Easy Flips Turn Into Flops In Florida
The Herald Tribune has this update from Florida. “Back in December 2004, when David Holland paid $315,700 for a new home in an east Venice Centex subdivision, the granite-and-tile beauty looked like an easy flip. But as Centex’s sales slowed down, his property turned into a flop.”
“Last week, Holland cut his losses. He put his house up for an ‘absolute auction,’ meaning no minimum and no reserve. He walked away with $255,000, a painful reminder that real properties, like stocks, do not always go up.”
“‘I knew I would probably lose money,’ said Holland. ‘But I thought it would sell for at least $300,000. The problem is there aren’t any buyers. I think the people coming to auctions today know that, and they are looking for just incredible deals.’ That’s exactly what they are looking for.”
“Auction specialists find their phones ringing almost non-stop from would-be sellers desperate for some action. ‘With the current state of the real estate market, sellers see the attractiveness of knowing they will sell it on a given day versus keeping it on the market for months and sometimes years and incurring costs such as taxes, insurance on the home, upkeep and marketing,’ said Erica Brown, a spokeswoman for the auctioneers’ association.”
“Auctioneer Daniel DeCaro found himself turning away so much real estate auction action this summer that he formed a new division to handle it. DeCaro has formed a new division handling homes as low as $800,000. ‘We are getting five to six calls a day to sell homes in that price range,’ DeCaro said. ‘It is just unbelievable.’”
“Others taking the auction route have not been so fortunate. David Douthitt’s canal-front home in east Bradenton near Interstate 75, stalled in the midst of renovation with a stop-work order, drew one lonely bid of $100,000 on Saturday, far below the seller’s reserve.”
“Douthitt had previously been successful in having Herron’s firm unload his other waterfront investment home, in Ellenton. With the north Manatee County home, ‘It was a pretty substantial loss for me, but I needed to sell it,’ Douthitt said.”
“He could not believe the lack of interest in his Bradenton property. It is situated on a deep-water canal in the midst of $500,000-plus homes. ‘Today’s was absolutely stupid, $100,000,’ Douthitt said. ‘You can’t even buy a vacant lot for $100,000.’”
“As is the case with the Holland’s Venetian Falls Centex home, the seller at the downtown Marquee never moved in, and now wants out. The 29 units were originally priced at $800,000 and up. As at Venetian Falls, the developer still has units to sell, making life tougher for those trying for a resale.”
“‘That auction there, if somebody buys it at the bottom line, they are stealing it,’ Herron said. ‘The man is going to lose a tremendous amount of money.’”
“Herron’s reserve auction in downtown Sarasota drew only one bidder. The auctioneer was able to start the bidding with a written offer for $500,000. The man in the room stopped bidding at $650,000, leaving the person on the phone with the final bid of $660,000.”
“That price didn’t meet the seller’s reserve, Herron announced. But within an hour of the auction, the bidder came back with a slightly bigger offer and the seller accepted it. The seller, Herron said, ‘wasn’t happy about it but he signed it.’”
Other related links:
‘Over 8,500 properties in Florida went into foreclosure in the month of June alone. The problem was being exacerbated by the widespread use of so-called ‘creative mortgage products’ that people used to buy homes they really couldn’t afford as prices skyrocketed in overheated coastal markets. ‘People who bought at or near the market peak are being squeezed out of their homes and speculators find themselves trapped by rising costs and negative cash flows,’ said Ms. McGee.’
‘ Several real estate brokers say land prices are so high around the planned Scripps campus in Jupiter that deals can’t get done. ‘Landowners think they’re sitting on gold, and they’re not,’ Smith said.’
‘Selling a home in South Florida is no easy task these days. Since last summer, the number of homes for sale has doubled in Palm Beach County and tripled in Broward. Because of the glut of properties, sellers must be realistic about prices. ‘You can’t list the home for some ridiculous price. People are savvy out there, and they don’t want to get ripped off,’ the single mother said.’
What time do you get up my friend?
David Holland paid $315,700 for a new home
He walked away with $255,000, a painful reminder that real properties, like stocks, do not always go up.”
Ouch!!…He started with a mullet and ended up with a burr head.
Quite a haircut!!
said Holland. ‘But I thought it would sell for at least $300,000.
-Sorry Mr Holland, financial ruin can taint your thinking. Consider yourself blessed that you got out at 255k, which I think was way too much.
Consider yourself blessed that you got out at 255k. I would say that’s a pretty good bet, people buying right now for 20-30% off this early in the game are catching falling knives. Most if not all properties in the Bradenton/Sarasota area are still way overpriced imho. In ayear from now your going to see lots of these properties at 50% off current asking prices, the amount of speculation in this area is absolutely unbelievable.
Ask not for whom the Gavel bangs , it bangs for thee…
LOL
I give David Holland credit for going for it without a reserve. He got out from under an alligator - it cost him, but he is out. Lots of others will keep being drained by these “investments” only to find they are worth even less.
Holland got out - true.
But who pays his note for the loss? Surely he is liable for the difference of the loan and the sales price. Can he write part of it off on his taxes?
I guess it depends what is mortgage was. If you assume that it was >$255k (less closing costs), then the bank would have had to agree to the short sale and potentially the Seller would be liable. If the mortgage was
Capital losses on homes are not deductible.
That’s the flipside of the “capital gains up to $250 (or 500K) are not taxable”
99% sure he is getting a 1099 for the difference, unless he made a deal with the lender ( which I doubt).
What I found equally laughable was the that the shmuck that bought the home paid a $25,500 BUYERS PREMIUM to purchase the house. So his total price was $285,000, when the seller was overpaying at $315,700…
WTF???? Am I the only sane person left on this planet?
He might not have had a mortgage. The auction company isn’t going to be stupid enough to run a no-reserve auction without confirming the liens on the property and getting proof that the lienholders do not object. While I think that a no-reserve auction is a reasonable gamble in that it will always draw a bigger crowd of potential bidders, I suspect that the vast majority of such auctions by individuals will be of properties that are owned outright. If there were a lender, and if it is not prohibed to do so, there might be a clause that lets the lender’s rep bid for the property, to protect their interest in it.
Or he may have had enough cash to bring to closing. Not all the flippers are without resources. I imagine some have money, and credit they want to protect, and are learning expensive lessons about speculation and leverage.
If the house was purchased as an investment, he will be able to take the loss on his taxes, but I believe capital losses are subject to a $3,000 per year limit (net of capital gains) however you can carryover the balance of the loss to write off more in the following years. I’m trying to remember this stuff so if anyone knows better, correct me if I’m wrong. This is definitely NOT tax advice.
My guess is that if he owned the home outright (doubtful), then he would rent it out and wait for greener pastures in 15-20 years.
A scarce commodity, non-contingent cash rich buyer
I assume that is the case for many of you reading this blog for the past years, and have been preparing yourself to be the next commodity boom, non-contingent cash rich buyer. Congrats! Sit back, and enjoy your buying power in the coming years. Your market value is rapidly on the rise.
That’s me! But I’ve kind of lost the passion to buy. I’ve discovered renting isn’t so bad, and I know it is impossible to time the bottom. Best of all, I can move with 1 month’s notice.
I had that same experience and I’ve been renting now for a long time. It kind of gives me the heebie jeebies to think about being tied down to an illiquid asset. It’s fun to fantasize but much like the other things we fantasize about
the fantasy is much more interesting than the reality.
The main reason I will be looking to buy as prices equalize is to convert some of my spare time into capital improvments as some of these newly built homes begin to deteriorate. It’s much harder to capture that as a tenant.
That is by far the biggest thing I miss about not owning right now — i love fixing up a place, but obviously ain’t gonna do that beyond paint and shelf paper for the landlord, bless her heart.
Renting is unbelievable in this market. I really need a bigger home, since I am getting married. So, we (me & my fiance) are renting out both our homes (good positive cash flow) and then renting an $800,000 home in Lincoln (Sacramento) for $1700/mon. It is in the JTS Lincoln Estates subdivision full of flippers. This is the same subdivision where JTS is now blowing out their unsold inventory for $200,000 under sales closed last month. FB’s all over the place.
JTS offered me an $800,000 home last week for $517,000 (plus $10,000 rebate because I have a RE license). I would still be a fool to buy. It would cost me $8,000/year more than renting, and I would take the risk of collapsing prices.
Renting is a great way to go right now.
John,
that sounds like a decent, unbelievable discount this early in the game. Did it take long to get that price?
Renting is unbelievable in this market. I really need a bigger home, since I am getting married. So, we (me & my fiance) are renting out both our homes (good positive cash flow) and then renting an $800,000 home in Lincoln (Sacramento) for $1700/mon. It is in the JTS Lincoln Estates subdivision full of flippers. This is the same subdivision where JTS is now blowing out their unsold inventory for $200,000 under sales closed last month. FB’s all over the place.
JTS offered me an $800,000 home last week for $517,000 (plus $10,000 rebate because I have a RE license). I would still be a fool to buy. It would cost me $8,000/year more than renting, and I would take the risk of collapsing prices.
Renting is a great way to go right now.
It kind of gives me the heebie jeebies to think about being tied down to an illiquid asset.
Met with a “seller” last week in ATL. He is trying to unload this dog with fleas that he got stuck with. He told me, “He treated RE like a money market or CD” If he ever needed money, he would just sell one of his properties.
Good luck with that.
Leading to the cue that when all of those around you say RE is crap, it’s the time to buy. Coming more quickly than anticipated.
Me too. I’ve come to believe that the American dream of homeownership is highly overrated, and I like having tons of cash at my disposal.
Flippers have taken the “D” out of the American Dream®!
It’s never mattered to me whether I rented or owned, it was always a matter of which made more sense. But my wife has shared the same revelation as many that have recently sold off and are renting.
It’s easy to see that there is a bubble, just like the 2000 Nasdaq bubble, and the 2005 housing bubble. It’s easy to see when it is starting to pop. They never go back up soon after they start going down. It takes a while before they start going back up again. It’s easy to see a bottom forming when fundamentals are back in balance. Beware of suckers rallies. Use history as a guide, watch the numbers. If you must make a move, move between 6 months and two years of when you believe there is a top or bottom. It’s better not to make a little extra on the upside, than to loose it all on the downside. Not necessary to predict the exact day. Not impossible to time within reason.
‘That auction there, if somebody buys it at the bottom line, they are stealing it,’ Herron said. ‘The man is going to lose a tremendous amount of money.’
Buying a home at a low price (closer to its real value) is ’stealing,’ but trying to unload it to a greater fool at a ridiculously high price isn’t?
trying to unload it to a greater fool at a ridiculously high price isn’t?
That’s called “smart investing.” [tongue-in-cheek here]
We all have our biases, and people on the [potential] losing end like to denigrate the [new] winners. I’ve seen it in the 90’s with stocks [esp when short sellers turned into winners] and we’re now seeing it with real estate, too. It’s unfortunate that you can’t short individual houses nor get margin calls…
‘That auction there, if somebody buys it at the bottom line, they are stealing it,’ Herron said.
Would he prefer that nobody buys it?
‘The man is going to lose a tremendous amount of money.’
Wrong tense. Unfortunately, the man had already lost a tremendous amount. He was just the most brave in facing the music first.
Looking back on the boom, I’d distinguish “flippers” from “re-investors.”
The latter purchased properties with many systems at the end of their working lives, reinvested in them — often doing some of the construction themselves, and sold. Many made money, particularly in neighborhoods making a comeback, and some will now lose money. But to me, this is a legitimate enterprise.
I don’t get flipping. You buy a housing unit for $200,000. You sell for $300,000. You buy another one for $350,000. You sell for $450,000. You buy another one for $500,000. You get creamed.
Do these people, particularly those buying pre-construction, really believe that they were adding value? And given that they weren’t, wouldn’t they have made more money just holding units purchased before the bubble and not running up transaction costs thorugh multiple flips?
Well, I’ll probably take a lot of abuse for this one, but here goes…
Any futures market consists of hedgers and speculators. The hedgers are trying to shed risk and the speculators are assuming it. The value that speculators add is that they are assuming risk. With no spculators there would be no one to take the risk that the hedgers are trying to avoid.
In the case of housing, the builders are trying to pre-sell homes to reduce the market risk of a soft market. (They probably didn’t charge nearly enough to protect themselves, since the speculators are walking away from their deposits in droves, but that just means they underestimated the risk, however they are still better off to the tune of the deposit amount.)
People blame speculators for volitility, but I don’t think speculators cause volitility as much as they are drawn to it. Speculators add liquidity to the market (and God knows the housing market can use all the liquidity it can get.) People complain bitterly about the easy profits made by speculators on the way up, but they don’t consider all the home owners who were able to sell their houses to speculators at the top, and who now get to sit out the decline while the speculators take the losses.
Many think the speculators were responsible for the prices spiking as high as they did (I personally think easy credit was the cause), but the speculators will also be the people who will be most responsible for bringing prices back down where they belong.
What I detest about RE specuvestors is that they drove up the price of housing for everyday folks. It’s one thing to bid up the price of a stock, bond, or other financial instrument. Quite different to bid up the price of housing, something that everyone needs to survive.
The majority of these flippers didn’t add any value to the flip. I don’t think many people have a problem with someone who tastefully rehabs an old house and makes a profit. It’s the people that don’t add any value. We need some regulation to prevent excessive speculation in the RE market. The first thing you can do is to stop giving it preferential tax treatment via the capital gains exemption and the mortgage interest deduction.
Flippers can’t claim the Mortgage Interest Deduction legally as you have to have lived in the home as your primary residence for a period of time, a minimum of 2 years or some such.
Step away from the tax code. Slowly, carefully, step away.
LOL Russ! All I can say is WOW
NE, dude, you have got to get a few IRS pubs and a couple of books on personal income taxation and RE taxation.
Legally.
AnonyRuss, implosion, auger-inn: You should probably read most, if not all of the posts before flaming someone… my correction/response posted well below because of technical issues posting to the blog at the time (take a look at the timestamp of the correction post).
Anyway, I was thinking of the interest deduction and typing about the capital gains exclusion… mistakes happen, especially when you multitask (like feeding my blog addiction and trying to work at the same time).
Glad to hear it. No flame intended. Sounded strange given your other comments.
The conventional wisdom is that “flippers” drove up prices, but prices go up when there are more buyers than sellers so flippers are neutral in that regard. When they buy a house they add to upward pressure on prices, but then they turn around and sell which will create downward pressure. The speculators who bought and held were the ones pushing up prices by taking the product off of the market. I might add that they will be the biggest losers here.
What drove prices up was the incredible leverage that was offered buyers by the easy money that was so readily available to anyone buying a house. Giving people zero equity, low-interest rate loans during a period of rising prices invited abuse. (The mortgage holders will be the big losers in this colapse and will be getting exactly what they deserve, IMO.)
Speculators do not have a neutral effect. During the boom, speculators nearly doubled the number of buyers in many markets, driving up the prices. It cannot be said fairly that their sales balanced out their buying activity, because what they sold were the exact same properties, always priced significantly higher than their original price. This does not add up to an increase in supply.
“What I detest about RE specuvestors is that they drove up the price of housing for everyday folks. It’s one thing to bid up the price of a stock, bond, or other financial instrument. Quite different to bid up the price of housing, something that everyone needs to survive.”
This view is not consistent with the renter philosophy espoused by many posting here. You don’t *need* to own a house, you can rent.
What is the difference between volatility and liquidity? Isn’t volatility just too much liquidity? Is liquidity always beneficial? I would argue that it is not. I think that anytime you can conduct transactions much more quickly than you can adjust production capacity, you are setting up an unstable system prone to bubbles and crashes. Real estate speculation clearly falls into this category.
In my opinion, the destabilizing effects of real estate speculation have more to do with high leverage and long time constants than anything else.
Liquidity is best thought of as volume, as in the higher the volume being traded (bought/sold), the higher the liquidity as there is a market to buy from/sell to. Definition: The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity.
Volatility: A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. (dictionary.com)
Thanks Northeasterner for your excellent response. That is exactly what I meant by liquidity. However, there are few markets as illiquid as real estate, as people trying to sell today are finding out. It’s not liquidity that causes volitility; quite the contrary, it’s lack of liquidity that causes the huge spreads between bid and ask and results in an inneficient market.
“The hedgers are trying to shed risk and the speculators are assuming it.”
I guess in some purely economic sense you’re right. What bothers me is the speculator’s unwillingness to accept responsibility for taking such a risk. Instead, we see an angry sense of entitlement and attempts to blame someone else — “stubborn” buyers, media, government — for their greed and delusion.
The problem with the speculators is that they weren’t stubborn enough as buyers. The term stubborn buyer is used to admit that there is now a lack of greater fools.
I suppose if we expand the defintion of ’speculator’ to include all the people who paid far more than was reasonable for a house simply because they thought it would go up in value then I agree that the ’speculators’ drove up the prices for houses. However, that definition would include virtually everyone who purchased a house in California from 2002 to 2005.
Haha. How’d you guess? That’s where I live.
Unlike a real hurricane, a “neutron hurricane” leaves the properties intact while disrupting or ruining peoples’ finances and economic well-being. One is approaching Category 5 strength and will soon be coming ashore. Until now Florida has just been hit by the outer bands of this monster. What should we name it?
Quite simple,
This is Neutron Hurrican Bubbles.
Hurricane “Alan” , in honor of the man who began it all. And whose legacy shall see history rise up and smite it and see it cast , wailing , into the gaping maw of Hell.
Anyone ever mistakenly type in “theeconomist.com” to go to the highly credible magazine website, only to find a site that will make your stomach churn?
Off topic, but where has Bubbles the Clown (BTC) been lately? He hasn’t interupted the blog with a special report in about two months.
BTC, where are you?
This is Neutron Hurrican Bubbles Frieda. Have we had a “Frieda?” Fried A…..
This kind of thing is unbelieveable this early in the decline. What’s it going to be like a year from now!!!
There are a LOT of property owners wondering how bad it will get. They know it’s bad, i.e. not a soft landing. Did you see the observation yesterday about the woman trying to snag a buyer that was visiting a neighbor’s open house? I’ve never heard that one before. First phase is denial, followed by uncertainty, anger, fear, and capitulation.
Looks like we are somewhere between anger and fear, judging from some of the FB comments I’ve been reading in the press. I’m sure there are some pockets of denial and uncertainty, but I’m seeing anger and fear right now.
Denial and uncertainty was last month.
I watched one of those flipper shows the other day and was absolutely horrified. Complete amateur slacker types with no construction background at all trying to quickly polish up older houses with some flashy materials and cheap-shoddy work.
God only knows what sort of crap those folks have hidden under fresh paint and trim. That alone is reason enough to avoid buying any flipped house.
Give me a new house or an old house but not a house freshly remodeled on a budget and deadline by someone who doesn’t even live there and doesn’t intend to.
I too watched, well, half-watched one of those shows yesterday. It was some fool from Texas who thought he looked like a model or something. Then there was his fake chested wife with the J-Lo sunglasses on who did nothing but sit by the pool.
It was hilarious and sad at the same time, hilarious because he thought he was some kind of wheeling and dealing business man, sad because this is what our country has come to. I couldn’t watch it to the end, when he made the comment: “honey, I’ve got to go crack the whip on my workers” I wanted to vomit and switched the channel.
I watched too. The flipper bought the house for 220k and added 135k in upgrades. At the end of the show, the flipper is schmoozing the appraiser and the appraiser is sucking up to the flipper. He appraises for 550k, and the flipper is overcome with himself.
Since he is gonna live in the house, I suppose he got an appraisel so he can borrow (take out) the 215k in ‘potential profit’ and reward himself. What a scam! Some lender will pay him today and assume the risk of appreciation. The Flipper can do anything he wants with the loot. But I see him taking the 215k, banking a good portion of it offshore, paying a teaser rate for a few years, and if the market tanks, he files bankruptcy and starts over. Meanwhile he lives nicely off the potenial profit the bank gave him. And some investor somewhere is holding this junk note. Unbelievable!!
OK, I understand the disbelief at the specuvestors (gamblers) who flip property. I, too, think they’re naive and should stick to slot machines.
However, I’m one of those that bought in the mid-90’s, put another $300k into the house for a multitude of things, had it re-appraised for $2mil over my purchase price (never met my appraiser), and just got a $1mil 6% fixed HELOC loan from my private banker. The money isn’t going offshore, I’m not buying any toys, but it’s a good insurance policy if I should need it, and seed money when this market hits the bottom and buying a rental home can actually support positive cash flow. BTW, I’m not planning on moving anytime soon, if ever.
With all due respect, I call it a smart use of assets, not “unbelievable.”
You’re a different animal altogether than those discussed on this blog and I am sure you know that.
then again, spending a million dollars on property in the bay that can totally collaspe and burn down (EARTHQUAKE) is the ultimate risk!
Why, yes, RCA, buying a million dollar property in earthquake country *is* a risk. As is buying one in tornado country, hurricane country, wildfire country, flood country… Okay, blizzards generally don’t destroy your home unless the roof is poorly constructed. Well, unless you have a fast melt, then you’re back to flood country.
Death and taxes, my friend. For the rest, there’s an insurance agent willing to make a buck off of you.
That tool and his brother claim to be one of the largest flippers in San Antonio. Said he showed up in town 5 years ago penniless. I watched the show where he and his J-lo wannabe wife each bought houses and had a contest to see whom could make more in flipping them. With prospective buyers he pulled many scumbag realtor tricks in trying to cajole them into placing offers begore ” someone else did.” The quality of work appeared to be inferior, using a group of subcontractors that were more interested in eating than working. He wanted to use the cheapest materials and do the minimum amount of work. If I heard him say ” slap lipstick on a pig” one more time, I was going to vomit. I noticed when he was trying to sell this house, the word “pig” was never mentioned. How they find morons to buy a house for almost $40,000 more than they paid just several weeks prior amazes me. I wonder where he got the appraiser to hit that number.
Judging from his lack of professionalism and business ethics, i suspect that he will go full circle.
I wish they’d do an update on all these idiots, Where are they now……Wonder how the Charleston flipping crew is doing? They are nauseating too! I saw a show with two couples who bought a flip in Santa Barbara. The couples said people warned them not to go into business with a friend…..they said it would be fine because they were smarter….. By the end they weren’t friends, one couple did all the work and the profits were 37k each afer all expenses. I’m sure the couple that did all the work went for more flips…. I’d love to hear how they are doing now.
I am with you, Kent. I purchased a place back in 1999 that was a throwback to the 70s. Sure, the owner had painted the walls white and put in some cheap white carpeting. I was happy about the LACK of upgrades. I viewed its untainted state as a “blank slate” of which I could customize to my own tastes and bring it up to date.
I hate the idea of paying a premium on a property that has been “upgraded” on the cheap (gotta love those stainless steel Kenmore appliances). What kills me about the market these days is there are very few “blank slates” anymore. Everyone fancies themselves an interior decorator - meaning the proverbial stainless, hardwood (or laminate), and granite - and mostly done on the cheap.
So completely true. When I used to go to open houses (earlier this year, for kicks and giggles mainly), I was appalled at how many kitchens in classic 1920s Craftsman or Mediterranean-style houses in my Bay Area neighborhood had been “improved” with black granite countertops, gigantic stainless steel appliances, and other garish trendy touches. They looked absolutely ridiculous in these older, often lovely homes, like an elegant matron sporting cut-off shorts. These sellers with no taste then expect the buyer to pay double whatever the kitchen improvement cost them (because that’s the rule of thumb they’ve all learned, in their infinite “investment” wisdom). But they will have to eat those granite countertops.
You’re right. Older houses and neighorhood character are another victim of this idiotic bubble. Unfortunately it’s not limited to interiors here in LA. Some of the additions and exterior remodel jobs I see when I walk my dog remind me of my 3-year old niece’s drawings — houses lacking any sense of scale and proportion, bizzare tiled front yards, crazy ornate gates, frieghtening landscape jobs, garrish color schemes and statues — you name it, there’s something to offend everyone.
You forget that these are the same people who put $1,000 a piece rims on their $5,000 cars.
My list of least favorite external “upgrades” (all on cookie cutter, small lot properties with little to no other improvements of course):
1. Ornate front doors
2. Fountains
3. Stone & cement status (A lawn gnome is at least campy.)
4. Fake grass
You’re right. Older houses and neighorhood character are another victim of this idiotic bubble. Unfortunately it’s not limited to interiors here in LA. Some of the additions and exterior remodel jobs I see when I walk my dog remind me of my 3-year old niece’s drawings — houses lacking any sense of scale and proportion, bizzare tiled front yards, crazy ornate gates, frieghtening landscape jobs, garrish color schemes and statues — you name it, there’s something to offend everyone.
In ten years or maybe give, you’ll turn on HGTV to watch budget decorators teach homeowners how to disguise their dated light maple cabinets and shiny tombstone black granite countertops. Watch, these will be tackier than avocado green and harvest gold.
I hear you. The seller wants to charge for what got put into those badly-done bathrooms and kitchen. So when the buyer rips it out and has it done right, the buyer pays twice.
At a “blank slate,” not only is the buyer not forced to throw away anything costly, but also the house might have been bought for a more moderate price than usual because it was a bit dowdy inside and didn’t excite prospective buyers.
That goes for condos, too. Look for a big, plain one in a well-kept, well-sited 20-year-old building. Original cabinets, original carpet, dull kitchen. Good price. Rip out original, builder-quality finishings. Re-do with nice stuff put in by a contractor facing a business downturn. Then enjoy.
Condos were not made to enjoy. They’re made to FLIP!
“…real estate prices had become so exorbitant that buying land wasn’t affordable any longer. New investors failed to arrive and old investors started to sell. Panic arrived, as it always does, and the real estate market crashed. Prices kept moving downwards as heavily indebted investors tried to sell to avoid bankruptcy. In most cases, no buyers arrived, and the investors were bankrupt from the enormous mortgages.”
Is this situation sounding familar? This was Florida in 1925; will we see it again?
http://www.stock-market-crash.net/florida.htm
Until recent years “Investing in Florida real estate” was the punchline to a joke.
This bubble almost seems like the last bubble in the 80’s but worse… Did we not have a stock bubble bust in 87 (Oct 87 down dropped 500 points i think) as well before the housing bubble started to get into full force… we all know how that bubble ended… I also recall in 88 and 89 that everyone had new cars as well just like this time….
Now we had a stock bubble much worse in 01 and this housing bubble really got crazy after that,,, do we see a pattern???
—AL
Do these auction sales get counted in the median sales price numbers?
Not if the local MLS borad can help it.
Good question.
I was in Venice a few years ago on a pleasant early spring Saturday afternoon. One of the “communities” I visited consisted of dozens of identical homes that had only their garages facing the street–there were no porches, and the “front” doors were tucked away on a side wall. The entire place had a depressing, eerie antisocial aspect.
Presuming that the majority of the houses were inhabited (a big assumption, given the activities of people like Mr. Holland), I saw no children playing, no adults working in yards, no one out for a walk with a pet. I doubt anyone knew anyone else’s name. So much for paradise.
snake, you’ve nailed it. I think you’ve just come up with another bubble term: anti-social housing. It looks pretty much the same way here in the South Shore area of Tampa Bay. These developments deserve to go bust and I have not a lick of sympathy for anyone who bought one of those anti-social boxes, since they just encouraged the developers. Part of me hopes to be around to see the day when they are all mold and slime covered, because you know that’s going to happen.
Since they’re built so close together, they can look out the bedroom window directly into the neighbor’s bedroom window or dining room. I have an idea to start up a business painting murals on the sides of houses for the neighbors’ enjoyment.
My wife and I used to joke that a guy could get the neighbor’s wife pregnant without leaving the house. (get the visual?).
BayAreaBill,
(Dublin, California here) Now that is funny. Truth of the matter, though, is that there are neighborhoods with just that type of housing in Chicago (my hometown) and probably other places. Before my Mom moved out to California to live closer to me and my sister (1990,after 25 years), she sold her house on the southwest side of Chgo. That house, and all throughout the neigborhood, was exactly as you describe except they are all brick and were built in 1927. In Chicago, most of the garages are in the back of the house and you access them from the alley. Garbage pick up is also through the alley. The space between houses is respectable, but yes, if the windows lined up, you could easily see (maybe wave) at your neighbor. There is street parking, and kids did play out front. But, of course, no porch sitting as there were no porches. One of Mom’s closest friends was one of next door neighbors. Mom (age 74) lives with my sister in LV now, and still keeps in touch with her former neighbor.
Anyway….I wasn’t trying to bust any chops here, just wanted to clarify that there are such neighborhoods and that they’ve been around a long time. You guys just hadn’t seen any before.
BayQT~
David Douthitt’s canal-front home in east Bradenton near Interstate 75, stalled in the midst of renovation with a stop-work order, drew one lonely bid of $100,000 on Saturday, far below the seller’s reserve.”
- Sorry David, the market has determined that your property is worth 100k.
My father in law was a aviation artist. He would show me his paintings and tell me that it was worth $5000.00. But I would tell my wife that it was only worth what a customer would pay. He did not care what anyone thought that it was worth…..he would only sell for $5k. Although a successful artist….we still have a few of his paintings left.
When prices were running wild, a home was worth the highest bid. Strange that they aren’t worth the lowest price now.
S. Fl is the JDSU of real estate.
Specuvestors taking a loss to get out as soon as they can is a BIG tipping point.
Just a few months ago we saw quotes about “waiting for the market to come back”.
I apologize if this British perspective on the Florida market was already posted.
“A collapsing market means the outlook for British owners in the Sunshine State is gloomy”
“…British buyers, along with other foreigners, are turning their backs on Florida.”
“One British-based agent, who insists on anonymity, admits that he hasn’t sold any Florida properties for months.”
http://www.timesonline.co.uk/article/0,,2098-2306118.html
-Sunday Times (London), August 13, 2006
“The bills keep mounting up,” says Noble. “We really didn’t take into account all these charges when we first bought the house. We’re lucky we didn’t have a mortgage as well, because by now we’d be in big trouble.”
Ahh.. Just like most other second-home buyers and specuvestors discover after buying. It isn’t just the mortgage that hurts, but all the other bits that MUST be paid when owning.
All of these morons that have stretched (via I/Os and ARMs) just to make the payment work will have their a$$es handed to them when the property simply will not cash flow… What is that sucking sound? You bank account? Your life? Both…
Good perspective, and another downer for the FLA market.
Interesting mention in there of American hedgies sniffing for deals, though. Maybe they will set the floor in Florida.
Uh-oh, looks like the out-migration has begun. One-way U-Haul rate for a 24 foot truck from Raleigh, NC to Sarasota, FL was quoted at $504, but the same truck one-way from Sarasota to Raleigh on the same date was $968. Out-migration adds even more sellers to the current glut.
Hey Bill,
That’s a good indicator that I hadn’t seen in the past. I wonder if there’s a way to trend the one-way rates of the major truck rental companies…
If you go to UHaul.com you can get quotes on one way moves. I just got a Portland, Or / Boise, ID quote on a 26′ truck. $134 Boise => Portland. $359 Portland => Boise.
I wouldn’t be surprised if in about 10 years this kind of money would buy an entire neighborhood. The exurbs are filled with row upon row of ARM-bought houses where everyone is already underwater. When interest rates and resets knock them over like a row of dominoes how else will banks get anything for them except with a mass auction? Who would want to buy them?
People talk about a catching a falling knife — but the thing is, this real estate bubble isn’t like a knife, it’s a multi-trillion dollar spiked anvil that is gaining momentum. Anyone who bought in the last 3 years, and anyone who buys in the next 3 years is going to get their hands chopped off at their ankles.
Yeah, the RE auction business will be setting records over the next 2-5 years. This will make the ‘88-’91 downturn look like kindergarten.
And you’re right about that “falling knife” analogy that you hear so often regarding real estate. It’s one thing to buy a falling stock (which I believe is where that phrase originated), but it’s another thing to buy an illiquid asset whose average price is 300k and falling. Catching a meteor is more like it.
And “hands chopped off at their ankles”, LOL.
(I hate the idea of paying a premium on a property that has been “upgraded” on the cheap (gotta love those stainless steel Kenmore appliances). What kills me about the market these days is there are very few “blank slates” anymore.)
I’m with you, and so are most buyers in Brooklyn. Windsor Terrace, the neighborhood where I live, was built before 1920. New buyers refer to houses that were “updated” in the 1960s and 1970s — when wood moldings and floors were out of fashion — as “Windsor Terrorized.”
The effect of the bubble is that whereas as decade ago one could save enough money on the purchase price to reinvest, today they’re charging for a shell as if it were in mint condition. I feel sorry for all these folks stretching to buy and stretching further for new wiring, plumbing, etc. We were able to factor that into what we paid.
AH LL.
That’s what my wife and I call our little dream house around the corner. A Blank Slate. Structurally sound but untouched by flipper hands.
OT…
Face it: The housing bust is here
By Bill Fleckenstein
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/FaceItTheHousingBustIsHere.aspx
Folks,
Flippers are speculators who have confused being net long in a irrationally exuberant bull market with investing. In the .com years amateurs and professionals were frantically buying and selling stocks based on the flimsiest rational. It later turned out that much of what they believed was utterly and stupidly false. Buying and selling various NASDAQ stocks they were simply net long a bull market but got lulled into believing that they were making well informed or intelligent decisions. In point of fact, other than having “money in the game” their research or whatever was adding no value what so ever and probably just eating into potential profits.
I believe Flippers have been doing much the same thing. Painting walls ,sprinkling granite and smearing brushed aluminum around masqueraded as intelligent profitable value added work. When the house was re-listed 12 to 18 months later the whole real-estate market had gone up and bingo profits materialized. As the RE market unravels we will find that most of what speculators and flippers have been doing is nothing more than being net long an irrational market. Most of the ideas or rational will in hindsight be proved to, be nothing more than nonsense.
Bah humbug!
snake, you’ve nailed it. I think you’ve just come up with another bubble term: anti-social housing. It looks pretty much the same way here in the South Shore area of Tampa Bay. These developments deserve to go bust and I have not a lick of sympathy for anyone who bought one of those anti-social boxes, since they just encouraged the developers. Part of me hopes to be around to see the day when they are all mold and slime covered, because you know that’s going to happen
My own subdivision in a semi-rural area outside of Waco actually prohibits the construction of houses with the garages in the front. Garage doors must be on the side or back. And they also prohibit privacy fences of any kind. Only decorative aluminum and wrought iron type fences are allowed. The lots are large (0.5 to 5 acres) so there is plenty of room. I thought it was a pain in the ass when I first moved here and wanted to put in a fence but I see the wisdom of it now. People are forced to create privacy by creative landcaping and the whole neighborhood looks much nicer than the typical ones nearby that turn into a rat maze of 6′ cedar privacy fences.
I saw a lot of those giant “mouth” houses when I went back home to visit my folks in Oregon last fall. 3-car garages out front with a little side door entrance. Yuck.
My experience in Texas is that privacy fences are the norm. When we transferred to the Midwest, we discovered that the lack of privacy fence is the norm. I like the fenceless scenario much better as we spend more time talking to the neighbors and keeping the landscaping looking nice. Seems more personable and community oriented.
….Boy do I agree…. The last thing I want to see at the front of a house is the overwhelming GARAGE DOOR. I live in Oregon, where they are ubiquitous…. Drove thru lovely Dallas neighborhoods once….garages to the rear. Streets that didn’t look like parking lots. Saving some development dollars has given us symbols of what we’ve become: car worshipers
The term is “snout” houses. What you see is the garage portruding out of house.
(I saw a lot of those giant “mouth” houses when I went back home to visit my folks in Oregon last fall. 3-car garages out front with a little side door entrance. Yuck. )
NYC banned front yard parking in 1989. Not that it doesn’t happen. Builders just submit one set of plans and “self-certify” them, and then build something else.
I have a question for anyone who lives in or near, San Antonio, Tx. Last night, I saw for the first time, a t/v show called “Flip This House”. I never bothered watching before because this whole run-up in property prices to me, who has been around close on 70 years, looked like all the other “bubbles” I’ve seen over those 70 years. All fake with only one ending. A bust for the sucker money. Well, this t.v show blew me away. It was about a young couple in their 30’s. He seemed to be the “decider” (lol) and the wife was a little princess who mostly got in the way who pouted when he didn’t like the fact that she was wasting money. The first thing that struck me, was this couple looked like the poster children who would fit my (long long gone but wise) mother’s saying, “When poverty walks in the door - love flies out of the window.” Onwards. They, or more perecisely the man, were in the “flipping” business. I should add this might have been an old show because I didn’t get the first showing date. Anyways, I watched this guy, who also had a partner in the “flipping” business and several office staff, playing the big-shot property magnate. Lots of lines like, “We need to move to bigger offices because we’re expanding so fast.” Ego personified. He/they had purchased a property with some acres, in San Antonio. It was a ranch style “fixer” complete with rats and because there were rats, there were rattle snakes looking for a tasty lunch. It seems he had several other “flippers” on the hot-plate but we didn’t see those. After many incredibly stupid mistakes during the renovation (made by the wife) which cost several thousand $ to rectify and screwed up the work schedule, the property was ready for “flipping” and they bought in the apprasier (btw these appraisers need to be taken to court and charged with corruption and fraud) who tallied up the costs and came up with the apprasial. I was so stunned by what I was watching I forgot to write down the changes but it was basically a $150,000 + original buy which, after about $220,000 worth of renovations, was put back on the market for $650,000. That’s a comedy act in itself. I live in coastal southern california (Ventura) and you couldn’t buy a crappy condo for that kind of money and this place was, I must admit, pretty big. On the other hand, location, location, location and San Antonio, Tx, ain’t coastal california. So, my question is, is the property in San Antonio still going up? Is this guy still able to play the expert property investment management mogul (one of this guy’s lines was, “I’ve got ice water in my veins when it comes to business.”) or has that area been hit with the same down-turn moving into bust-land? I know that some of the “flippers” have moved their operations to areas where prices didn’t go up as much, obviously hoping the neglected areas will catch up but is Texas one of those areas?
Sadly (perhaps, or not), I have never been able to watch these Flipper shows. I even put them onto TiVo but never had time to watch them, but after hearing about the details I need to make some time!
Question about “Flip This/That House” type shows:
Does the program show you the sale at the end? Seems like if the flipper actually sells it for near the apprasied value, then at least in that case it was a good flip, er.. I mean renovation. Or does the show just rely on the appraiser they’ve dragged in to guess (high) at the value?
NoVa,
I’ve been watching that show (just by pure luck, most times, when channel surfing) periodically for the past year or so.
To answer your question: sometimes they have a real offer, but most times, they bring in some jack-ass appraiser/realtor (who’s there to get free publicity) and announces “based on my experience, this place should DEFINITELY be placed on the market for NO LESS than $xxx,000!”. In these cases, you never find out what the place actually sold for, and how long it took (if ever).
My other complaint about the show is that they don’t really let you know when the episode was filmed. Quite a few take place in 2004, which is like showing a realty program called “Stock Market Geniuses”, filmed in 1999.
Yes, and a major gripe that I have is they never detail how much the realtors’ fees and attendant other fees are part of the “profit”. IE, they say that they will make 85K on the sale, but 70K is realtors’ fees and other closing costs; not inlcuding buyer concessions, which essentially amount to making nothing on the house. Just check out Nina’s flip on http://www.sittingprettyfinancially.blogspot.com. People tend to gloss over their own mistakes and even not count “holding costs” in the overall picture. She claims to have made money even when she clearly did not; and this is in a rising market. God help those in the down-portion of the market.
True - knock 6% off the gross to start with, then another 33% off the net for taxes. Also, with the downturn, the show could become verrrrry interesting. More episodes of outright failure, house stuck sitting empty for months, foreclosure, bankruptcy, etc….what fun!
FYI, the link you have doesn’t appear to be working….not at this moment, at least.
Here’s a better link:
http://sittingprettyfinancially.blogspot.com/2006/07/palm-springs.html
I too watched one of the “Flip This House” type shows over the weekend and was appalled. I saw one on Discovery where a guy poured $50k worth of bad taste into a frumpy little Vegas tract home. During the appraisal, the Realtor (”I’ve been specializing in residential real estate for 6 years!”) kept saying “This is the only house in the neighoorhood with that nice an noun” as if it was a good thing.
It was nuts. I’d love to see a followup series that shows summarizes what happened to the last set of flips….
I saw the Vegas Flip show . I think the guy over- improved for the area . In addition ,I think the flipper was a single guy trying to get a target buyer of another single guy based on his fix up choices,( which will limit his market ). The realtor was a joke ,and they never really showed him actually selling the property for the price the realtor said he could fetch ,(as if that realtor was a skilled appraiser……not .. ).
Mike, I moved out of San Antonio almost 11 years ago, but one thing that is not going to change is their insatiable demand for water. Unlike Houston, San Antonio is water scarce. Sooner or later, there is going to be a killer drought. Wells will go dry. The development is concentrated in the north and west sides, where water is the most scarce of all. Not much fun living in a $650,000 house when you can’t flush the toilet.
Great town, San Antonio. Would I ever move back there under any circumstance? Not on your life.
Never crossed my mind about the water situation in San Antonio. That’s not good. The water situation in many, many places is getting to be a problem I understand. They can build thousands of houses and put up thousands of condo buildings but one thing will REALLY bring it down like a pack of cards - is the lack of clean water. The same can be said for California, Nevada, Arizona, etc. The more people migrate to these “nice” climates, the bigger the problem becomes.
David Douthitt’s canal-front home in east Bradenton near Interstate 75, stalled in the midst of renovation with a stop-work order, drew one lonely bid of $100,000 on Saturday, far below the seller’s reserve.
‘Today’s was absolutely stupid, $100,000,’ Douthitt said. ‘You can’t even buy a vacant lot for $100,000.’
“Absolutely stupid?” Bwahahahaha! Sure, you might (maybe might) have to pay $100,000 for a vacant lot there, but what have *you* got, Mr. Flipper? You have a vacant lot that’s been covered with what must bea defective house with a stop-work order!
Who the heck wants to buy a place that’s got a stop-work order on it for any reason?!? I really wonder what the reason was. The buyer would have to work that out and remedy that problem, else he’d potentially have a white elephant that would cost $20k to get rid of, just to GET an empty lot. Figure: $120k empty lot price - $20k demolition = $100k?
Even then, the nature of the stop-workcould be the real problem: Can’t build a house that big there? Failed septic or something else? That lot might not even be worth the $100k bid of you can’t build what you want on it.
And so he sits with the property, obviously PO that he didn’t get what he thought it was “worth”. It’s all good.
Seems prices for that property type and price point in Sarasota are back to mid 2004 levels already. David Holland owns six properties for way over $2M bought near the market top. Can navigate the Sarasota appraisal site typing in ‘David Holland’ under an owner search. All except one have the same mailing address..
http://www.sarasotaproperty.net/scpa_parcel_detail.asp?year=2006&propid=0420-10-0008
http://www.sarasotaproperty.net/scpa_parcel_detail.asp?year=2006&propid=0420-10-0008
Ahhh….the vise tightens around Mr. Holland’s ‘nads.
Came across this one for california.
Uhaul Index for California
Another trend that I’m now seeing on HOME SHOWS is programs that try to exalt the skills of the realtors . The new show ,WHAT IS MY HOUSE WORTH ,shows a realtor going out to a house ,looking it over and coming up with a price ,(to the penny ), of what the house is worth . Realtors ,( unless they have extra education ), are not professional appraisers .I am shocked that a national T.V. program is trying to suggest that one should trust the realtors numbers and analysis . No offense to good realtors who know what they are doing .So far the realtors always comes up with a price way more than the seller thought it was worth ,(as if that’s believable ). These shows are designed to be “trust your realtors’ spin shows and the advertising shows who is financing them .The comments by the realtors on what the sellers were going to get back for the improvements were also a joke .
I’ve seen that show a couple of times and most of the home owners were wanting their homes to be worth x dollars so they could borrow from the housing ATM to finance something: additions, another home, etc. Most, if not all of the times, the realtor hit the mark. What a surprise! Some of these shows make me want to hurl my TV out the window.
Sorry, I had a brain freeze… I meant to say that the Capital Gains tax benefit (250K for single, 500K for married) does not qualify unless the home in question is a primary residence and you have lived their for X years.
As far as mortgage interest tax deduction, I don’t think an investment property qualifies, only your primary residence.
Yes, you have to live there for 2 years to qualify for the tax benefit.
As a rental investment, all costs can be deducted, including interest, homeowner’s association fees, lawn care, maintenance, and (employing a straight-line version) 1/30th of the purchase price in depreciation every year. Of course, you can only deduct these against the PROFIT that your real estate has generated.
Getting into more complicated accounting, if you have a net loss, there is a way to carry it forward a number of years against a future gain - but that’s getting into an area that I’m definitely not an expert in. I just know corporations do it frequently - for tax reasons.
I have a question for anyone who lives in or near, San Antonio, Tx. Last night, I saw for the first time, a t/v show called “Flip This House”. … I was so stunned by what I was watching I forgot to write down the changes but it was basically a $150,000 + original buy which, after about $220,000 worth of renovations, was put back on the market for $650,000. That’s a comedy act in itself. I live in coastal southern california (Ventura) and you couldn’t buy a crappy condo for that kind of money and this place was, I must admit, pretty big. On the other hand, location, location, location and San Antonio, Tx, ain’t coastal california. So, my question is, is the property in San Antonio still going up? Is this guy still able to play the expert property investment management mogul (one of this guy’s lines was, “I’ve got ice water in my veins when it comes to business.”) or has that area been hit with the same down-turn moving into bust-land? I know that some of the “flippers” have moved their operations to areas where prices didn’t go up as much, obviously hoping the neglected areas will catch up but is Texas one of those areas?
Bwah ha ha ha…..
$650,000 in San Antonio? I’m helping a family friend get a house ready to sell in an upscale neighborhood in NW San Antonio. Basically one of the nicer parts of the city. This is what $650,000 buys in her zip code:
http://www.realtor.com/Prop/1063021510?lnksrc=00045
or:
http://www.realtor.com/Prop/1057807184?lnksrc=00045
And I’m willing to bet both these properties are going to sit quite a long while at those prices. In any event, there’s absolutely NO POSSIBLE WAY that any original buy for $150,000 is going to reach $650,000 in San Antonio. Houses that sell in that price range are mostly in newish exclusive gated communities. These are neighborhoods that don’t have fixer uppers.
Aside from the water problem mentioned earlier. San Antonio is basically surrounded on all sides by endless amounts of developable land. And within the city itself there are many hundreds of very lightly developed areas that can absorb tens of thousands of new houses. It will be many decades before greater San Antonio runs out of cheap land. This isn’t California.
NE - Check out Sch E, and as a starter - IRS Pub 527.
Sometimes life hands you a freebie- ex wife’s mother bought in 2004 a house for $475k ( 0 down as the mortgage is $475).( worth about $300k really) Eight hurricanes later and after repairing the house, the house sat empty as they moved across the state since 1/06. I figure their monthly nut is at least $3k Now they have it listed at $589k..( $250 a sq ft) way overpriced. Even Zillow has the market value at $510k…
So to sum it up $475k ( mortgage amount) + $90k( 30 months at $3k a month) + $10k upkeep + $10k taxes + minimum $25k in broker commision ( 5%) = $610,000.
House value according to the tax rolls about $295k… .They only have about 22,000 other homes in the same county to compete with.
I can see the smile on your face from here.
I had the experience of auctioning a house back in 2003. It was an out of state money pit rental. I was so sick of the real estate agents and the renters and just wanted to get rid of it. It was the first property I ever lost money on, the whole story reads like a text book on what NOT to do. I found myself in this position, because sometimes, “Life happens”.
Anyway the whole process was really great, I wanted to unload as quickly as possible after the end of the renters lease and before the high heating bills kicked in. I did not want an empty unattended house with broken water pipes, vandals etc, and also an unlived in house ages and deteriorates REAL quick.
The auctioneer just needed 2 months to advertise, they had a showing I think the week before and of course sale day. The terms were that the highest bid was subject to my consent. Anyway, they held the auction and as soon as the bidding was complete the auctioneer called me with the price and I could say Yay or Nay. Done, Goodbye house in one day, quick and easy. The house sold one week before the renters vacated.
Let me tell you, you have to be in the right frame of mind for this. You have to do the math of what is this costing me to keep or potentially cost me to keep and vs what are my losses going to be, kind of like cutting off a cancer before it sucks the life out of you.
The situation had turned into a lose or lose more proposition.
One important note, I did not owe much on this house, auctioning just will not be a viable choice for anyone who is upside down or owes a lot on their note, unless they have a lot of cash to put down at closing. I think the buyer had to put down 10-15% the day of sale-nonrefundable, and come up with CASH in 30 days. It was a clean sale for the buyer as I had always not only paid my mortgage on time, but paid extra.
As far as taxes, I was able to deduct all the loss, and take the full deprieciation of all improvements. It threw me into the 15th percental tax bracket, which was nice. And I think the deductions carried over into the next year also. Sorry I am so sketchy, not something I like to remember.
So to sum up auctioning is clean and easy, but not for the faint of heart. And sometimes it is just best to take your lumps and go on down the road.
No buyers? What happened to the housing shortage? HA HA HA!!
We all saw this coming - except for the flippers of course.
Thanks to Ben for the great blog!! Watching this bubble burst is such fun!!
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