The lower-end of each micro-market throughout San Diego County has been red hot lately. Virtually every decent house under $400,000 is being deluged with buyers, probably in hopes of cashing in on the $8,000 tax credit before the end of November.
Our flipper’s luck has continued – she listed 4 houses for sale, and we found a buyer for all of them:
| Street | Amt. Paid | Date | New List Price | Sales Price | Notes |
| Leon | $165,000 | 5/14/09 | $290,000 | Appraisal in | |
| Charles | $172,000 | 5/8/09 | $295,000 | Appraisal in | |
| Blackbird | $131,500 | 6/1/09 | $250,000 | Five offers | |
| Calera | $142,000 | 4/30/09 | $240,000 | Five offers |
Here are the last two on the list – taped last Monday, the same day as the others:
It’s not just the cheapies either. After about two years of trying to sell the nondescript 2,558sf house on Summit in Cardiff, the builder sold to pure flippers last November. They held out, hoping their list price of $1,245,000 would work. It went pending today! (ht to dcc!)
What’s the estimated carrying cost on that Cardiff house?
Profit margin on those other 4 cheapies? Seems like there may have been a reasonable profit there.
Bummer that the $8k tax credit doesn’t apply to me, although I’m not sure a ~1% discount would entice people in my situation into buying at this point.
Cardiff was financed, so probably around $5,000 per month. A real gambler?
Hey! Why’d you delete my other comment? It was an allusion to the title of this blog entry.
$5k per month is all? Even including property taxes and upkeep? Cardiff is fairly awesome, but that still seems overly dangerous to me – especially considering they leveraged.
“I live my life 6% at a time.”
– Anonymous, but beloved, realtor
Jim, seeing the same thing around here in DC. Lower end is almost non-existent. People are scooping them up ASAP. Can’t wait until this insulting buyers bribe disappears, see how the market likes a strong dose of reality.
Spit’s really gonna hit the fan when the buyers bribe is taken away, the fed stops purchasing mbs, and treasuries forcing interest rates up, and the FHA 3% programs are scaled back.
This seems like another bubble brewing to me.Speculators are back in force.
Spit’s really gonna hit the fan when the buyers bribe is taken away, the fed stops purchasing mbs, and treasuries forcing interest rates up, and the FHA 3% programs are scaled back.
I’d say the first and last aren’t going to happen in the next few years. I’d say the middle will continue until we’re well into another housing bubble.
Let the “speculators are evil” posts begin. But no one will mention how the $250 buyer today wasn’t willing to take the risk and pay $130 just 3 months ago.
Buyer’s bribe? Come on, it’s $8,000. This whole board was in unison that it would never work.
No denying these flippers have made some amazing money and done a good job improving the houses, (something often rare).
A positive correction is going to be good for everyone and when things get better the fed will tap the brakes. Greenspan missed his chance to control lottery mentality and Bernanke had to prove he was an inflation hawk so he raised them too much. Hopefully they’ve learned. In the meantime, go flippers, go!
“no one will mention how the $250 buyer today wasn’t willing to take the risk and pay $130 just 3 months ago.”
I believe the $130k was all cash, though.
Good for the flippers. They saw an opportunity and jumped on it. Yes, those numbers sicken me, but I blame the buyers. I wonder if the buyers did their homework and knew these were flips. Did they know what the price was 3 months ago? Thing is, I would NEVER buy a flip. Whatever “added value” you want to suggest there is, the buyers are still putting $40-$50k (whatever the flippers cleared) pure profit in someone else’s pockets here. 20%!
I’m not savvy enough to buy on the courthouse steps, but that service is NOT worth $50k plus 6% commission to me. I just won’t buy a flip. I won’t do it. I won’t.
Oh, and 900sqft for $248k? That’s approaching $275/sqft. In Vista.
I have to say, I have some admiration for this woman. She bought with the intent to rent. So her criteria was different than many potential owners. She paid cash! She saw the low end heat up during the time she was spending more $$ fixing them up. (more cash.) She put her money fully at risk – not the banks money, not the governments money. She took advantage of the hotness of the low end market and flipped the houses instead of turning them into rentals. Good for her.
If I hadn’t been personally (and expensively) burned by two different general contractors – giving me an overwhelming distrust of contractors in general, I would consider making similar investments.
She seems to have secured the only honest and reliable contractor in all of southern California. That’s what really made this a success.
I’m curious – did the contractor have a share in any profits from the flips? (Not that there would be anything wrong with that.)
Here comes the profit=Evil crowd…
If there are multiple offers on these properties then the flippers are actually offering these buyers a service. Many people do not want to refurbish a home, deal with a bank, wait out a longsale.
Here they get a good house with a monthy rate that is about = to renting and the flipper who took the risk gets the reward. Things could have gone different and they would have kept them as rentals but they “tested” the market and it is red hot in that price range. Supply and demand! Demand for a home in that price range is very high.
For all the renters on here that hate investors…if you are renting, you are renting from an investor are you not? The more investors the better the rent or flipper market for us buyers/renters.
Thanks for the update. Care to follow up with another post with loan details (FHA vs Conventional, and % down payment)for these four?
Profit, inflation, it’s all good!
What kind of buyers for your customers 4 properties? Are they FHA or VA, or investors themselves? What are the length’s of escrow for them as well?
Thanks,
Eric
All incoming offers were FHA/VA, and there were appoximately 27 of them total on the four properties. Everyone expects 45-day escrows now, lenders can’t move much faster.
Step 1: Take Underpants
Step 2: ?
Step 3: Profit!
Great work! Fixing the market one house at a time. Flippers who make substantial repairs aren’t just doing the buyer a service, but the community as well.
In any case, after many years people can finally buy houses without paying obscene prices (just California prices). That’s why you see so much low end activity – high end tends to be people moving up, limiting it to people who bought well before the bubble.
While I don’t really expect or want Jim to answer this, I am curious about the family (single, couple, children) and eithnic make-up of the buyers.
These are homes, but they are small for raising a family. School district is sub-par but not horrible.
What kind of people want to live in these homes for ~300K?
“In any case, after many years people can finally buy houses without paying obscene prices (just California prices). That’s why you see so much low end activity – high end tends to be people moving up, limiting it to people who bought well before the bubble.”
I think you might have missed Jim’s statement “All incoming offers were FHA/VA, and there were approximately 27”.
The reason the low end is selling is…
1. Gov giving idiots free money. (buyers credit)
2. Low down payment (3% FHA) loans.
This is the same thing that caused house prices to go up during the bubble just implemented in a different way.
At least you have to qualify this time around….
I heard the same thing about 45-day escrows from both my realtor and mortgage broker. They were totally convinced I couldn’t do a 30 day (and with good reason), but I proved them wrong. Here’s how:
Step 1: Don’t use a mortgage broker
Step 2: Compare rates on bankrate.com
Step 3: Compare rates with your local credit union and favorite bank. Choose the best rate with low points, lowest fees, best service (i.e. your credit union 80% of the time).
Step 4: The very day after you enter escrow (same day if practical), apply for your loan. Bring *everything* they will want.
There will always be some doc you need that you couldn’t bring (ex. HOA questionnaire) and need to order. This will add 3-4 days delay. You may have some complications and have to change your loan or verify funds. Do everything in parallel if possible.
If necessary, get your bank to order your appraisal asap.
All said and done, I could have closed in 20 days despite having three separate delays. The key was to minimize those delays by acting on them the same day you find out.
Good luck!
shadash,
FHA is a form of PMI. If people had been buying PMI all this time, bonded insurers would be paying out rather than over-leveraged banks failing and causing cascade failings. That would have been ten times preferable to what actually happened.
FHA is not some new incentive, and as far as incentives go it doesn’t account for why the demographics have shifted. A more important factor is the supply of buyers in the low end vs. high end. The tax credit phases out at $150K, and at that income you can definitely buy a place in the top 70 percentile. I did.
“But no one will mention how the $250 buyer today wasn’t willing to take the risk and pay $130 just 3 months ago.”
What planet do you live on and have you not been reading any real estate blogs? Plenty of people lined up take the risk at $130 but they couldn’t compete with the all-cash offers. Notice how Jim very clearly said that ALL the purchase offers for these flips were buyers that needed loans. Anyone needing a loan can’t get close to the rock bottom prices on distressed REO’s — it’s all cash or nothing.
Plus, Jim’s flippers lost out on a lot of their bids even with all cash.
So for a house that is 2x as big and located in an upgraded zip code, the price factor could be 2 – 2.5X. Hip Hip Hooray – but will I be saying the same thing same time next year? A house is worth what a buyer will pay and if these flippers can make a profit, then GREAT for them. None of these buyers could buy at the courthouse steps and most wouldn’t even be able to complete the upgrades at the same price and time duration. If it cost 29K to upgrade the last home, it would cost 1.5x – 2x more cost and time for the average homeowner to do the same. But where would the money come from if they didn’t have cash to purchase at the auction in the first place? I don’t like this 8K + 10K incentive any more than some. Rather, I wanted the knife to cut hard and deep – and still do.
Warm Flipperette
Warm Flipperette
Warm Flipperette
Warm Flipperette
See the stainless steel
Paint the bathroom teal
Backyard with a view
For your barbeque
Warm Flipperette
Warm Flipperette
Warm Flipperette
Warm Flipperette
One motivating factor for investors to flip instead of holding such properties as rentals, is that it is now quite difficult, if not impossible, fot investors to get their money back out on cash-out re-fi’s–especially if they have more than four residential loans. On top of that, if he or she is self-employed–forget it–I flipped two last for that same reason–not worth tying-up a rental with that much capital.
Let the “speculators are evil” posts begin. But no one will mention how the $250 buyer today wasn’t willing to take the risk and pay $130 just 3 months ago.
bubblenerd | September 3rd, 2009 at 8:08 am
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Like Art Electric said, there were multiple bids on those homes at the lower prices. I’m sure many of those original offers were from families who were looking to buy a first home. Now, the specuvestors have priced them out again. Nice.
many of these current FHA sales will just be our NEW REOS in 2011-2014. Keep in mind that all FHA REO’s are HUD homes-with online bidding. SO who ever gets the HUD account next year- wins. All agents and buyers should start to be accustomed to how HUD bidding works as it will play a big role in next few years. (they also pay 5 % commission to buyers agent). The listing agent only gets a few hundred per house but its a volume thing.
JtR- any comments on how the FHA condo requirement changes will affect things in the SFR market? (if at all?)
I agree with you guys about this FHA garbage.Seems we are back to bidding up homes with low down loans and low qualifications to buy.Cany you get an fha loan with a horrible credit score?FHA is the new subprime.The govt is doing all it can to reinflate the housing market because it knows it is a piggy bank for people.Comsumer spending seems to rely on equity extraction.Wasn’t it strange that once the housing market tanked the auto dealers were all on the verge of bankruptcy.Your in luck.Gm is going to issue more stock in 2010.Who in the hell would buy into this company.I love gm but give me a break here.
The mortgage crisis was founded on people buying homes they couldn’t afford. Flippers paying all cash aren’t capable of defaulting on a mortgage because they have none.
Now the fact that they are sometimes pricing out people who could have bought their first home is sad, but the real question is if the flipper is actually making substantial improvements. If they are, they’ve actually added intrinsic value and improved the rest of the neighborhood in the long run.
These are homes, but they are small for raising a family.
daveg | September 3rd, 2009 at 12:24 pm
The idea that you needed 3500sf+ to raise a family is fairly new. Through the 70’s a 1500 sf house was considered ok for a middle of the road family.
My husband’s family was typical for his Irish/Italian Catholic neighborhood – 1400 sf, 6 kids, 1 bathroom.
Until we upgraded – I grew up in a 1200sf Clairemont 3 bedroom house.
You’ll find most of the pre 1990’s houses are scaled much smaller. And lots of families survived just fine.
Jim did a post on down payments of 73 buyers who bought a house in Carlsbad or Carmel Valley since August 1, 2009: We all focused on the fact that 30% of them had HUGE down payments or paid all cash.
One thing no one seems to bring up is that 13 of the 73 were FHA or VA. That is almost 20% of the buyers with 3.5% or less.
The FHA limit is $697,000 and it plays a huge role in keeping this bubble inflated.
I laughed when you looked under the counter and spotted the plywood! 🙂
As for the paint job, I actually like the color.
These are great flippers. They actually injected real value in their homes. They definitely deserve all the profit they can squeeze out of these deals.
I’m not hating on the flippers. On the contrary, they resemble everything I believe in. They’re smart, others aren’t, people are willing to overpay, and they’re ready to profit. That’s just plain good business. $275/ft in Vista! I know we enjoy trashing Bressi Ranch on this blog, but some of those houses are going for under $200/ft. C,mon, no way the Vista buyers got a deal. Score another for the flippers.
But they’re not adding value by keeping the bubble inflated. Neighborhoods won’t be improved by adding 3% FHA overpaying neighbors. We already know where that road ends.
Blame the FHA for lending to qualified buyers? Blame the $8k tax credit? Blame the flippers for buying with cash and fixing up homes that the first time buyers probably couldn’t do themselves? What will you blame next?
Whine, whine, whine.
This is overshoot territory still. And, the indications are that right about now the entire market is under-priced, not just the lower end.
A sucker is born every minute, refering to the buyers of those houses. They do not worth more than $160/sqft at the best.
wawawa–Glad you are not thier appraiser.
FHA is the next bubble that will burst! We will be faced with another government bailout.
Used housing market is nothing more than a transfer of wealth (for every winner there’s a loser). Cherry picking one flipper who happened to get in at the right time while ignoring the losers seems pretty one-sided, like videotaping a jackpot winner in Vegas why thousands of losers stroll past broke and destitute. Congratutlations to the flipper, but was it anything more than blind luck? Even she acks surprised by her good fortune.
“This is overshoot territory still. And, the indications are that right about now the entire market is under-priced, not just the lower end”
Love the optimism. You should dive right in and start picking up all of those underpriced homes for a quick flip.
I’d like to know what these properties were selling for back at the peak of the market, say early 2006 or a bit later.
Leon sold for $451,000 in October, 2005, which was typical for this area – heavy subprime 100% financing. The highest ones were $500K or a little over.
Charles sold for $211,000 in January, 2002, and hit the housing ATM a few times. The loan that got foreclosed was $352,000, taken out in 2006.
Blackbird sold for $312,500 in March, 2006, and Calera sold for $385,000 in December, 2004.
So lets say one of those at the peak of the market would have gone for $450k to $500k. I’d say even at $306k with $6k back to the buyer is a pretty big decline in the span of a few years.
If your lucky enough to get one $160K all cash, put 40k in and have a nice home for $200k, that’s not a bad deal either.
Obviously, if the foreclosures start coming fast an furious, prices will be going lower.
I see this playing out over many years, with some of these low down fha buyer defaulting in the future.
Maybe the gov’t is giving us a bit of the hair of the dog with FHA loans and the 8k bribe, but in my opinion it will only slow the inevitalbe; prices will have to be affordable based on income. There’s not enough primer left in the pump to get the real estate market booming again.
This recent crop of flippers will do okay. The ones that follow their lead had better be careful.
The first ones in make all the money, the ones last to the party always lose.
The flippers are smart people, they understand the risk. Good for them! Stop hating people that make money. They are redistributing a valuable product to people that can afford it. Also, quit trashing Bressi ranch! There are actually some people that bought here on the downswing and have an affordable mortgage with good long term value.