Several readers have sent in stories over the last 2-3 days about the big investment groups. These two stories mention the same company, Waypoint, but from different angles:
WaPo:
http://www.washingtonpost.com/business/2012/03/31/gIQAVOgDoS_story.html
N. Y. Times:
http://www.nytimes.com/2012/04/03/business/investors-are-looking-to-buy-homes-by-the-thousands.html
An excerpt:
This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.
The investment angle to buying real estate has exploded, and everyone is doing it. Now flipper groups are having to compete against buy-and-hold companies like Waypoint!
There are more local enterprises involved too.
Fortunebuilders.com runs a flipper education company, charging $1,200 for their basic courses, and up to $30,000 for the mastery coaching. Or check out mavrixequity.com a company owned by two 28-year old flippers who are also a wholesaling company. They tie up local deals and then sell them to you to flip – and they take a piece of your end-pie too!
The bigger companies have investment funds – they use your money and promise healthy returns.
How does it affect the regular folks?
1. If you’re an investor hoping to flip or rent-out, good luck. The flippers have flooded the street searching for the next deal, and are working on thin margins. They are soliciting property owners directly via mail and email, and working all the usual spots – trustee sales, defaulter lists, FSBOs, short-sales, MLS, etc. Because sellers get bombarded, the price typically goes up – there won’t be many steals from now on.
2. Primarily, they are looking for fixers. If you want a house to occupy and thought you’d save some money by purchasing a dog, you won’t save much. You can avoid the rush by sticking with the turnkey properties, and hope to buy one with all the trimmings for a fair price.
3. Appreciation – You might think that a wave of flippers selling renovated properties could lead to rising prices. Maybe, maybe not – buyers usually can find out how much the flippers paid, and would have to be very frustrated to pay a lot more. With the sophisticated flippers being careful to buy somewhat under market, and able to add cheap Chinese goods to improve them, they can live on thin margins and not count on appreciation.
I think this will lead to a very active trading range of +/- 10% throughout the county, and for every lucky sale that pops through the range’s ceiling, there will be another flipper buying a lower sale to keep the pricing trend moderated.
Not only are the flippers out but there’s other big investment groups looking to buy rental properties in bulk. “Cheap” investment property is definitely a current target for hot money. Only problem with hot money and leverage is it can flow out just as fast or faster as it flows in.
I’m starting to believe an echo bubble in real estate is strong possibility.
Recent comps in the eights on this one in Rancho Carrillo, and they’ve received four offers, listed for $950,000:
http://www.sdlookup.com/MLS-120016577-2954_Paseo_Cazador_Carlsbad_CA_92009
http://www.doublebubbleinfo.com
Stormin sent in another fraudster video:
http://youtu.be/W1n4IXujelw
LOL off topic but here is the NAR new ad campaign
Heros you say? Indeed! LOL
Just bustin your chomps JTR…here is where your premiums are going….
http://www.youtube.com/watch?v=w7b6WX2cLws
Hey Jim,
I know both of those local guys. There are tons more that aren’t on the radar. Flipping is definitely en vogue again but the damage is done by guys who are trying to wholesale IMO. The school you mentioned is churning out students left and right and teaching them how to muddy the waters. I hear complaints from retail buyers about how frustrated they are to go up against all cash investors. Its the same situation on my end, there are wholesalers galore sending out all cash offers who don’t have the ability to close and I compete with them. Once they get their contract accepted they then make one call and sell the rights to the contract.
Many times they offer too much, it gets accepted, then nobody “buys” the contract and the agent has to start shopping for a new buyer. I’m seeing some wholesalers do 3-5 deals per month, averaging 5-10k per deal and never having to risk a dime. Just send out offers all day. That’s why networking is key if you want to break into that inner circle of San Diego deals.
We did a lot of wholesale deals while in Texas, but only in cases where we didn’t want to do the rehab after our direct marketing brought us deals. The process of farming MLS for deals to tie up with no intention of closing on, is rather slick but hey, its easier and cheaper than doing mass mailers. A perfect storm for real estate investors in this town right now..
Transaction costs are the only thing preventing someone from scalping every penny from the retail customer. It’s the same with HFT on the exchanges. This is what happens when so many dollars a sloshing around chasing returns.
I have a friend who’s now flipping 20 houses per year. 7 years ago, he was making loans. NO construction experience, no involvement in the day-to-day of renovations. Contractors make most of the decisions. Hardest part is finding deals that pencil out. Flipping is the new bubble. I thought it would be gold, but who knew?
how soon people forget. Party is back on?
“If you want a house to occupy and thought you’d save some money by purchasing a dog, you won’t save much. You can avoid the rush by sticking with the turnkey properties, and hope to buy one with all the trimmings for a fair price.”
So here’s my automotive analogy. When I was in my 20’s I wanted a big convertible. I knew how to do a lot of repair work and I figured I’d save money by buying a fixer.
I bought a 1969 Electra 225 convertible that needed plenty of work. By the time the smoke cleared a year later, I had spent the same amount on the car plus parts (not to mention my labor) as I would’ve spent had I just bought one in better shape. Had I bought said better example, I could’ve been cruising the beach with it on the weekends instead of working on it too!
I’ve never forgotten that lesson…..
Estancia at Rancho Carrillo are some of the best quality detail oriented homes built in North County. I owned one a decade ago and this is the best lot in the hood on .5 acre with pool and mature landscape. Worth every bit of 950k to the right buyer who wants to live there. Mello Roo’s are high to pay off roads and San Marcos schools even though it is in Carlsbad. I would bet neighbors who have walked their dogs or ridden their bikes by this are dreaming of moving in! Trophy as Jim sez…
Tom,
The concept of Wholesalers is exactly like my idea of working with a friend to provide a lowball offer on a property much lower than your lowball to make your offer doesn’t seem so bad.
And people thought I was a bad guy.
Tom, the answer to that problem is a “good faith deposit” of about $10 000 payable immediatly when an offer is accepted, money talks bullsh!t walks!
This is amazing and it should illegal. Besides the government cheese, flippers are one of the reasons why housing prices in So Cal are taking so long to come down to fair value.
We some type of big black swan to hit and scare these flippers out of the market.
I am a Buyer with cash, but I am not looking to “flip” anything, no, I want to buy an already renovated home to live in! And I cannot find one!
My question is; “where are all these so-called flippers”? And where are the renovated homes they have to sell? I have been looking for a year! My target areas (close to my workplace) are chock full of old 60’s houses that are in bad need to total renovation! Have way too many bedrooms jammed into tiny square footage!
Centrally located parts of San Diego, full of old 60’s houses in need of total updates would attract many a buyer like myself if they came onto the market as a nice modern renovation.
I’m talking about the “mountain street” neighborhood of S.W. Clairemont 92111 (not Linda Vista!) Bay Park 92110 and certain better parts of 92117 that are considered Bay Park.