Monday, August 07, 2006

More Tales of Woe for Marin Flippers

This post serves as an up-to-date analysis of Marin flipper pricing psychology. More to come, I promise. (Or is that a threat? You decide.)

This San Rafael POS (2 br 2 ba, 1580 sq ft, built 1950) has been on the market for 146 days (!). Here is the pricing history:
Price Reduced: 04/11/06 -- $1,045,000 to $997,500 (-4.5%)
Price Reduced: 05/05/06 -- $997,500 to $949,000 (-5%)
Price Reduced: 06/12/06 -- $949,000 to $939,000 (-1.1% WTF?)

Total percentage price reduction: -10%

Zillow.com's "Zestimate": $787,682
(I don't necessarily put much stock into the "Zestimate" but for those who do, well, there it is.)

Last sold: May, 2004 for $735,000 after being on the market for just 12 days (or 8% of the time that it has currently been on the market).
It's interior has been remodeled and I'd estimate that remodeling came in at around $80,000 (but I know some readers are better at such estimates than me so tell me why I'm wrong). Add another $65,730 for those closing costs that the seller is responsible for (which, according to this, runs about 7% of the sales price [includes standard agent commissions]). Add it all up and these flippers are right about at the break even point.

The amygdalas of these flippers are sure to be screaming bloody murder by now.

14 Comments:

Anonymous Anonymous said...

If they get 95% of asking AND their reno costs came in below $75K AND they were living there - it's a winner!!!

Sold at $892K (95% of $939K asking price)
Less $62K (7% closing & RE commissions)
Less $75K Reno
Less $735K Purchase
= $20K pure profit WOW!!! (That assumes the owner has lived there).

Of course if they only get 90% asking they're down $25K. And if this was a rental 'investment' it'll be worse. And given the 2 year holding it probably is.

Man, I'd just rather work a little harder or save harder than take on massively leveraged financial risk for a crappy $20K profit (over 2 years). Even at the original asking price it's a really risky 'investment'.

Aug 7, 2006, 10:09:00 PM  
Anonymous Anonymous said...

People just don't get it - except in very bubbly abnormal markets you cannot make money flipping. The financing and transaction costs are just too high (not to mention taxes).

You can't make money renovating and flipping either. Typically, $1. spent on reno/refurbishment adds about $0.85 to the selling price. And when you're an amateur it's probably much worse.

And you can't make money buying rental properties with a 4% rental yield.

Sorry, just kidding. It's easy to make a killing in real estate. Just ask your friendly realtor or mortgage broker for some impartial, professional advice. They could follow their own advice and make billions but they'd much prefer to give you a friendly nudge in the right direction.

Oh, and don't forget to throw your own common sense out the window with your calculator....

Aug 7, 2006, 10:24:00 PM  
Blogger sf jack said...

marinite -

I just realized that this marks some kind of a turning point for me.

Last year (perhaps?) we discussed potential market declines and you "promised" me that there was more speculation and flipping in Marin than I thought existed at the time (at least that's how I recall the discussion...).

So I've been waiting since this blog was very young for the market to turn, and for you to post something like this (complete with pricing details/figures) on the particular situation facing a Marin flipper.

Very well done!

Aug 7, 2006, 10:57:00 PM  
Anonymous Michael said...

Marinite, you are doing great stuff here.
Hallelujah, this insanity is finally stopping.
Keep up the good work!

Aug 7, 2006, 11:07:00 PM  
Blogger Marinite said...

you "promised" me that there was more speculation and flipping in Marin than I thought existed

I actually do not recall saying that but that's ok and I believe you when you say I said it. Flipping/speculation in Marin exists and is really nothing new but of course has become more extreme of late due to the housing mania.

In all fairness, it could be argued that the sellers featured in this post should not be called "flippers" per se. Maybe just speculators. To me they're all the same beast and equally nefarious; it's just a matter of how quickly they turn around and sell.

Aug 8, 2006, 9:44:00 AM  
Blogger Christopher King said...

Fascinating blog.

I've done a couple hundred closings but got out of it after this fiasco:

http://christopher-king.blogspot.com/2005/12/heavy-hands-part-deux.html

Peace.

Aug 8, 2006, 10:00:00 AM  
Blogger marin_explorer said...

Add it all up and these flippers are right about at the break even point.

You may be right, given that last -1.1%. It's rather amusing that after two reductions, the sellers would hit the brakes now. Why not reduce to $900K...$875K? How do they know there's a buyer even at those prices? How high can a 2BR in San Rafael go before the bottom drops out? I suspect there’s no “soft landing” for this property.

you "promised" me that there was more speculation and flipping in Marin than I thought existed at the time

Something I’ve noticed for many bubbly markets is how locals attribute the appreciation to the “unique” lifestyle their city offers—which is somehow immune to destabilizing forces, including speculation. The same talk could be heard about “prime” areas of Seattle, Santa Barbara, Monterey, SF, Marin, etc. Yet, these “prime” coastal areas may have generated far more investor activity, given those glowing predictions trumpeted in money/investing mags for west coast property from 2002-05. After all, “everyone wants to live here,” so I wouldn’t be surprised if recent Marin speculation exceeds 30%--per CAR.

I’m going to enjoy watching the ensuing "speculator" meltdown.

Aug 8, 2006, 10:17:00 AM  
Anonymous SFSal said...

that looks like good old 57 marina blvd:

http://www.socketsite.com/archives/2006/05/the_scarlet_r_o.html

that's the place that was the NY Times poster child for the slowing marin market.

Aug 8, 2006, 10:26:00 AM  
Blogger rejunkie said...

In all fairness, it could be argued that the sellers featured in this post should not be called "flippers" per se. Maybe just speculators. To me they're all the same beast and equally nefarious; it's just a matter of how quickly they turn around and sell.

So, what is the golden rule? When does a mom-and-pop investor looking to supplement a lackluster 401(k) become an evil, market-wrecking specu-flip-vestor? Do you villify all investors (myself included) as nefarious beasts or just those that sell within some pre-determined period of time? What is the minimum acceptable holding period that does not meet with your scorn? 2 years? 5 years?

Please don't tell me no one should buy real estate as an investment -- that is just naive. Every western country (and most of the others too) allow individuals to invest in real estate. Renters need somewhere to live too.

BTW, how do you know these are flippers and not wholesome families who bought them to live in who are in over their heads? Perhaps they deserve some sympathy (or pity anyway) rather than "dancing on their graves singing hallelujah" (there is a Monty Python reference for just about everything).

Aug 8, 2006, 7:22:00 PM  
Blogger sf jack said...

junkie -

After all of the BS of the rising bubble, it's about time someone pointed out this kind of flipper behavior (perhaps for many of these cases, but maybe not all).

Give us a break.

Aug 8, 2006, 10:34:00 PM  
Blogger rejunkie said...

After all of the BS of the rising bubble, it's about time someone pointed out this kind of flipper behavior (perhaps for many of these cases, but maybe not all).

sfjack, it was the "nefarious beast" comment that bothered me, not the fact that marinite is pointing out suspicious listings. Many of the commentators are assuming a great deal about the profile of the people selling and appear enjoying being witness to other's financial distress. Some of these people were possibly trying to make an honest go of it and are probably not happy about their situation. I don't think that during the rapid rise in RE values from 1996-2005, there were bloggers posting photos of apartment buildings and calling the occupants "nefarious beasts" (or something analagous) for being dumb enough to rent, for that, to me is the flip side of these types of posts.

These posts are not just about the facts -- marinite and others: you are making subjective and derogatory comments about people of whom you know nothing about. This just seems to be in poor taste. JMHO.

The facts are useful -- the "color" around them is not.

Aug 9, 2006, 11:34:00 PM  
Blogger Marinite said...

These posts are not just about the facts -- marinite and others: you are making subjective and derogatory comments about people of whom you know nothing about. This just seems to be in poor taste. JMHO.

The facts are useful -- the "color" around them is not.


You are right and it is in poor taste. I concede.

In my own defense, I used the word "nefarious" incorrectly. What I was going for was to express the idea that something can be very bad but not for the reasons/intentions that the individual actors meant. I have since looked up the word "nefarious" and it is clear to me that I am clearly not using it correctly.

Aug 10, 2006, 11:11:00 AM  
Blogger Marinite said...

I'm only human.

Aug 10, 2006, 11:12:00 AM  
Blogger Marinite said...

Actually, you put "beast" and "nefarious" together into the same compound:

I said:

In all fairness, it could be argued that the sellers featured in this post should not be called "flippers" per se. Maybe just speculators. To me they're all the same beast and equally nefarious; it's just a matter of how quickly they turn around and sell.

You then said:

Do you villify all investors (myself included) as nefarious beasts...

I used the term "beast" as in "of like kind". As already explained, my use of the word "nefarious" was in error.

Aug 10, 2006, 11:21:00 AM  

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