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House “flipping” is alive and well in Irvine
September 22nd, 2009, 5:00 am · 40 Comments · posted by Erika Chavez, Staff Writer
Here’s a blast from the housing bubble past: an Irvine home buyer trying to make a quick (and hefty) profit by selling a home that was just purchased last month.
Better known as “flipping,” this risky investment strategy was all the rage when the housing market was red hot. Legions of working Joes and Janes tried their hand at it when it seemed like home values would never peak, and scores of cable shows chronicled their attempts at making a fortune while flipping.
Flippers largely disappeared when the housing bubble burst and mortgages became hard to get, but a small subset of dedicated flippers has continued to swoop in and purchase short sales and bank-owned homes, hoping to make some quick cash.
This flip, located in Irvine’s older El Camino Real neighborhood, struck me as particularly brazen: it was sold August 12th as a bank-approved short sale for $417,500; just eight days later it was relisted for sale by the new owner. According to the MLS, the owner is entertaining offers between $550,000 and $570,000. If the house sells for $550K, the owner will pocket a cool $132,500… without making a single improvement or renovation to the home.
At 3 bedrooms, 2 baths and a compact 1,112 square feet, the seller is hoping a buyer will pony up $495 per square foot.
Here’s the specs, according to Redfin:
LOVELY SINGLE STORY FAMILY HOME. NO MELLO ROOS, NO HOMEOWNER’S ASSOCIATION DUES. WALK TO A DISTINGUISHED ELEMENTARY SCHOOL, BLUE RIBBON MIDDLE SCHOOL, IRVINE HIGH SCHOOL AND NEARBY COMMUNITY PARK WITH BASKETBALL COURT, UPGRADED KITCHEN WITH STAINLESS STEEL APPLIANCES. PARQUET/PERGO FLOORING THROUGHOUT, CENTRAL AIR-CONDITIONING AND HEATING. FENCED FRONT & BACKYARD. LIGHT AND BRIGHT. FACES EAST.
Before last month’s short sale, the home previously sold for $655,000 in June 2005.
What do you think, readers? Will the new owner make a quick profit or is this flip destined for failure? How much do you think this home is worth? Weigh in…
Special thanks to Shevy Akason and the Irvine Housing Blog for helping me dig up info on this home’s sales history.
Other real estate trends:
- Really? Mobster hideout to auction; big landlords bashed
- Despite growing loss, Lennar upbeat on 2010
- Renovation, not demolition, in O.C. housing future
- Really? FHA in trouble, house hunters get ambushed
- Newport hotels cut rates 24%, still empty room grow
- Trendy O.C. apartments sell for $23.6 million
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If anyone buys this El Camino Real home for more than $417,000, they are truly IDIOTS!!!!
Of course Erika is failing to state the costs involved with buying and selling the property and the capital and ristk involved.
Buying and selling real estate is very expensive. In the meantime, I bought BIDU at $221 back in April and it is now at $396 per share.
It costs me 7 dollars to buy and it will cost me 7 dollars whenever I sell it.
That’s what I call a good investment.
That just goes to show that people haven’t learned their lesson. The majority of people should not be engaging in such activities. TV shows and false hopes of riches lead people to believe that it is easy to flip a house and anyone off the street can do so. The Fed is enabling this activity by suppressing mortgage rates. Not good!
http://www.beyondthemargin.net/search/label/Housing
What about the new “flip rule” waiting time??? Fannie Mae 6months FHA 3 months…
I didn’t see where it said they had a Fannie Mae or FHA loan?
Erika
I am trying to flip a home too. How much do I have to pay you to get a giant free advertisement like this one. How about a 50/50 split since you are doing most of the work?
You think this was an advertisement? Seriously? Wow. If Erika had worded her article any stronger, she’d have to start worrying about getting a restraining order against the new owner. By getting all the info out there in everyone’s face, Erika single-handedly destroyed any possibility of this flipper making their list price unless this seller finds a particularly clueless and uninformed buyer. I’m glad Erika and others are highlighting these schemes. The froth that the flippers are creating is artificially propping up prices and delaying this market from reaching a bottom.
-Darth
P.S. Good article, Erika!
No improvements made? Is it move-in ready? If interior is in good shape, then this flipper might make a profit. But the question now is, “who will buy it and be willing to pay $550K”? Good luck!
This latest bubble, and that’s what this is folks, is unsustainable and will burst again soon. Check things 6 months down the road and see if I’m not right.
I doubt this is the type of advertisment you would want.
I see it more as a giant spotlight showing a potential rip-off in the making.
$495 per sq ft? Don’t think so.
These sellers are just feeding on the stupid people out there. You know darn well that someone is going to come in and “lowball” the asking price, say at $500-510k. They are going to be too stupid to do their homework and realize the real value of the home. They will close on it, and in a year or two stop paying their mortgage because the value of all other homes in the neighborhood will have dropped below $400k. Then they will get some Fed bailout, and us taxpayers will end up absorbing this soon-to-be toxic asset as well.
22 Montelegro .. in west park also same story.
He bought the house from Bank 638K and now he os asking 745K. I am not sure who will buy this…….
If the flipper paid cash for it, they may be able to walk away for $500k and still make an $80k profit. To me flipping has a value if you take a beat up house, add some character and charm to make it “sellable”, and still sell it at a reasonable price. If you got a great deal on the purchase, it can be done.
This person seems high, as in on drugs, if he thinks that the market can support a $550k 1,100 sq ft house. But hey, good on him/her if they do it.
Flipping is not a crime. I see nothing wrong with it. HELOC abusers on the other hand should be whipped like they were drunk in Malaysia.
Price seems a bit high. $500K at most for this house.
Flipping is okey, as long as you do it with your own cash. Both my friends and I regularly buy house from banks and short sales, do a quick fix & tune up (done within 1-2 weeks, using efficient professional work sources), and turn around sell them. Our average return have been 12-15% per house.
Even with cash offers, we often get outbid by other investors. I know lot of pool buyers out there, some really loaded with cash.
There’s nothing wrong with this, it’s an honest way to make money.
And an honest way to lose money…
Except that you bid up the prices for people who want homes to live in. I really wish more would-be flips mysteriously combusted.
More foreclosures are on their ways for investors to “make” money… Buy, buy, buy… The price is always right, when you can afford it…
_______________________________________________________________
“Option” mortgages to explode, officials warn
By Lisa Lambert Lisa Lambert – Thu Sep 17, 7:49 pm ET
WASHINGTON (Reuters) – The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset.
“Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams.
“That’s the next round of potential foreclosures in our country,” he said.
Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These “underwater” mortgages have been a driving force behind rising defaults and mounting foreclosures.
In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state’s attorney general, Terry Goddard, told Reuters after the meeting.
“It’s the other shoe,” he said. “I can’t say it’s waiting to drop. It’s dropping now.”
The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan’s principal.
When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan’s interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.
Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they “threaten a much greater hit to the consumer than the subprimes,” Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.
Miller said option-ARMs were discussed at Tuesday’s meeting on mortgage scams, which brought state attorneys general from across the country together with U.S. Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, and Federal Trade Commission Chairman Jon Leibowitz.
The mortgages tend to be “jumbo,” or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more desperate to refinance big debts.
Goddard said his office is investigating hundreds of cases where companies have made fraudulent promises, and charged large fees, to mortgage defaulters.
The U.S. housing market has suffered the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy.
Some signs of stabilization emerged recently, with sales rising and home price declines moderating in many regions of the country. Home prices in some regions have risen.
However, many economists say there is still a huge supply of unsold homes lingering on the market and that, coupled with a frenzy of more foreclosures ahead, should depress home prices for the rest of 2009.
Real estate data firm RealtyTrac, in its August 2009 U.S. Foreclosure Market Report, said foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 358,471 U.S. properties during the month, a decrease of less than 1 percent from the previous month, but an increase of nearly 18 percent from the same month a year ago.
The report said one in every 357 U.S. housing units received a foreclosure filing last month.
(Additional Reporting by Julie Haviv; Editing by Padraic Cassidy)
Well, that’s the problem! If the market turns sour, the taxpayers will be there to bail him out again!!
**It’s my understanding that these types of mortgages would not qualify for a bail-out. Is that wrong? Isn’t speculation ruled out?
Flipping lower priced homes where the inventory is tight seems to be the name of the game these days. Low inventory = people willing to pay a premium…and I am all for investors making money. If someone pays this guy $495 a foot, he should be laughing all the way to the bank! It’s pathetic how unsophisticated and ill informed consumers are these days. Always willing to overpay and overextend. When we return to a normal market, today’s buyers will be hurting.
This is the work of the broker that orchestrate the whole transaction. The seller and buyer all involved in the scheme to make money of the bank “tax payer $$$”. The broker only present offer from the buyer that is willing to play along, usaully relatives of short sellers.
C’mon Erika those days are gone…
who ever purchase this “Non-sense” will have to wait until 2023 to see same equity.
Okay, what agent told their client to put in this offer on this property? I should think the same one that represents the seller? This is just an example of HEY STUPID PEOPLE GET AND READ THE PROPERTY HISTORY! Even if you have to go to Zillow you will get some info. This is also an example of “the comps tell us….blah blah blah…..” Stupid is a stupid does. In this market the comps are just that and falling everyday. Actually the 417,500 was a bit steep. Yes steep! As I have said, OC property will eventually go to 2 1/2 time the national average and that is where it should be and that is where it should stay sooooo. Folks, sit and wait. It WILL come. Promise you.
There should be absolutely punitive taxation of flippers, who did as much as anyone to create the global financial breakdown. And I say that as an anti-tax Republican. A 90% marginal rate is too good for those parasites.
If nothing else, repeal the special tax break enacted in ‘97 on capital gains from house sales.
And if we can’t bring ourselves to do even that, turn the IRS loose on the flippers who claimed their flips as primary residences for tax purposes. (That would be…pretty much all of them.)
What’s wrong with capitalism? People who took out loans they knew they couldn’t pay are what caused the housing meltdown.
Government subsidy of flipping /= capitalism.
The capitalist thing to do is to treat investments equally — not privilege some politically-powerful investments over others. That’s called “rent seeking,” and there’s nothing remotely free-market about it. Rent seeking requires government intervention.
Fraud. Julio sold it to his brother Juan. Funny thing is, Juan won’t be making a first payment either. DEFAULT!
Over a half million asking price? Unfortunately this house is in The Willows, not El Camino. If Irvine has a ghetto The Willows would certainly qualify with cars up on blocks, unkempt yards/houses and a known drug culture. Any potential buyer would be put off just driving into the tract.
My place in that subdivision was sold for 400,000. the new owner put in 80000+ putting in a lawn. Can’t tell the rest was spent on anything that would get back the 80000.
Was sold for 525,000. I sold in 2004, sold end of 2008 by who I sold it to.
That house was very average, 1700 sq ft, and not much but average (I liked it though). I can see moving a fixer upper to the market value if they really put in the money to make it worth the market value. As most shows on cable illustrate, and probably reality is worse, flippers don’t care, they don’t live there.
Anymore than the billionaires that built up all this area with people pile 6′ apart live in such places.
Follow the bread crumbs…
It’s an inside job. This industry is well interconnected with insiders who are always looking to commit fraud at the expense of taxpayers.
The house still has to appraise for the amount it is being sold for.
If it was appraised at the $415,000 8 days ago, there is no way it has appeciated over $100,000!!
y’all is a bunch of angry folk for most part… get therapy, or a dog…
will never appraise for that much. Owner must hate this media coverage! LOL
Exactly why average people can not buy homes. They get under bid by cash.
all these flippers work with cash, i think i know this house. Banks jump on cash offers. Nothing wrong with flippers just that it inflates prices unrealistically. But like some posters noted this is a risky business and all this activity being generated is because of the 8000 rebate. Market will fall back after that for sure
Of course someone will buy this home. This is Irvine, not Riverside. Not even Anaheim. Too many people want to live in Irvine, and there are not enough houses to go around, thus the higher price. If you cannot afford it, or think it is overpriced, then go check out Devore, or Tujunga, or Covina. Go live there.
Cmon man…no way will it sell for that. POS
Why would you say they are idiots for spending that much. I think the public in this country is so DUMB they will actually pay more than the asking price because they are media cattle! I wouldn’t even entertain the thought of by a pinball machine at this time let alone a house, but then again that is why this country is on track to self implode soon (1 to 2 years) and we have no one to blame but the uneducated public.
Let’s think about this, how did Obama get voted in? The last and worst mistake ever! Just goto the DMV and just see how your healthcare is going to operate in the near future. I think I need to move to France?
That area is a ghetto. Too many dumpy houses.
My parents live near that area. I hate it. I always see motorhomes parked in front of houses for days, off road vehicles parked on lawns for days. One house in particular on the corner of Yale Loop and a stop sign, looks like drug addicts live there. Bars on the windows.