Monday, July 26, 2010

Flipped Off Flipper: UPDATE

The status was "Active" and changed to "Contingent"

I don't buy it. This apartment has been rotting on the MLS at $299,500 since November, and now it suddenly goes contingent after a measly 3% price reduction? I smell horseshit.

Anyhow, the current list price of $289,500 is just $27,000 more than what this flipper paid for it in June of 2009 -- a far cry from the $62,500 premium he tried to get last summer. Factor in about $17,000 in commissions and we're looking at a razor-thin profit margin.

Oh, but don't forget about the 13 months of carrying costs, including $5,460 in HOA fees, for this unoccupied unit. I think it's safe to say this flipper will absorb a loss in the tens of thousands for his delusional attempt to make real estate riches by "buying at the bottom" of '09.

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Address: 5200 East ATHERTON St #125, 90815
Asking Price: $299,500
Beds: 2
Baths: 1.75
Sq. Ft.: 1,241
$/Sq. Ft.: $241
Year Built: 1965
MLS#: S581393
On Redfin: 222 days
HOA: $420
Down Payment: $60,000 (20% down)/$12,000 (FHA)
Income Requirement: $86,000
Monthly Nut: $2,000 (20% down)/$2,200 (FHA)
Description: This SPOTLESS and HUGE 1300 sqft 2 bedroom - 2 bathroom 'C' Model has been scrubbed, painted, hardwood floors refinished, ceiling acoustic removed with new skip-trowel finish, new baseboards installed, recessed lighting in kitchen & bath, kitchen cabinets refinished, new faucets, new mirrored closet doors, vertical blinds, stainless steel appliances including cooktop, built in oven, over-cooktop microwave, dishwasher AND new dual-pane windows throughout plus slider door. It even has central air and heat!!! This is one of the nicest, cleanest, most dialed-in properties I have seen! HOA fee includes TONS of STUFF like CABLE-WATER-TRASH-PEST CONTROL-MASTER FIRE INSURANCE-PLUMBING-ELECTRICAL-ON SITE MAINTENANCE PERSON and MORE!!! GARAGE directly UNDER unit & NOBODY BELOW!!! Come and make it yours!!!

Look, I'm fine with rounding up square footage just to make it easier, but this idiot is taking it to new heights. The listing information clearly states it's 1,241 square feet, meaning you can reasonably round up to 1,250. This jackhole for some reason decided rounding up to "1300" was appropriate.

Yes, it's not exactly the height of dishonesty, but it gives you an idea of the type of realtor we're dealing with.

This apartment in the Los Altos area would make a fantastic rental for college students. In fact, when I went to CSULB I lived right down the street and really enjoyed it.

However, the area is lousy with drunk college kids, so I doubt an owner-occupier would be interested in living here.

And although the $420 HOA fine seems outrageous, keep in mind cable, water, trash, and insurance are included. Best of all, on-site maintenance (much like living in a rental apartment) is included. That means this truly is approaching the "hassle-free" living all HOAs promise but never quite live up to.

Plus, given the 1965 build date, that maintenance accessibility might come in handy.

Anyhow, I guess the question is whether $2,000 a month is a reasonable monthly nut for this unit. This flipper sure hopes so.

You see, according to Redfin, Flippy McDumbstain purchased "at the bottom" in June 2009 for $262,500--a massive $117,400 discount off the original 9/2008 asking price. Given that, he probably thought he got a smoking deal.

Nov 02, 2009 - Price Changed $299,500
Oct 01, 2009 - Price Changed $309,500
Oct 01, 2009 - Relisted
Sep 18, 2009 - Delisted
Jul 14, 2009 - Price Changed $324,950
Jul 14, 2009 - Relisted
Jul 10, 2009 - Listed $325,000
Jun 30, 2009 - Sold $262,500
Mar 14, 2009 - Price Changed $325,000
Dec 16, 2008 - Price Changed $350,000
Sep 27, 2008 - Listed $379,900


And so after holding it for a whopping 10 days and calling a cleaning lady, he quickly slapped it on the market for $325,000, hoping to make a nice chunk o' change.

The buying public's response?

Not surprisingly, nobody was interested in paying a $62,500 premium over what he paid just a week and a half earlier. And now, 222 days and $26,000 in price reductions later, he's coming awfully close to just breaking even on his "investment."

It appears he has come to two harsh realizations:
1.) In 2009 the bottom most certainly wasn't in, and
2.) Destitute college students can't afford $2,000 a month in rent

Oops.

In fact, the most expensive rent I've seen in this area is under $1,600 and that's in Marbrisa (i.e. gym, pools, in-unit washer and dryer). That $400 - $600 monthly deficit means that even at $262,500 (which, on paper, seems like an okay deal for a two-bedroom), he grossly overpaid.

Worse yet, in November a nearly identical comp in the same complex sold for $282,500. You really think real estate values have shot up 10% in just four months?

Uh, okay.

As I've said before, flipping in this economic environment is A Man's Sport. It takes real stones.

In the coming months we'll see if this flipper has the minerals to keep his wishing price steady as the market continues to fall, or if he finally capitulates, drops the price, eats a financial loss, and retreats to lick his wounds and reconsider whether he's really cut out for the flipping business.

It's going to be an interesting year.

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