Real Homes of Genius – Revisiting an HGTV style Culver City flip of 2007. Ever wonder why all those house flipping shows now show Canada housing instead of Westside homes? 704 square foot Culver City flip goes from massive profit to loss.
I was flipping (no pun intended) through some of the housing cable shows and one thing that I have noticed over the last year is the lack of home flipping programs for Southern California. Instead, I get to see all the folks in Canada in their housing bubble doing the same behavior we had back in 2005 through 2007. I decided to pull up a Culver City home that just happened to enter the game too late to turn a quick buck. The home was listed in October of 2007 and we covered it in January of 2008. It is interesting to track these properties because we can see the actual path of the correction in more desirable areas. This home was made over with stainless steel kitchen equipment, new floors, and of course special recessed lighting. Let us take a trip back in time to see what happened with a home from the past.
Culver City – October 2007 to present
11910 CULVER DR, Culver City, CA 90230
Beds:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2
Baths:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1
Built:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1960
Square feet:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 704
When we put our article together, it was in January of 2008. The home was purchased initially by the flippers in August of 2007:
08/10/2007 (sold):Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $452,000
The home was quickly put on the market on October of 2007 I imagine once the work was finished and was listed at $639,000! This is for a 704 square foot home. They were aiming for a quick profit here and we can run their assumptions here:
Listing history:
October 2007:Â $639,000 to $619,000
December 2007:Â $619,000 to $599,000
Here is what happens when you purchase at the top of a bubble:
Purchase Price:Â $452,000
Budget to Fix:Â $50,000 (Estimate based on work and size of property)
Sales Price:Â $639,000
Commission:Â $32,000 (5% at going market sentiment)
Total Profit:Â $105,000
So if the flip went quick it would have net a nice $105,000 before taxes. Not bad for a few months of work. Yet now that we have the history on the place, that isn’t exactly what happened. Keep in mind the carrying costs here as well. Each month you have a mortgage payment and other costs as well. December of 2007 hits with no sale and they have to reduce the price:
Purchase Price:Â $452,000
Budget to Fix:Â $50,000
Sales Price:Â $599,000
Carrying Cost: $12,720Â *(4 month carrying cost assuming 6 percent loan)
Commission:Â $29,900 (5% at going market sentiment)
Total Profit:Â $54,380
Profit is now cut in half. Now that is assuming that it sold in December. It did not. In fact, the home didn’t sell until August of 2008! And it sold for a much lower price:
Purchase price:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $452,000
Budget to fix:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $50,000
Sales price:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $530,000 (sold on August 2008)
Carrying cost:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $30,000 (one year of carrying costs)
Commission:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $26,500
Total profit:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -$28,500
Now I’m only throwing out estimates here in terms of fixing the place up since it looks like a lot of work was done:
Nice HGTV style work here. Recessed lighting and nice floors.
You can tell they read up on staging a home for the big sale.
The kitchen of the future built on easy money.
Now I figure that even on a cheap budget, $50,000 had to go into this place since work during the bubble in the heyday was expensive. In the end, you can see with this home how quickly the flipping game came to an end. If this was a year earlier, it is likely they would have sold it off for $639,000. Yet bubbles end this way and someone is left holding the bag. The amount of easy financing in these markets is incredible. The Zestimate currently has this place valued at $493,000. The current square foot price for the 90230 is $520 based on last month sales. So at that level this home should be value at:
$520 x 704 square feet = $366,080
Welcome to the next phase of the correction.
Today we salute you Culver City with our Real Homes of Genius Award.
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36 Responses to “Real Homes of Genius – Revisiting an HGTV style Culver City flip of 2007. Ever wonder why all those house flipping shows now show Canada housing instead of Westside homes? 704 square foot Culver City flip goes from massive profit to loss.”
People are still being asked whether banks were responsible for the housing mess. Preaching to the choir here. Thank gawd for folks like you.
The perfect con. http://thecivillibertarian.blogspot.com/
> The kitchen of the future built on easy money.
And IKEA. (Adel medium brown kitchen doors on Akurum cabinets and Lansa pulls. Total for cabinetry, about $700, then appliances. Flooring: probably Tundra, $1.15/sf. Bathroom cabinetry looks like Akurum and Billy. LR furniture IKEA as well. Better prices if you can nab deals in the as-is room.)
And big box store lighting, paint, tile, wallboard, synthetic trim….
Not to mention the big discounts you can get on things like Romex or Cat6 (never mind Cat5) if you are already in the trades.…
For just a cosmetic re-do, I’ll bet we could bring it in around $20K.
The only reason I can imagine the fix-n-flip thang is as a hobby. Like my partner used to like to make railroad sets as a kid–build them, then give them away, because as a budding engineer he didn’t care about playing with them (not till he was old enough to drive real trains as a hobby).
Doc, what if many of these flippers were women and men who knew how to do this work, along with their buddies, and, seeing their wages eroding since the 1970s, figured it’d make more sense to get paid to be financially clever than craft-skilled? Most of the flippers and landlords I know are just regular people, good with their minds and hands, who have been left behind by the Ponzi Casino economy.
The lenders got rich exploiting them yet again.
Still, DHB’s point stands. $520/sf? No wonder people are sitting tight.
rose
Very interesting post. Honestly, I can see how homes like these sold at the height of the madness in 2006-2007; they do look nice. Realtors and sellers were probably saying, “Even if the home depreciates it means that you would have just paid for the upgrades yourself, and let’s face it, home prices won’t go down. You’re getting one hell of a deal.”
Vegas is back to 2000 prices. The house always wins (pun sort of intended)!
http://www.lvrj.com/business/new-home-prices-fall-to-levels-of-10-years-ago-104328584.html?source=patrick.net#branding-left
We’ll be lucky if they don’t crash back down to 1990:
Bernanke: October 4, 2010
If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.
An improving economy should reduce near-term deficits, but our public finances are nevertheless on an unsustainable path in the longer term, reflecting in large part our aging population and the continual rise in health-care costs.
Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks.
Did he say, “UNSUSTAINABLE”? I can’t remember.
Hammer, meet head.
“Sustainability” is always the category they trot out when it’s clear that the uber-system itself is wrong/has problems and that some sort of end game is running. They do/have done the same thing in agriculture (i.e., farming fertile ecosystems for human, and only human, food) and “natural resources” (i.e., farming all the rest for extraction).
Only a minority of people want to address the real problems undergirding those uber-systems, like the “go forth and multiply and have dominion” sickness at the heart of the Human Drama.
Ah well. It’s a great game, innit? While it lasts. Then everybody’s a Sumerian Lamentation Priest.
If you listen to real estate “investor” groups right now, they’re all talking about buying and holding because the rent may actually get you a slightly positive cash flow on low-end homes. I’ve noticed that none are talking about flipping anymore as that train has left the station. So owning rental homes that are essentially breaking even is all about hoping for price rises down the road. Because I can tell you from experience that being a landlord sucks.
Which is something to factor into the currently fashionable perspective that “renting is better and great and wonderful, ha ha, we win, buying a house sucks!”
Landlords who are running their houses that close to the profit bone–and now there are more than ever before–are not going to want to maintain those slapdash construction and rehab efforts from which they expected to make much more ka-bling. Where I come from we called that sort of thing “slumlords.”
Of course I realize that many suddenly-fashionable renters figure that they will rent as long as it’s good for THEM, then just, you know, get out and buy cheap when things are all better. That’s the wonderful thing about this sort of readjustment/crash: all these ideas that it’s the other guy who will go to hell, and we’ll be just fine.
It’s that attitude that keeps people from organizing against what DHB calls the crony capitalists and the gangster banksters. When other people are something you compete with, in order to be better than, unified response goes right out the window.
Successful real estate investors only evaluate cash flow and do not count on appreciation at all; appreciation is a possible bonus that may manifest at some point, but doesn’t have to. Being a landlord only sucks if you are holding the bag on a bunch of negative cash flow properties…if you buy correctly, you can afford the 6-8% to pay a management company to handle the hassles.
We just did this type of ‘fix up’ on my father’s house. He passed away last August, we finally got in on the market April 1. Nothing was done to the house. 5 bedroom, 4 car garage, 2 baths. I endured 60 days of tire kickers, low ballers and scum wanting to buy the place for $50K when homes in that same area (like next door!) were selling for $165K. We opted to pull it off the market and fix it up ourselves. Our bill is $30K for everything – and I mean everything. We should be able to sell it for $165-170K as the homes in that area are actually moving up in price. House will be turn-key and has had everything replaced. Banks are just not making seconds, and for those on the edge, they are charging too many fee’s and denying financing to qualify for a smaller (2000 sq ft) home unless everything is updated and included in the price.
I fault the banks now, for the stumbling housing market. Jobs are an issue, but the biggest issue in the SW Ohio area is the tight (as in mostly non-existant) consumer credit.
OhioGal, if you don’t mind me asking, how much were you asking for the place when it wasn’t fixed up (i.e. when you were getting the scumbags offering $50K for it)? And how done up were the other homes getting/asking $165K in the neighborhood?
We were asking $155K. The home appraised at $162,500 for the estate, which we were told was on the low end. We were trying to move the place with adjustments to the price so someone could come in, fix the place like they wanted it, and live there, but we were not interested in taking a huge loss. It needed paint and flooring and that would have put it mid-range for the area. We would have taken $150K for it out the door. Its a 5 bedroom brick ranch, 2 car attached garage, 2 car detached garage, 1/2 basement (unfinished) in a VERY good neighborhood with great schools. The problem has been, and will be, that people just don’t have the cash to fix a place up, or they can’t get financing because of credit history or lack of jobs. Right now the home is turn-key (much nicer than when it was built) and will go back on the market Nov 1, with not much wiggle room on the pricing for the buyer. We’ve made it above-market in that area, to move it fast. Pricing is appropriate for this type of home. I think it will go to a smaller family who works at a local Air Base who can put down 10% and wants to just move in and decorate how they see fit, without having to come up with cash or time to renovate.
Foolio;
I didn’t answer your one question: How done up with it? Not very, but then again, the houses I toured during the sale process (for my own info) were all in nearly the same condition – needing windows, paint was old, old dated interiors. So I know we weren’t in the wrong ballpark on pricing. The problem was, and still is, CASH.
I hate to tell you. However if similar homes were selling for 165k and you had to put in 30k of repairs just to make that house sellable at that price then that house was really only worth 50k to an investor. During the bubble times flip investors sought to buy at 70% ARV (after repair value), nowadays with the bubble disinflating the recommendation is buying at 50% ARV (just about 50k). And since it sounds like the work was done by you then this doesn’t even include labor costs. Additionally an investor would have carrying costs, sales costs, taxes and risk to worry about.
But Ohiogal isn’t an investor. She is one of the many people who, through natural life evolution has lost a parent and is looking to put that dwelling on the market for another family. I.e., the older generation freeing up affordable housing for the younger.
Ohiogal and her family are putting their shoulder to the wheel to keep parasites and scumnads from turning her father’s home into a commodity, and I tip my hat to her.
Compass Rose is right. We/I are not an investor, nor will the family be catering to those who are. We have a good community there, great neighbors who have helped the whole family do the remodel. The house was free and clear before the remodel, so the choice is ours as to what/when to sell it. We can carry it a while, but the big thing is that we will NOT succumb to the bottom dwellers who are looking to rape some homeowner of their life savings because “the market it soft”. I’ll be sure to post here what it sold for….we are fortunate that the prices have held up here. One thing to note, this neighborhood/city has not suffered the price declines of the 2000’s because its always been stable, not a lot of rentals, and the homes are mid-America (2000 sq ft with 1/2 acre lots).
Misery loves company:
Dubai Property Deals Are Hard to Cancel
DUBAI — Scores of buildings around Dubai are well past their delivery date, or have yet to be started. For investors, there is little hope of getting their money back…
Pelosi Calls For Freezing All Foreclosures!
What Constitution? What Rule of Law? What “Free Market?”
We don’t need no “Free Market,” Rule of Law, or stinking Constitution!
Most of those house-flipping shows are still airing on Saturdays on TLC, but they are simply repeats of the shows from the bubble years. Ha. Flipping Out is current, but even he (Jeff Lewis) had to stop flipping and get into home designs and remodels, in order to survive. The fact that repeats of these bubble-housing shows are still being shown is strange. But back then all the stories had happy endings. I really think TLC should rethink their schedule and offer a few pilot episodes of Foreclose This House. At least that would be current, watching the divorces take place, all the banks scrambling and the frantic short sales. Way more drama in that kind of show, than showing a simple profit at the end of a month or two.
I wish they would do follow-ups on House Hunters and Property Virgins, now that would be some good tv!
It’s all about jobs plus it will never be the same again in the houseing market….Dead horse for the next 10 years………….Loans will be hader to come by so many in people debt…….
I made a comment to a loan officer the other day…I said, “It sure seems like there’s a bunch of people in this area walking away from their underwater houses and moving next door to a cheaper one while they still have good credit.” He said, “Oh yeah, expect to see a whole lot more of that…”.
Expect interest rates to keep going lower, the Fed has no choice.
When I was a kid, I loved watching Soupy Sales and Clarabelle the Clown. They’re long gone, but at least now I have Armondo Montelongo for laughs.
“This HOUSE is not for the weak-at-heart! This BUSINESS is not for the weak-at-heart!!”
No kidding…this bozo Montelongo starts out his entire course by acknowledging that he started making money by double escrowing his first purchase. Not much of that today…but he did make up a good package of semi-educational materials to peddle to the unsuspecting. Go, go Montelongo!
Funny, I watched an episode of some house sale consulting show (my wife loves this crap). Couple had 2 kids and the husband got a job in Boulder, CO or someplace about 70 miles from the current residence, bought just a few years ago. Of course they go straight ahead and buy a 2nd house (looked bigger/nicer, not sure) without selling, testing the waters, or it seems even turning on a tv or talking to an agent about their first house.
Now get this, they plowed all their available money into the down payment on the new house. Essentially the old house was a $2K per month drain. Guess what, even given the new job/salaries they didn’t have enough squirreled away to keep the old house on the market for 3 months without busting. They had zero margin to lower the price as they had no money to bring to closing. They ended up pulling the house off the market and renting it on month 3 for something that I guess came close to covering the 2K nut.
So let’s do some math – you don’t have enough cash on hand nor surplus in your new salary after your new home to survive a 2K per month hit for longer than 3 months. Discretionary income must be freaking zero and we know savings was zero or close. So not only did they not get the math but apparently they had no clue after all these years that the housing market is a bit troubled. Hell, even in normal times 3 months is a pretty quick time to wrap up a sale, and they weren’t even prepared to go that far.
To take it one step further, we know they don’t have anywhere near 2K free and clear a month because they almost busted under the load. A few months after renting the old house they were apparently buying a pony for their kids and building something (garage/barn, can’t remember but significant). Unbelievable. Just unbelievable. Stop it people. You have kids, be responsible. Live within your means, it’s not that hard.
Ugh, idiocracy. People never cease to amaze me. I think it must be either denial or sheer lunacy.
slim, overall I agree with you and in my facepalmier moments I have the same analysis as you present here.
The problem is this: much of the touted “economic growth” since Reagan was just what you describe. It involved the race to the bottom for wages, the displacement of workers, the gentrification of working communities, and the corollary job death march that involved families/households being extremely mobile. No more roots and commitments, everybody works for Big Brown for whatever Massa decides to pay.
As corporations moved from one undeveloped ecosystem to the next, turning it all into “industrial parks” and inflatable ‘hoods, and as people followed, a lot of Monopoly money got transacted and skimmed. As that spiraled bigger, it became its own self-inflating system. An economic ouroboros.
Folks like you describe certainly have not yet woken up and smelled the economic napalm. And that’s part of the pain to come: people realizing that what is expected and demanded of them (which they too have come to expect and demand as part of their Stockholm Syndrome, thanks to corporate/advertiser mind engineering) simply isn’t possible except at a huge loss. TO THEM.
The banksters and politicos do just fine. That tiny cadre of uber rich just keep getting uber richer.
Hey Doc,
Here is a good link on pros of renting – the article is written by a renter in Houston and makes really great points. Makes me feel good about renting.
http://finance.yahoo.com/family-home/article/110934/first-person-perspective-from-renters-10-reasons-we-live-mortgage-free
Don’t EVER feel bad about renting, it’s a very urban way of living. Plus, you can live in areas where you could never afford to buy. My brother lives in beautiful Laguna Beach in a 2 bdrm apt. a block from the ocean. He has a very cool landlord who never jacks up the rent and she loves her tenants. Homes on his street go for at least 8 million. He is a plumber and his wife is a teacher. They are in their mid-fifties and have no reason to buy at this point in life. I never want to own either, it’s a real pain in the ass!
We are kind of feeling the same way, only 47, but seems like it’s much easier just finding a great rental, especially in California if you want to live by the beach.
Some Sap Sucker paid $530,000 for this midget cottage in August, 2008? 704 square feet?
My Pa used to say 1) There’s a sucker born every minute and 2) A fool and his money are soon parted. Wow!
I wonder how this one will pan out:
http://www.trulia.com/property/3021221303-16041-Sugarpine-Ln-Cerritos-CA-90703
Bought at 205K and flipped up and on the market for 380K…
our local house flipper couple, wife was an interior decorator and the hubby handyman,
made good money on several deals up to 2007 then they purchased a foreclosure for 397K, the husband told me it was a steal and together put in another 50K. Well it just sold for 405K, they had to bring money to the closing and have moved into an apt downtown. This is what is in store for those trying to flip or make money buying rentals and waiting for the market to turn, it will be many many years before we have a residential RE market that reflects the past 30 years in Calif but denial runs deep and this downturn is going to become a huge epic flood of financial misery.
I visited a rental in Santa Cruz last week. They’re asking $2600/mo for a 3/2 in a not-great neighborhood right across the street from a bar and a music venue, which was kinda surprising until the agent told me the landlord had just bought the place and fixed it up. (It was very nice inside too – it’s obvious he spent some money on it.) He can’t flip it, so he’s trying for a totally unrealistic amount of rent for the place, and will soon find out that this is not a good market for trying to cash flow a home purchase…
50K to fix 704 SFT home is $71 pSFT, way too high for the pics showing. I think they spent less than half of that. I’m hearing for the first time here in Socal finished construction costs from desperate contractors in the low 80’s (per sft) with sky HIGH copper and LUMBER prices… go figure.
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