moved or were evicted.

That is the same problem I have had. Apparently, those who strategically default make arrangements to move on long before the auction date. The people left in their properties have so many issues of financial distress, they must move out to a much cheaper rental and endure a major fall from entitlement.

“We are working on new strategies to be more effective at keeping people in homes – they need to be able to afford it,” Brien said. “Buying short sales on the retail channel is one possible option.”

The U.S. is seeking ideas on how to rent out thousands of foreclosed properties owned by federal mortgage giants.

E-mail Carolyn Said at csaid@sfchronicle.com.

This is the future of auction market investing. Funds like Radiant Homes will buy up these properties and hold them until investors are redeem their money after values have appreciated up to stable rental-parity levels ten years from now.

Properties in Las Vegas are currently undervalued. Will they rise back up to their historic relationship to rental parity? Probably. How soon will this happen? I don't know. How long will it take for the city to restore their credit and bid prices back up again?

Further, what do you think will happen when it becomes widely believed that the Las Vegas market has bottomed and investors know they can get 10% cap rates there? Wouldn't that prompt more investor purchases? And what happens later when the market still has good cap rates and has appreciated 10% in the prior year? I foresee a phase of strong price momentum in Las Vegas's distant — but not too distant — future.

Perhaps I am wrong. Perhaps Las Vegas's house prices will never recover. I'll be happy to hold properties giving me great current cashflow that will increase with rising with wages over time. Wouldn't you?

A foolish retail flip

Flipping in a declining market is hard. Appreciation is not there to bail you out if you make a mistake. Flipping is difficult purchasing at auction where properties are discounted from retail. Flippers paying full retail for a property really have the odds stacked against them. Despite the difficulties, some people still try it.

The flipper of today's featured property paid $475,000 on 7/13/2011. The made some quick improvements and got the property back on the market asking for a $114,000 markup over what they paid two months ago.

ROFLMAO!

Good luck with that. I hope they added huge value with the pergraniteel lipstick they put on this old pig.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 3922 ALAMO St Irvine, CA 92606

Resale House Price …… $589,000

Beds: 3

Baths: 2

Sq. Ft.: 1385

$425/SF

Property Type: Residential, Single Family

Style: One Level, Other

Year Built: 1973

Community: Walnut

County: Orange

MLS#: S671682

Source: SoCalMLS

Status: Active

On Redfin: 6 days

——————————————————————————

Beautiful home in the GREAT community of COLLEGE PARK. New exterior paint, landscpaing in both front and back yard. New interior paint, new paint on cabinets with new fixtures. Fireplace in Living room. Dual pain windows and slider. Custom shower in master bath with dual sink. New Kenmore appliances, New front door. Air Condtioning. 2 car attached garage with work bench, sink and ceramic tile on floor. Its a Must see!

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

landscpaing? Condtioning?

Resale Home Price …… $589,000

House Purchase Price … $475,000

House Purchase Date …. 7/13/2011

Net Gain (Loss) ………. $78,660

Percent Change ………. 16.6%

Annual Appreciation … 136.3%

Cost of Home Ownership

————————————————-

$589,000 ………. Asking Price

$117,800 ………. 20% Down Conventional

4.26% …………… Mortgage Interest Rate

$471,200 ………. 30-Year Mortgage

$116,089 ………. Income Requirement

$2,321 ………. Monthly Mortgage Payment

$510 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$123 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$45 ………. Homeowners Association Fees

============================================

$2,999 ………. Monthly Cash Outlays

-$382 ………. Tax Savings (% of Interest and Property Tax)

-$648 ………. Equity Hidden in Payment (Amortization)

$181 ………. Lost Income to Down Payment (net of taxes)

$94 ………. Maintenance and Replacement Reserves

============================================

$2,243 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,890 ………. Furnishing and Move In @1%

$5,890 ………. Closing Costs @1%

$4,712 ………… Interest Points @1% of Loan

$117,800 ………. Down Payment

============================================

$134,292 ………. Total Cash Costs

$34,300 ………… Emergency Cash Reserves

============================================

$168,592 ………. Total Savings Needed

——————————————————————————————————————————————————-