Category Archives: House Flips

Putting on the Ritz

Have you seen the well-to-do up and down Park Avenue

On that famous thoroughfare with their noses in the air

High hats and Arrow collars, white spats and lots of dollars

Spending every dime for a wonderful time

Putting on the Ritz — Irvine Berlin

Video of Fred Astaire

Aren’t all houses in Irvine on par with the Ritz-Carlton? Judging by the prices, one would think so.

14 Carlton

Asking Price: $747,900IrvineRenter

Purchase Price: $678,868

Purchase Date: 5/17/2007

Address: 14 Carlton, Irvine, CA 92620

Sales History

Date Price

05/17/2007 $678,868

06/01/2006 $825,000

Beds: 4

Baths: 2.5

Sq. Ft.: 2,193

$/Sq. Ft.: $341

Lot Size: 5,005 sq. ft.

Year Built: 1979Rollback

Stories: 2

Type: Single Family Residence

County: Orange

Neighborhood: Northwood

MLS#: S497260

Status: Active

On Redfin: 31 days

From Redfin, “Corner lot with good curb appeal. Ceramic tile kitchen counter tops and wainscoting in bathroom. This home is located near great shopping centers and schools.”

Note the lack of normal realtor BS.

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The owner of the property is listed as Citigroup Global Markets Realty, so I assume this is an REO. It appears as if their loss mitigation procedure is to try to get half of their first second (thanks ocbear!) mortgage back. The asking price is 10% under the original purchase price which was likely the amount of their 80/20 loan. It will be interesting to see how much they actually lose before they sell it.

If they got it at auction for $678,868, then the property is probably not worth much more than that. Of course, at an auction you need to be ready with a cashiers check on the courthouse steps, so that does preclude many buyers, but it doesn’t mean they will get an additional $69,032 either.

Scorched Earth

Mine eyes have seen the glory of the coming of the Lord;

He is trampling out the vintage where the grapes of wrath are stored;

He hath loosed the fateful lightning of His terrible swift sword;

His truth is marching on.

Glory! Glory! Hallelujah! Glory! Glory! Hallelujah!

Glory! Glory! Hallelujah! His truth is marching on.

Battle Hymn of the Republic — Julia W. Howe

Link to modern rock video version

During the civil war, Major General William Tecumseh Sherman of the Union Army took the city of Atlanta and proceeded to march to the city of Savannah destroying everything in his path (Sherman’s March to the Sea.) He ordered his troops to burn crops, kill livestock, consume supplies, and destroy civilian infrastructure along their path. This ancient warfare technique is know as scorched earth. This policy is often also referred to as total war.

There is a class of warrior operating in our housing market: flippers. I say they are warriors because they are at war with regular families, coming in to buy any property perceived to be of value. They will be glad to sell the property to a regular family — after a significant markup. The market has ways of dealing with flippers: its own scorched earth policy. It is called a bear market.

We have been profiling many flips recently. Some are REOs where the intention is not profit but loss mitigation, but many have been flips purchased by speculators. One of the memes floating around the MSM is that speculators have left the market. We have plenty of evidence to the contrary.

Actually, I rather like it. If I were going to pick two categories of property owners I would most like to see end up as bagholders for the decline over the next few years, it would be flippers and lenders.

24 Atlanta Front 24 Atlanta Kitchen

Asking Price: $729,000IrvineRenter

Purchase Price: $611,000

Purchase Date: 3/28/2007

Address: 24 Atlanta, Irvine, CA 92620

Beds: 4

Baths: 2.5

Sq. Ft.: 2,011

$/Sq. Ft.: $363Knife Catcher Award

Lot Size: 3,870 sq. ft.

Year Built: 1978

Stories: 2

Type: Single Family Residence

County: Orange

Neighborhood: Northwood

MLS#: S488429

Status: Active

On Redfin: 90 days

From Redfin, “BLOWOUT PRICE!Great double CDS location withing walking distance to al l Northwood facilities. Open, spacious 4 br floorplan w/ new remodeled kitchen and baths. Right out of Metropolitan magazine. .. !Impressive trio of schools, convenient central Irvine location ! GREAT VALUE!!Reduced. .. .BEST price home in Northwood.”

BLOWOUT PRICE! — BS.

GREAT VALUE!! — BS.

Right out of Metropolitan magazine. — LOL!

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At almost 90 days on the market, I don’t think this flip is working out as planned. They still have room to lower their price and get out before this becomes a loser. They are going to need it.

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They call him Flipper, Flipper, faster than lightning,

No-one you see, is smarter than he,

And we know Flipper, lives in a world full of wonder,

Flying there-under, under the sea!

Video of opening theme song

Ashton Green – Another Turtle Ridge Flip Gone Bad – UPDATE #3

Originally posted on September 30, 2006

Address: 235 Danbook, Irvine, CA 92603 (Turtle Ridge)
Plan: 1155 sq ft – 2/2.5
MLS: P537174 DOM: 18
Sale History: 04/21/2006: $625,000
Current Price: $619,000

The interesting thing here is that they listed it for less than what they purchased it only 5 months ago! They’ll have to go lower if they want it to move. This plan 2 has PLENTLY of direct competition:

  • 205 Coral Rose – Plan 4 – 1181 sq ft – $619,000 – 57 DOM

  • 121 Jadestone – Plan 4 – 1181 sq ft – $619,000 – 3 DOM

  • 250 Coral Rose – Plan 2 – 1155 sq ft – $619,000 – 80 DOM (~125 DOM Before)

  • 266 Coral Rose – Plan 2 – 1155 sq ft – $625,000 – 183 DOM

  • 127 Jadestone – Plan 4 – 1181 sq ft – $625,000 – 123 DOM (~38 DOM Before)

  • 207 Danbrook – Plan 3 – 1185 sq ft – $639,000 – 44 DOM (~160 DOM Before)

Factoring in an estimated 6% to be paid out in commissions, the owner will be in the hole for at least $43,000. OUCH!

UPDATE #1 – October 31, 2006

I just noticed that the price on this home was reduced on 10/24 to $612,500. I don’t know if the lower price will bring in (m)any offers considering the competition has also lowered their prices (notice that some have played the relist game):

  • 205 Coral Rose – Plan 4 – 1181 sq ft – $599,000 – 88 DOM

  • 121 Jadestone – Plan 4 – 1181 sq ft – $609,000 – 34 DOM

  • 250 Coral Rose – Plan 2 – 1155 sq ft – $619,000 – 111 DOM (~125 DOM Before)

  • 266 Coral Rose – Plan 2 – 1155 sq ft – $615,000 – 29 DOM (~188 DOM Before)

  • 127 Jadestone – Plan 4 – 1181 sq ft – $615,000 – 25 DOM (~170 DOM Before)

  • 207 Danbrook – Plan 3 – 1185 sq ft – SALE PENDING $639,000 SOLD at $610,000 – 56 DOM (~160 DOM Before)

How low could these go? Many of these sellers have a lot of wiggle room since their homes appreciated so much since they’ve bought. But our featured flipper at 235 Danbrook unfortunately does not have that luxury. If they sell at the current asking price, their loss including 6% in selling costs will be almost $50,000!

UPDATE #2 – November 15, 2006

We’ve got another price reduction on this home. On 11/13 the price was reduced to $599,000. The pricing by the competition is still the same as the last update. After 6% in selling costs, a sale at $599,000 will cause the flippers to lose almost $62,000! RiDiCuLouS!

UPDATE #3 – August 14, 2007

Well, 235 Danbrook finally sold about 8 months later on 5/21/2007 for $604,000. The loss was about $57,000 (assuming 6% in selling costs).

Here’s what else is going on in the tract:

  • 110 Jadestone – Plan 4 – 1200 sq ft – $578,000 – 2 DOM

  • 239 Coral Rose – Plan 3 – 1181 sq ft – $580,000 – 73 DOM

  • 240 Coral Rose – Plan 4 – 1181 sq ft – $588,000 – 29 DOM

  • 127 Jadestone – Plan 4 – 1181 sq ft – $589,000 – 146 (+119 +41 + 129 + 42) DOM

    • Original asking price was $695,000

  • 234 Coral Rose – Plan 2 – 1181 sq ft – $594,000 – 193 DOM

  • 231 Danbrook – Plan 4 – 1200 sq ft – $599,000 – 82 (+180) DOM

  • 217 Danbrook – Plan 2 – 1155 sq ft – $599,000 – 22 DOM

  • 227 Coral Rose – Plan 4 – 1181 sq ft – $610,000 – 17 (+153) DOM

  • 105 Coral Rose – Plan 4 – 1181 sq ft – $619,000 – 109 DOM

  • 100 Coral Rose – Plan 2 – 1155 sq ft – $629,000 – 13 DOM

  • 107 Coral Rose – Plan 3 – 1181 sq ft – $648,000 – 21 DOM

  • 116 Jadestone – Plan 2 – 1155 sq ft – $659,000 – 109 DOM

  • 145 Danbrook – Plan 7 – 1400 sq ft – $659,900 – 39 (+379) DOM

    • Original asking price was $804,995

  • 226 Coral Rose – Plan 7 – 1400 sq ft – $669,000 – 49 (+92) DOM

  • 103 Jadestone – Plan 5 – 1324 sq ft – $675,000 – 120 DOM

  • 142 Coral Rose – Plan 7A – 1445 sq ft – $679,000 – 22 DOM

  • 126 Coral Rose – Plan 7A – 1445 sq ft – $689,000 – 120 (+27) DOM

  • 129 Jadestone – Plan 5 – 1500 sq ft – $729,000 – 25 DOM

Yes, there really are 18 properties on the market in this complex. I believe all the Plan information above is correct, although some of the square footage numbers are suspect.
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The description for 129 Jadestone says: “Rarely on the market, largest floorplan with premium corner location. Highly upgraded with travertine flooring, crown mouldings, gourmet kitchen with stainless steel appliances, granite counters, back splash, custom paint and large master bedroom with gorgeous master bath. Enjoy the many amenities which include pool, spa, BBQ, hiking trails and parks. Model perfect!“

The Plan 5 is the only 3 bedroom and it is 1324 sq ft (not 1500) and it is not the largest. Hopefully the agent corrects this information soon.

Looking at the listings, I noticed that there are a few that continue to chase the market down. In this market, you really need to price aggressively if you want to sell quickly.

Greystone Villas – Investment Gone Awry

Address: 963 Somerville, Irvine, CA 92620 (Northwood)

Plan: 1481 sq ft – 3/2.5

MLS: S482981 DOM: 124

Sale History: 1/12/2006: $628,000

10/3/2002: $360,000

9/19/2000: $283,000

4/29/1999: $232,000

Price Reduced: 07/05/07 — $645,000 to $599,980

Current Price: $599,980

This is our third post featuring the Greystone Villas tract (#1, #2). We’ll provide updates to those homes but first let’s take a look at this one. Here we’ve got a 3bd/2.5ba Plan B that was purchased for $628,000 ($565,200 loan at 7%) on 1/12/2006 . It was immediately rented out for $2,350/month on 1/20/2006. How negative do you suppose that cashflow is?

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It looks like a refinance was done on 7/31/2006 through PMC Bancorp – $536,000 First Mortgage at 1% (teaser rate?) and a $67,000 HELOC. The property was eventually listed for sale on 4/9/2007 for $645,000. A price drop on 7/5/2007 brought the price down to $599,980. If sold at the asking price of $599,980, the investor stands to lose over $64,000 (assuming 6% in selling costs and not including negative cash flow).

Soo.. what’s the latest with the 3 bedrooms in this tract? First let’s update the older posts:

Update on Post #1: 129 Islington was taken off the market on 10/19/2006.

Update on Post #2: 301 Rathbourne is accepting backup offers and is showing a price of $599,900 (loss of $61,000 assuming 6% selling costs).

  • 601 Newcastle sold for $615,000 on 4/12/2007 – 76 DOM (orig at $649,000).

  • 135 Islington sold for $610,000 on 3/17/2007 – 202 DOM. (orig at $669,900)

  • 161 Islington rented for $2,700 on 4/25/2007. (orig at $724,000)

Currently, these are the 3 bedrooms (same plan) on the market competing with our new feature, 963 Somerville:

141 Islington is Bank Owned and 39 Darlington as well as 963 Somerville could be headed in that direction. The tract high price of $680k compared to the $599.9k sale in escrow represents an 11.7% drop in prices has already occurred.

Markets and the Sea

. . . however baby man may brag of his science and skill, and however much, in a flattering future, that science and skill may augment; yet for ever and for ever, to the crack of doom, the sea will insult and murder him, and pulverize the stateliest, stiffest frigate he can make; nevertheless, by the continual repetition of these very impressions, man has lost that sense of the full awfulness of the sea which aboriginally belongs to it.

. . . these are the times of dreamy quietude, when beholding the tranquil beauty and brilliancy of the ocean’s skin, one forgets the tiger heart that pants beneath it; and would not willingly remember, that this velvet paw but conceals a remorseless fang.

Moby Dick — Herman Melville

Wall Street financiers came up with a number of financial instruments designed to minimize their risks (Collateralized Debt Obligations, Credit Default Swaps, etc.) In doing so, they created a false sense of security and moral hazard which caused huge sums of money to flow into residential home mortgages. Like the first quote from Moby Dick above, the market participants “lost that sense of the full awfulness” the markets can inflict upon them.

For all our wisdom and collective experience, none of us knows what the markets will do next. Like an ocean current or a raging river, a financial market charts its own course. It is fickle and feckless and flows without regard to our hopes and dreams. To forget this fact is to book your financial passage on the Edmund Fitzgerald (Link to great music video).

The ebbs and flows of financial markets are meaningful to us, but in reality they are just movements in price; nothing more. Price rallies make homeowners blissful and renters bitter, while price declines make homeowners gloomy and renters gleeful.

Sub Prime Move Up Chain

These feelings and emotions are independent of movements in price. The market just moves, that is all it does. It is benign, yet dangerous; it is indifferent, yet demonstrative; the market is a paradox which me must simply accept.

It has been argued — convincingly in my opinion — that the health of a real estate market starts at the bottom of the food chain. Like the plankton in the sea, the entry-level buyer is the base of the real estate food chain. If the organisms that make up the base of the food chain are not healthy, the entire ecosystem is in peril. So it is with our real estate market.

In several posts I have talked about the complete lack of sales at the low end of the market. It occurred to me I haven’t profiled enough of these properties to show just how bad things are. Today I am going to profile three properties in “The Lakes:” a severe rollback, a bank REO and a peak buyer hoping to limit their losses. Enjoy…

79 Lakepines Front 171 Streamwood Inside

Asking Price: $270,000IrvineRenter

Purchase Price: $340,000

Purchase Date: 12/15/2005

Address: 79 Lakepines, Irvine, CA 92620

1st Loan $255,000

2nd Mtg. $51,000

Downpayment $30,000

Beds: 1

Baths: 1

Sq. Ft.: 934

$/Sq. Ft.: $289

Lot Size: 763 sq. ft.

Year Built: 1977

Stories: 2

Type: Condominium

View: Water

County: Orange

Neighborhood: Northwood

MLS#: S488313

Status: Active

On Redfin: 86 days

From Redfin, “Charming, Spacious two story Loft Bedroom home in resort like Lakes community. Best location. Tranquil Back patio faces serene stream and water features. Cozy fireplace, Catherdral scraped ceilings, Skylight, Garden Window, new lighting fixtures, designer paint, Newer appliances including stove, microwave, dishwasher. Walk in Closet in bedroom. Turnkey.”

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Look at this depth of this rollback: 20% off; even at this asking price it is still on the market after 77 days. Further price reductions will be necessary before this sells. If they manage to get the asking price, and assuming a 6% commission, this seller and their bank stand to lose $86,200 — that is 25% off a 2005 price!

The lake, it is said, never gives up her dead

When the skies of November turn gloomy.

The Wreck of the Edmund Fitzgerald — Gordon Lightfoot.

Real estate always goes up, or so our next seller hopes…

171 Streamwood Front 79 Lakepines Kitchen

Asking Price: $241,500IrvineRenter

Purchase Price: $191,826

Purchase Date: 6/11/2007

Address: 171 Streamwood, Irvine, CA 92620

1st Loan $178,500

2nd Mtg. $31,500

Downpayment $0

Beds: 0

Baths: 1

Sq. Ft.: 415

$/Sq. Ft.: $582Knife Catcher Award

Lot Size: –

Year Built: 1977

Stories: 1

Type: Condominium

View: Trees/Woods, Water

County: Orange

Neighborhood: Northwood

MLS#: S497917

Status: Active

On Redfin: 17 days

From Redfin, “Enjoy the sounds of meandering streams from one of the least expensive condos in all of Irvine. This studio unit is on the ground floor within a great community close to shopping, dining and transportation. Numerous association amenities including 2 clubhouses, 2 pools, 2 spas, and tennis courts make this a great place to live!!!”

The obligatory three exclamation points…

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Look at this sales history:

Sales History

Date Price

06/11/2007 $191,826

03/21/2005 $210,000

04/16/1998 $57,500

This was a 2005 rollback foreclosed on by the Bank of New York in early June. Does anyone want to bet this will sell for less than the June sales price? And look at the 1998 price. If you calculated its rental value — and at 415 SF, it is only useful as a rental — the 1998 price is probably not far from is real worth.

Back to the behavior of lenders and our moral hazard:

By this, he seemed to mean, not only that the most reliable and useful courage was that which arises from the fair estimation of the encountered peril, but that an utterly fearless man is a far more dangerous comrade than a coward.

Moby Dick — Herman Melville

3 Lakepines Front3 Lakepines Inside

Asking Price: $399,999IrvineRenter

Purchase Price: $427,000

Purchase Date: 3/2/2006

Address: 3 Lakepines, Irvine, CA 92620

1st Loan $340,800

2nd Mtg. $85,200

Downpayment $1,000

Beds: 2

Baths: 1.5

Sq. Ft.: 1,202

$/Sq. Ft.: $333

Lot Size: –

Year Built: 1977

Stories: 2

Type: Condominium

County: Orange

Neighborhood: Northwood

MLS#: U7003339

Status: Active

On Redfin: 1 day

New Listing (24 hours)

From Redfin, “Very spacious and open floor plan. Combination kitchen/dining/living room great room. Private patio area for a small animal, and or bbq area and relaxing. Vaulted ceilings with sky lights. Association area includes two pools & spas, tennis courts. Lakes and streams running all around complex.”

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Given the whopping $1,000 downpayment, I am not surprised this would be millionaire is walking from this stellar investment. If this property sells for its asking price, the seller bank stands to lose $51,000.94 after a 6% commission.

The Captain wired in he had water coming in

And the good ship and crew was in peril

And later that night when his lights went out of sight

Came the wreck of the Edmund Fitzgerald.

The Wreck of the Edmund Fitzgerald — Gordon Lightfoot.