Flipping into trouble on Longden

July 21, 2008 · TheArcadian · Property Profiles

Price: $799,000 ($519/sf)

Beds: 3
Baths: 2
Sq. Ft.: 1,539
Lot Size: 8,370 Sq. Ft.

During a normal housing market, rundown properties could be bought for cheap and flipped for a premium after proper rennovations. When we’re in a frenzy bubble era, “flipping” usually meant buying a home and putting it back in the market 3 months later. As seen from here, the folks who actually tried to upgrade properties during irrational times are left in the dust.

Sales History
Jun 1993 $240,000 —
Feb 1996 $225,000 -2.4%/yr
Aug 2005 $660,000 12.0%/yr
May 2007 $708,000 4.0%/yr

After spending a good chunk of money on the “Birch” hardwood floors, appliances, new floor plans, ect… It is now listed for $91,000 over last year’s purchase price. After paying out 6% for commissions, I doubt there will be much profit left in the sale.

Using the 1996 sales price of $225,000 as our base, we get the following valuation:

$225,000 after 12 years of appreciation

3%    $320,796    ($208/sf)
4%    $360,232    ($234/sf)
5%    $404,068    ($263/sf)
6%    $452,744    ($294/sf)
7%    $506,743    ($329/sf)

Currently listing for $799,000 ($519/sf)

Based on the $506k value, do you think the flipper’s upgrades are worth this listing’s $300k premium? Located on the corner of Longden Dr. and Santa Anita Blvd., I expect this home to drop like a dead weight.

**Update**

Here is the requested aerial photo. Great location!

Comments (14)

george8 · July 21, 2008 #3537

It appears the seller wants to break even after all expenses from his 2007 purchase. That is understandable.

However, the market is down at least 15% from where he bought it and dropping freely.

It is advisable that the seller take any “smart” knife catcher in sight and dares to make any “low ball” offer.

A small loss is a great trade in this case.

It will sell $459k in 2011. ($2800 rent with GRM160)

An Arcadian · July 21, 2008 #3543

This house is on the corner of Santa Anita & Longden… Traffic noise is a consideration.

Arc Lost · July 21, 2008 #3544

Hi Arcadian,
Is it just coincidence that most of the houses you’ve profiled recently are in “bad” locations (next to the 210 fwy) or bad situations (such as the landlocked 334 W. Foothill property), or is that just what’s out on the market? I’ve seen this house when it was vacant with the For Sale sign peering over the tall hedge on Santa Anita. That must be great to have your house next to the stop light and hear the booming car stereos from cars/trucks. I remember staying at a motel in San Francisco that was right above a bus stop on the corner. Each time the bus shuddered to a stop to drop off or pick up passengers, we thought there was an earthquake. I’d love to pay 3/4 of a million to bring back the memories…yeah right.

TheArcadian · July 21, 2008

Hi Arc,

I do not specfically profile “good” or “bad” properties and usually just pick one of the newest listings on Redfin. It just so happens that the last 6-8 homes are located in undesirable areas!

YuLu · July 21, 2008 #3546

How do you think of this house?

http://www.redfin.com/CA/Arcadia/1008-ENCINO-Ave-91006/home/7235144

Arc Lost · July 21, 2008

Looks dated but in decent condition. Price looks reasonable, but is east of 6th Avenue still Arcadia HS or Monrovia High?

FreedomCM · July 21, 2008 #3547

according to the Consumer Price Index, What cost $225 in 1996 would cost $303.41 in 2007.

(http://www.westegg.com/inflation/infl.cgi)

then add $50k for the upgrades.

so my prediction is $100k shy of George8’s, $358k in 2011

TheArcadian · July 21, 2008

Thanks for the inflation calculator. I will add that to our “Resources Section”.

jojo · July 21, 2008 #3551

No birds eye view ?

TheArcadian · July 21, 2008

Can’t believe I forgot it. Thanks for the reminder!

puckhead · July 22, 2008 #3591

“according to the Consumer Price Index, What cost $225 in 1996 would cost $303.41 in 2007.

(http://www.westegg.com/inflation/infl.cgi)”

You want to peg RE appreciation to CPI????? Like the price of oil, oil products and population growth does not enter in the supply/demand equation?

FreedomCM · July 22, 2008

Puckhead, the long term studies of housing prices show that house prices increase at inflation + 0.4% over the past 100 years in the US. So I believe that CPI is a good indicator of precisely that.

Of course, feel free to add “california tax”, “sunshine tax”, “they aren’t making any more land tax”, and whatever else you would like.

But I would argue that ultimately, housing has to be affordable (in relation to income) for anyone to buy it (and not lose it to the bank).

3X to 4X income.

And since only incomes of the top 10% of earners has increased in the past 20 years, that means that houses should be priced by CPI, unless the house is likely to be purchased by someone in the top decile of incomes.

But I would like to hear your thoughts on why oil and population growth should be factored into the price of an old house in Arcadia.

Thanks

puckhead · July 22, 2008 #3595

Freefon CM,

CPI is a crock that’s been sliced and diced by the gov’t to keep the headline inflation number low. Does anyone believe that CPI is running at 3-4%? Of course not, because the gov’t has come up with CPI “core” inflation which strips out food and gas. I’m sure that everyone will be glad that the gov’t says that CPI is running at 4% as they spend double for gas vs what they were paying a year ago. Take a look at commodity prices and building material prices. They’ve increased way more than 4% per annum, that should also factor into RE prices.

Another factor that’s going to be favorable for places like Arcadia is that the number of desirable, safe places to live has been greatly reduced the last 30 years. Places like the SFV, Lawndale, Gardena etc were OK middle class cities 20 years ago. Today, they’ve all gone to hell. Anyone that has money are all looking for houses in the same neighborhoods that you can fit on one hand. Fewer decent neighorhoods =’s lower supply which should also help RE prices in places like Arcadia. Finding a cheap house is easy. Finding a decent house centrally located, safe and with good schools is still hard.

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