Real Homes of Genius: Today we Salute Culver City. Flipping Homes in Today’s California Housing Market.
This 700 square foot 2 bedroom 1 bath beauty is a thing to marvel at. You can tell whoever remodeled this place has been watching a lot of Flip this House and Property Ladder. When you look inside you have your typical trendy countertops and upgraded fixtures; you know, the boob job and lipo for homes. The place is very nice and does everything it can do for the gigantic size of 700 square feet. So what is this place selling for in a down market? How about $599,000? Before you dial up your agent, let us take a look at some history on this home.
Sales History:
August of 2007: $452,000
Someone did a great job buying this place at below market value right when the credit crunch was devouring the entire housing market. I’m not sure how the home looked before all these upgrades but I’m sure it needed work. It must of taken a few months to get this home up to par and put it back onto the market. Initially this home was listed as follows:
October 2007: $639,000 to $619,000
December 2007: $619,000 to $599,000
This is such a typical flip and I don’t know how you feel when you watch those flipping shows, but there is absolutely no way the added value by a few cosmetic modifications is worth what people were paying for. Again, this is your typical housing bubble mentality. Just because a greater fool is going to pay more than you doesn’t mean there is any economic sense in what you are doing. In fact, I would add that the large number of flippers contributed to this bubble craze and are part of the reason the market is now tanking. Clearly this home wasn’t purchased to live in. It was bought as a flip with the intention that the added value of a few upgrades was going to yield them a large sum of money in two months! Let us do some rough math like they do on those shows:
Budget to Fix: $50,000 (I’m estimating here on my own experiences in real estate with contractors and really, how much can you do with 700 square feet?)
Sales Price: $639,000
Commission: $32,000 (5% at going market sentiment)
Total Profit: $105,000
Damn! You mean we can all make $51,000 per month simply by arranging a team of sub-contractors, adding a bit of paint, going to Home Depot for your typical countertops, and adding some stainless steel appliances? Where do we all sign up! Folks, this is precisely the reason why we are in the mess we are in. For this entire decade, it was so easy to bamboozle buyers into a home since prices were going up through the roof. It was possible to finance anything and everything while using other people’s money (OPM). Once a thing for savvy fast talking investors and late night infomercials, this became so mainstream that at one point in
Unfortunately in any bubble, people will make tons of money and people will lose tons of money. What those flipping shows don’t tell you is what happens once a real estate market crashes. Their projections are absolutely absurd and I wonder how many of those shows will remain once the dust settles in a few years. Once you sign that contract, that home is all in your name. Let us run the numbers but with the current real life scenario:
Purchase Price: $452,000
Budget to Fix: $50,000
Sales Price: $599,000
Carrying Cost: $12,720 *(4 month carrying cost assuming 6 percent loan)
Commission: $29,900 (5% at going market sentiment)
Total Profit: $54,380
Suddenly it doesn’t seem so easy to make quick money especially when there is a glut of homes hitting the market and credit is much harder to come by. The bad news for this flipper is the current market is declining fast in this area:
Median Price Per Square Foot
Q1 2007: $546.44
Q2 2007: $573.3
Q3 2007: $634.24
Q4 2007: $578.25
Sales
Q1 2007: 12
Q2 2007: 15
Q3 2007: 14
Q4 2007: 5
Even at fourth quarter price per square foot, this home should sell for slightly over $400,000. If today’s market is any indication, we are going to have a lot of what we had in the third and fourth quarter of 2007.
Today we salute you
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14 Responses to “Real Homes of Genius: Today we Salute Culver City. Flipping Homes in Today’s California Housing Market.”
NO WAY can this shack cost $400K.
That is over $400 a sq ft for something that is unfit to store your lawnmower in.
I really enjoy reading your website every day. Keep up the good work! And I don’t even live in California!
I have an idea I’m pitching to TLC.
It’s called “Lose This House,” where we track certain foreclosures, and follow the borrower/owner, as they file for divorce, divide up their debts, and go about the process of finding a place to rent.
@ Nonamerequired
I caught a slight typo in your post.. “finding a place to rent” should read “finding two places to rent”…
I think this is how they plan to fix it. If all 2 million couples being foreclosed on get divorced and each need two homes, it’s all fixed.
Now let’s see.. Before they had a combined $90K income and could stretch to a $300K home. Now each one makes $45K so this 700 sq foot shack can go for a max of $135K.
I’ll know I’m right if the NAHB starts offering “free marriage counseling”
Seriously though.. This shed would go for $50-60K max in my city.
Well, if you bought last year,….
You’ll be priced IN forever!
LOL
700sq ft…. $600K…
What in the hee haw hell is wrong here?
I wouldn’t allow my dog to sleep in that dump, much less find it suitable for human habitation.
…”the boob job and lipo for homes”””
-F’in’ hilarious 🙂
remember this profit short term ‘ordinary’ income so subtract another 50% for taxes as you can’t 1031 flips and a regular job without the risk looks a lot better!
My, My, My, what a beauty! Is it that much of a privilege to live in Culver City? I see i n the weather where there’s a rain storm coming. Looking at that roof, it makes one wonder if it will shed water. They may need to sell it before the next storm hits. Someone has lost touch with reality here. I hope its not me!
I really like the ‘ stone-dead plants in front’ touch, don’t you?
Sadly, $600K is about par with other wishing prices in Culver City.
I wish I could fast-forward to Jan 2009, to a) avoid the frakking Primaries – I’m sick of all the candidates on both sides already, and b) find a house on Westside for less than half a million dollars that I could swing a cat in.
Sigh.
This comment is regarding the january 8th 2008 post referring to seasonal workers, I wondered if you factored in the fact that some of these employers out there are keeping their seasonal workers on a partime basis only instead of hiring them full time they often cut their hours back and keep them on as standby with barely enough hours to get by on in the real world …I noticed a lot of them hire most helpers as part time workers these days if you think about it if they have 400 workers working 20 hours a week verses 200 workers working 40 hours a week they still only have 200 workers working for them but by keeping them partime it keeps the numbers up if we factor in what they are paying out wed get a lot better job report, its not how many people that are working it should count more towards how much money is shelled out now theres another pie chart we have yet to see no?
Great post! This is so true and now a lot of these greedy investors who contributed to the problem are now paying for it. It is absurd that a home of that size could go for even $250K, let alone $600k
I invest for long term and therefore purchase not on speculation but buy and hold fundamentals. It is fun, lower risk, and much more profitable plus the tax loopholes are never-ending. Anyone interested go to my website at
http://www.nationwidepropertyinvestments.com
Who in their RIGHT mind would spent 500K+ for a shack/bungalo (sp.) in Culver CIty?? What a sad looking home for $500K plus property taxes, repairs, etc…. to “own” a home–enjoy the interest every month to make the imbeciles at the banks tons of $$$ off of American’s ignorance and stupidity to be buying over-priced dumps in LALA land. The person probably makes under 100K, pay to pay check, or commission basis, rented cars, and wants to “own” the dream.—good luck.
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