Real Estate Goes Wild Again in SoCal

haha said:
So. Cal Realtor: Flipping 'Worse Than It's Ever Been' - Business Insider

Video where a realtor takes us through a modest but gussied up house in Rancho Santa Fe whose flipper owners shoot for a 66% short term profit.

Ha
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When I was in Colorado practicing real estate back in 2005, what I really wanted to do more than being just a broker was flipping houses. But I didn't want to go it alone, I wanted some friends of mine to be involved, too. Two heads better than one kind of thing. But it never panned out.

Now that the market is heating up again in some parts of the country, I wouldn't mind pursuing it again, alone if I had to. But I wouldn't have the capital to do it for another 18 months or so, so would probably miss the window. Again.

Oh well. Props to those who can do it. The one thing people have to be careful of is the old saying...you don't make your money when you sell, you make it when you buy. You have to get the house at a low enough price, and control your rehab costs and carrying costs, that you can sell it quickly and make those kinds of gross margins.
 
I'm curious to see if this house will sell at that price. Looking on zillow, it seems out-of-line with nearby houses but some of the listed sales are a little older (2012) and I didn't look too closely.

A neighbour (in san jose) listed their crappy 2/1 971 sq. ft house for 995k. I don't know what the real estate agent was thinking because it's at least 300k over market. I guess they probably figure eventually the clients will realize nobody wants it and they'll get their commission when they drop the price.
 
A good part of the reason I am now ESR/ER was the RE run-up in So Cal in the early - mid 2000's. I already have a capable realtor and property manager in that area so could have a go, even though I am now living in No Cal. I only owned my 3 rental houses for 18 months, but they all doubled in price in the short time I owned them. Similar conditions probably exist here in the Bay Area, but I feel more comfortable with the market down there, and already know a very good realtor/property manager there.

Thing is, I didn't completely know what I was doing the first time around and was relatively oblivious to the risks, making it easier. Now that I'm largely not working, I don't think that sinking some of my stash into RE would allow me to sleep at night unless it was a very affordable place to live in, as opposed to a short-term investment.
 
Hard to even imagine some of this. I've watched a cable show recently, "Flipping San Diego". They were flipping a dump for like $400K+. It looked like something I would have to pay someone to bring in a backhoe and knock it down.
 
Been loaning to flippers in our area for a few years and see them make some awesome profits. Me, I get enough excitement with the rentals and content myself with collecting interest payments on our hard money loans.

EDIT: Just took a look on Redfin at the house near ours down in La Quinta - a 1550' 3/2 1992 build home that sold fast for $144k back in April just before auction to some flippers. Redfin shows it as a sale pending after a price reduction to $220. No telling what the sale price would be, but that is after 80 days on the market, and I would guess maybe $25,000 in repairs/renovation. Add maybe $16k in sales cost and the flipper made a maximum of $35k. That's if he used his own money. If he went to a hard money broker he might have spent $15k on loan costs over a five month period. If so he nets $20,000, still not bad.

BTW, we fund hard money loans - the loan brokers often make as much or more than we do.
 
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It seems to me that flipping is game of musical chairs. I have a nephew who has a crew and has done this for years, reasonably satisfactorily. But it has sure gotten tight for him a few times, and it seems like bk is a constant possibility. He seems like his group is well set up and efficient, but they are not where the market can get really wild so they moistly grind it out.

I know way too little to be personally interested in something like this. Like this realtor says in the clip, in hot market prices are made by the dumbest buyers. Nevertheless, because of various factors including financing, hot markets are where the big scores are made.

I personally am too control oriented to just join the race.

BTW, are you as amazed as I at how rapidly the homes market has gone from stabilizing to going wild, at least in some areas?

Ha
 
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haha said:
It seems to me that flipping is game of musical chairs. I have a nephew who has a crew and has done this for years, reasonably satisfactorily. But it has sure gotten tight for him a few times, and it seems like bk is a constant possibility. He seems like his group is well set up and efficient, but they are not where the market can get really wild so they moistly grind it out.

I know way too little to be personally interested in something like this. Like this realtor says in the clip, in hot market prices are made by the dumbest buyers. Nevertheless, because of various factors including financing, hot markets are where the big scores are made.

I personally am too control oriented to just join the race.

BTW, are you as amazed as I at how rapidly the homes market has gone from stabilizing to going wild, at least in some areas?

Ha
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The going wild part is smoke and mirrors IMHO. In 2010 and 2011 driving around LQ there were 6-8 for sale signs in each block - last year there might have been 3. People and the banks just decided it made zero sense to sell when you can't build for the price of sale. I saw numbers of homes that were vacant and had all the earmarks of being bank owned, but when I called on them I wouldn't even get a call back. Places are being held, or bundled for group sale.

Cunning devils, "equity groups", are buying up places in blocks from the banks at somewhat reduced prices, or on the open market at full asking and renting them out. I can't see how they are renting and managing them at a profit. Lack of inventory results in higher prices. Again, and as a small fish IMHO, the equity groups are setting up investors for another big fall. Bundled top quality loans? Seems familiar..
 
calmloki said:
The going wild part is smoke and mirrors IMHO. In 2010 and 2011 driving around LQ there were 6-8 for sale signs in each block - last year there might have been 3. People and the banks just decided it made zero sense to sell when you can't build for the price of sale. I saw numbers of homes that were vacant and had all the earmarks of being bank owned, but when I called on them I wouldn't even get a call back. Places are being held, or bundled for group sale.

Cunning devils, "equity groups", are buying up places in blocks from the banks at somewhat reduced prices, or on the open market at full asking and renting them out. I can't see how they are renting and managing them at a profit. Lack of inventory results in higher prices. Again, and as a small fish IMHO, the equity groups are setting up investors for another big fall. Bundled top quality loans? Seems familiar..
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Thanks for the ground level report. I know nothing here is particularly strong; off the bottom of 2 years ago, but not much more. Seems very spotty, with some places getting multiple offers, no inspection offers, etc- and others having their prices reduced.

Ha
 
A lot of the properties here in the Bay Area have been purchased by investment groups too, and it has had the effect of raising prices and causing them to sell at above list price with multiple offers, the same as in calmloki's area.

Perhaps if these investors choose to unload their properties in a few years, it could depress prices again - especially if interest rates are significantly higher. We'll see. It's often fun watching these things - as long as your livelihood doesn't depend on it.
 
I saw a news story where Chinese are buy property in the US, esp. in CA. God bless them :)
 
Half of all home buyers are paying cash, i.e. they are primarily investors/flippers...



Report: Half of All Homes Are Being Purchased With Cash - Developments - WSJ

"The surprisingly large cash-share of purchases helps to explain why home sales have jumped over the past two years despite more muted increases in broad measures of new mortgage activity, such as the MBA’s mortgage application index.

There’s no exact way to know who is responsible for all of these cash purchases, though they are likely to include some combination of investors, foreign buyers, and wealthy homeowners that don’t want to go through the hassle of getting a mortgage before closing on a sale."
 
We have family members trying to buy a home in the Bay Area. They can't compete in this market and they make good money! They have made over 20 offers since last summer and they keep being outbid by cash buyers. In this market, renting still makes more sense for us despite the fact that housing costs now represent over half of our expenses.
 
Hi,

I have only been watching a very small area (< 0.25 sq mile) in Santa Cruz for less than 3 months, but I have noticed what looks to be very good margins on flipping. For example,

4710 Portola Dr Santa Cruz, CA 95062
3 beds, 1 bath, 1,064 sqft
Bought May $580k on market in August for $750k - dropped a bit but I think will be at least +$100k by sale.

Nothing nearly as good since I have been looking (nothing equivalent < $650k) - not that I want to flip, but I do want to buy sufficiently well that a flip would not lose $.

A realtor acquaintance observed that Bay Area is slowing ie instead of multiple large margin overbids, there has only been 1 on a few of the last sales she sampled, so that falling back to the 2nd bidder might mean a price drop of $100k ($6-700k).
 
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