1103 S. 8th Ave.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“Brand New Luxurious Estate at Prestigious location in Tree Street.”

Riiight. Since when did 8th Street become a prestigious location? The seller would certainly want potential buyers to think that it’s prestigious when in fact it’s just a 6 blocks away from the Monrovia shooting last month. Let’s see, another house requiring half a million dollars downpayment and still over $14,000/month in mortgage payments for basically an overbuilt McMansion doesn’t sound appealing to me.

Assuming the same $225/sqft in construction costs as we did in yesterday’s profile, this house would have cost our specuvestors $225/sqft x 7478 = approx $1.683MM to build.

$2.88MM (asking price) – 6% commission – $750,000 (purchase price) – $1.683MM (construction costs) – $174,800 (carrying cost at $3800/month x 46 months) = just under $100k profit

Purchase Price $750,000
Purchase Date 04/19/2004
1st Loan $616,000
2nd Loan $77,000
Downpayment $57,000

Listing History
11/7/2007 $2,980,000
2/16/2008 $2,880,000

The mailing address for this property’s seller is on the same street as that from the property profiled yesterday. Do flippers congregate and live in clusters? Lately I’ve been seeing a lot of properties on the market where the seller’s mailing address is just a few blocks away right here in Arcadia. It makes me wonder if they decided to buy and flip property on a whim during a stroll in the neighborhood. The number of McMansions in certain parts of the city is overwhelming and with the reckless market psychology we’ve had in the past few years, it’s understandable how so many people got caught up in the storm.

The very act of flipping is going to cause some major problems because flipped properties sit empty. It generates no income yet have reoccurring monthly costs until the property is sold. Every month it sits on the market casts a larger financial anvil on the investors. This particular home has been on the market for almost 4 months with just one 3% price reduction.

If you made $720k/yr, is this a house you’d be willing to pay $14k/month to live in? In an area just a few blocks from recent gang-related shootings? I think not. With the higher interest rates and tighter lending standards, most people won’t qualify for a loan this size. The ones who do have documented income to qualify and enough cash for a $500k downpayment will probably not want to live here.

Things aren’t looking good for these sellers.

177 W. Norman Ave.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Yesterday’s post suggested the possibility that the SGV market will experience an increase in inventory of brand new McMansions over the coming months. I will proceed to document them as they appear on the market. Today we have a new listing for a mansion with an asking price of $3.08MM. Assuming they really did use good materials, it would’ve cost them approx $225/sqft x 6800 sqft = $1.53MM to build the house.

$3.08MM (asking price) – 6% commission – $1.15MM (purchase price) – $1.53MM (construction cost) – $88k (carrying costs at $4k/month for 22 months) = approx $127,000 profit.

Purchase Price $1,150,000
Downpayment $517,500
Mortgage $632,500

This is an example of specuvestors who came in too late in the game. The property was purchased at the peak of the bubble in Q2 of 2006 and torn down to rebuild this mansion. Since the property wasn’t completed until 2008, construction didn’t probably didn’t begin until 2007 which means it took a long time to obtain building permits.

The seller (who’s mailing address is just a few blocks away) put a hefty half a million downpayment so that’s good news for the bank, but not so good news for the flipper. Unless he got a substantially lower $/sqft construction price from the contractor, he doesn’t have a lot of wiggle room before the $4000/month carrying cost, negotiations and/or price reductions start to eat away at the earnings. Just 4 or 5% off that $3.08MM asking price and it will cut into their downpayment. Do you think these flippers are sweating bullets yet?

Who will pay $3.08MM for a house next to the storm drain in this dying RE market? Who has the cash funds for that extremely large downpayment? Who has the documented income to qualify for a loan of this magnitude? How long will this property sit on the market before a transaction is made? How long will the sellers hold out before reducing the asking price? How many reductions will it take? Only time will tell.

217 Carolwood Dr.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“THIS IS THE FIXER YOU’VE BEEN WAITING FOR * SHOW AND SELL!!!”

This flipper bought this dump 10 weeks ago and turns around to sell it for $149,000 profit after doing absolutely nothing to improve the property. It’s even worse than the flippers who list at wishing prices just because they put in some granite counters because this guy didn’t even bother to do that. They obviously don’t bother hiding that fact because it says right in the description that this is a fixer. Everything looks very dated in the pictures as well.

The strategy here was buy, wait about 2 months and re-list it for a profit. Um, okay. This might have worked back in 2005 when lenders gave away free money, but that’s long gone. Either he’s been living under a rock for the past year or just completely overtaken by greed. Something tells me it’s the latter.

I don’t understand the train of thought. Why would this flipper think that someone will actually purchase this property for $149,000 more than what he paid 2 months ago? There’s wishful thinking and then there’s just absurd thinking. It doesn’t make sense in any market, but it’s especially concerning in today’s drowning market. It shows that the kool-aid was flowing so fast and so abundantly during the boom that flippers and realtors are still overdosing on it in Feburary of 2008! How long will it before there’s no denying the facts?

Flipper – Shame on you for being so greedy.
Realtor – Shame on you for not acting in your client’s best interest.
Lender(s) – Shame on you for letting things get this bad.

Shame on all of you.

388 Torrey Pines Dr.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Torrey Pines – it’s back.

I saw the other Torrey Pines monstrosity last year (386 Torrey Pines – the neighbor) and almost puked. According to Zillow, 386 Torrey Pines was on sale for almost a whole year before it found a sucker in September of 2007 who bought it for a whopping $4.25MM. And now, this seller wants to make a killing too – listing 388 Torrey Pines Dr. for a mere $4,698,000.

I can’t seem to find any lender/loan and previous sale information for this property, but the mailing address is in Nevada so this may have been purchased as a flip by a specuvestor. I can’t imagine someone buying property in Arcadia as vacation property, but who knows.

Over 8600 square feet of indoor space, 6 bedrooms, 9.25 bathrooms and more Pergraniteel than you’ll ever want. I don’t hide my disdain for gaudy mcmansions, but this is the mcmansion of mcmansions. The builder/architect had over half an acre of land and they still stuck the ugly 3 car garage in the front of the house. The outside of the house looks absolutely hideous and to think that the monthly carrying costs for this house is on the order of some people’s annual salary is mind-boggling.

I profiled this house not only because it’s the most expensive listing in Arcadia today, but because it captures the frenzy of this housing bubble in the SGV area. Specuvestor buys a property at inflated prices, tears it down to build a mcmansion, fill it with granite counters, pergo floors, designer colors, stainless steel and turn around to sell the flip at some insane wishing price to a knife-catcher. Yeah, that just above sums it up.

The neighbor got lucky and got out last September. Do you think this seller will be just as lucky?

35 W. Norman Ave.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

This is listed as a single family residence, but from the description it’s really a triplex with an office and guest house in the back. From the view on Google maps, the layout seems broken up and poorly designed. The house is also fairly old and there’s no mention of renovations or pictures of the inside so I suspect that it’s probably not in good condition.

After 3 months on the market, the seller seems to have gotten the point about where the market is headed with multiple price reductions. Unfortunately, they bought during the peak of the bubble so it will probably see additional, even steeper reductions before a knife-catcher is lured into buying.

Purchased Price in 7/2006: $1,269,000
Downpayment: $270,000
1st Loan: $999,000

Listing History

Nov 19, 2007	$1,338,000
Nov 21, 2007	$1,298,000
Dec 28, 2007	$1,250,000
Jan 11, 2008	$1,230,000
Feb 13, 2008	$1,180,000

It started out as a hopeful listing at $1.338MM which may get them out without loses after fees and commission. However, it only took 2 days for them to realize that the market wasn’t going to take that and the price was dropped down $40,000 (just $2000 above their original purchase price). The holiday season must have been really slow so the 2nd price drop was a bit steeper at $48,000. The 3rd reduction came a couple weeks after that with a drop of $20,000. Finally, after a whole month of waiting, the 4th price drop is currently also the biggest at $50,000.

In total, the seller has reduced the asking price $158,000 in 3 months. How many more price reductions will it take to sell this house? How long will the sale drag out before a transaction occurs?

If the seller gets the current asking price of $1,180,000, he will lose $159,800 or 59% of his $270,000 downpayment after 6% commission. That’s a lot of money to lose in just two years time. It will only take another $117,000 in reductions for the owner to lose their entire downpayment after fees. Will he cut his loses now and reduce the price drastically in hopes of finding a buyer? Or will he hold on to the current price until it’s too late?

This is a sign that some sellers understand what’s going on and have continued to reduce prices to move a property off the market. This will become more of normal as things get tougher in 2008 and 2009. It takes a lot of umph to face reality and accept that you will lose money on a house. I commend this seller for lowering the price, but those reductions will have to be much steeper. Who is willing to buy a 82 year old house for $1.18MM?

807 W. Camino Real #B

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Every time I think people finally see the light and realize the US housing market is going down the drain, someone always surprises me. Here we have yet another flipper who thinks he can make some money by putting in new carpet and a new coat of paint. Unless the walls were painted in pure gold, I can’t see how they can justify $88,400 in profit.

Sales History
Sept 20, 1994 $198,000
Oct 13, 2005 $539,000
Dec 20, 2006 $589,000
Jan 11, 2008 $481,500

The flipper must have thought he got a great deal at $107,500 under the previous purchase price. This property was bought just 5 weeks ago as a flip in this dying RE market. I can’t understand why or how anyone can ignore the market forces, but I didn’t drink any of the kool-aid either. It’s another classic case of greed over-powering sound financial sense.

This flip was purchased just last month so the databases still haven’t been updated with loan/lender information. Since banks aren’t making any more 100% loans, how much do you think this flipper put down? 5%? 10%? 15%+? How much will they lose when all is said and done?

This flipper sucker is in for a world of hurt.

1431 S. Santa Anita Ave.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

This is the most over priced house in Arcadia and probably the most over priced house I’ve ever seen. When I decided to sort by $/sqft in Redfin for this post, I was expecting to see many $4XX/sq-ft and maybe a handful of $6XX/sq-ft, but nothing prepared me for what I found.

A whopping $952/sq-ft. That’s no typo.
$1,149,000 for a 1,207 square feet 62 year old house.

This property was purchased almost exactly 4 years ago for $816,000 with 50% downpayment. Think about this for a minute. The owner plunked down $408,000 of cash to buy this and still owe the bank another $408,000. They dumped more money into the house when it was renovated 2 years ago and now they want to make $333k in just 4 years. That’s equivalent to making $83,250/yr after taxes. Do you think this is worth $1,149,000?

It’s been on the market for 5 months with just one price reduction ($48,800). There’s obviously no justification for this outrageous asking price. The granite counters in the kitchen don’t cost $333k. Perhaps it’s the non-landscaped yard or the old pool with green water that they hope will bring in an offer. If the seller or realtor is reading this blog, please leave a comment and let us all know why you’ve listed the house at this price. That is, if you can come up with a reason other than greed.

It’s another case of a delusional seller ignoring the market and hoping for a huge payoff. I wouldn’t pay half of the asking price for this house. Not half.