Flip This/That House! And Flip it NOW!

In my earlier series, Flippers in Trouble, I spotlighted apparent house flippers who had clearly gotten in over their heads.  The purpose was to remind readers of the risks involved in flipping houses, despite the promises of late night TV.  That and a bit of schadenfreud.  My methodology was always a bit haphazard.  I looked for houses with price reductions and lengthy time on market.  I cross checked the property on Zillow for the last sale date and price, which of course is the current owner.  If the price paid was close to, or above, the current asking price, we had a flipper in trouble.  Factor in the renovation/remodeling costs, carrying costs, realtor fees, and most of these flippers were probably in deeper than it appeared.

I found another flipper, but I'm not prepared to call him a flipper in trouble.  See despite all this schadenfreud (which always reminds me of the old Smith's song, "We Hate It When Our Friends Become Successful"), I realize that flipping houses provides a tremendous opportunity for profit.  However, rapid price appreciation made these profits all too easy.  We all know what happens when there are easy profits.  It attracts lesser and lesser talents.

So, let's talk about this current flipper.

Address: 1xx2 N. Madison Ave., Pasadena, CA 91104
Last Sale: 10/19/06 for $510,000
Current Asking Price: $585,000
Days on Market: 7
Carrying Costs: $2125 per month in mortgage payments assuming 5% interest only and no down payment.  This does not include insurance or taxes.

Some details so that those of you not in California, Hawaii or New York can gasp, "they want over a half a million for what?":  This is a 2 bedroom, 2 bath, 1,065 square foot house on a 5,760 square foot lot, built in 1952.

Bottom Line: It should be fairly clear why I don't consider this on a Flipper in Trouble.  Even if we assume 6% realtor fees on the sale, plus two mortgage payments, the carrying and transaction costs are somewhere around $39,350.  That still leave a profit of $35,650 over the original purchase price of $510,000.  Pretty sweet for two months of work.  The story doesn't quite end there.

We have no way of knowing how much the renovation costs were, but if you take a look at some of the interior pictures, you will see new paint, new landscaping, and high end fixtures.  Here you go:

Were the renovation costs greater than the current profit of $35,650?  One problem is that we don't know enough about the condition of the property when it was acquired.  Maybe the paint was already new.  Maybe the fixtures were already these high end models.  Maybe they just spent a few thousand on some cosmetic clean up.  At any rate, the margin of error at this point is getting pretty thin.

If they are fail to get their price quickly, they may be facing price reductions and further carrying costs.

Comments

[robert tapia]

get a load of this!!!
http://www.homesandland.com/Listing.cfm?City=LITTLEROCK&State=CA&ListingId=9602162
I dedicated my website: avenue-s.org to the poor people of the antelope valley- palmdale, lancaster and specifically littlerock, where 20% of the population is living below poverty level and per capita income is $15,000.00 surprisingly homes from circa 1910 are now transacting at an average of $550,000.00 one sold for $1,500,000 and another up for sale for $3,650,000.00 waiting for a sucker to bite the dust. Meanwhile minutes away in nearby palmdale and lancaster the housing market sat motionless. i pulled random title reports and grant deeds of the fishiest transaction and saw all the title violations you can think of; first payment notice of default on 2td's as example and the rest looked ordinary.nevertheless i posted it all and reported all of these scumbags to the irs-cid and the title companies- if it did makes a difference,that i still have to find out. homes out here put beverly hills to shame...

[dimes]

When I read the title I thought you were talking about Casey Serin.
I know many places in the country (including this place) where a house like that wouldn't sell for a quarter of the asking price, "high end fixtures" be damd. It's a 55 year old shoebox on a quarter acre. Unless he can find someone unwilling to call a spade a spade, this flipper is in trouble.

[Sal]

flipping is lots of fun when you're sure of what your doing, it can also get very very scary if you begin to second guess your every more.... kitchens and baths. #1 rule

CIAO
Propertyhype.com

[SCapitalist]

I like your "Flippers in Trouble" series. Nicely done. I hope to get into real estate one day, but not until I am fully prepared, both finacially and professionally. Flipping is very demanding, and you have to be prepared to deal with many different types of problems. I have no intention of replicating Casey Serin's story.

[Charles Turner]

Real estate investment based on appreciation is speculation.

Successful flippers know this and accept the risk.

Real estate investors don't calculate appreciation when looking at the fundamentals of a property. They look at income from rent, principal reduction and tax savings. Appreciation is the bonus if the other components are a go.

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