New listings and updates for El Segundo

Kirk Brown’s overpriced listing at 825 Center street just took a sizable 13% reduction. It’s still overpriced, and ugly but I like to see people getting slapped into reality. I guess the price of dirt really is a million since this listing reads “tear-down” without him using the words.

We have two new listings on Maple.

434 W Maple might lead you to believe at $700/sqft is a good deal until you look at the photos and read the realtor-speak language of fixer.   “First time on market in 45+ years.” Translation: bring your wallet and your contractor.

1500 E Maple Ave is another fixer. Priced at $648/sqft for a 2300 sqft house on a giant 9300 sqft lot. Seems priced a bit high for a flipper but that’s the appeal for this listing. To live in it you’d need to spend some money unless you want to call your overpriced home “retro”.

We continue to see more price appreciation despite rising interest rates, abhorrent inventory and stock and bond markets showing signs of distress. Like I’ve mentioned this is all based on the greater fool theory, I just need one fool to pay this much for my house and then I’m safe. I guess the problem is that when fools are selling homes to other fools then we have a house of cards. At some point you either run out of people that think that gambling these amounts of money is a good idea or we end up like the bay area back in the 90s with housing so unaffordable that you see an exodus of the “working class”.

Tread carefully.

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El Segundo City Council

I hate politics but I found myself having a 30 minute discussion with one of the candidates about one of the local hot-button issues. I proposed the same question to all four candidates via email and one got back immediately, one deferred with “I’ll get back to you” and a third asked to set up a time to chat. Isn’t there three seats?

Anyway I write to ask you to get informed. After my talk with candidate A I got the impression that this vote will have long-lasting ramifications. There’s the old-school current board and a bunch of candidates with young kids that are actively involved in the community. This looks to be the changing of the guard if the cards fall with the younger folks that are running. Word is Maria is aligned with the old guard and is running under the contacts of outgoing Fuentes.

It seems, like our national government that spends more than we can afford, that the city of El Segundo is on the verge of issues. I worry about financial issues because no one ever plans for a downturn. If my theory is correct and there is a financial shakeup what happens to the city budget?

So get involved. Ask questions. Pick the candidates that you feel are in it for the right reasons and will benefit the RESIDENTS of El Segundo.

https://www.scotnicol.info

http://vote4mariabarden.com

https://chrispimentel.org

https://lance2018.com

 

The new normal

It’s not really new, but until there are material changes in the supply or demand equation people will keep paying $700-$1200/sqft for homes in El Segundo. Currently there is little-to-no supply available for single family homes in El Segundo. A trickle of homes for sale is not real supply. If a buyer does not have options as to quality, amenities or location then they are over the barrel. We have house A or House B in your price range, buy it now or someone else will.  those aren’t good options when deciding on spending a million bucks.

Unless people in the southbay/LA en masse lose jobs, the stock market takes a significant and prolonged downturn or there is a giant earthquake, demand for homes in attractive neighborhoods will remain high. On the supply-end many current owners can’t afford to sell. Their mortgage and tax base won’t allow them to sell and pay more for a new home. The only way the math works is if you take your SoCal real estate gains and spend it in a much cheaper geography. Either out of state or farther away from the beach.

This week’s couple of listings are brought to you by Lynn O’Neil. I noticed she cast a few lines on ESPN before she listed.

873 Maryland is  $1.2 mil fixer.  1400 sqft 3/2 on a 6700 sqft lot. The math still baffles me. Let’s pretend 1400 sqft is enough for your family. Assume it needs plumbing, electric, paint, flooring, kitchen, baths… That’s an easy $150k, probably closer to $200k. Maybe another enterprising flipper will go all-in.

857 Maryland is a 1900 sqft 3/2 on a 6000 sqft lot for $1.35 mil.    It’s weird. One bath needs updating and one “bedroom” is possibly a large family room.

430 W Walnut marked as Contingent

430 W Walnut is a tear down on a 6700 sqft lot. West Walnut is about 3 blocks away from the LAX runways yet someone thinks they can make a buck buying a million dollar piece of land.

I find this amusing. Back when I was actively looking to buy a home in El Segundo I started to fantasize that tearing down or a giant renovation was the way to get the most bang for my buck. Back then we were looking at prices in the low to mid $700s for grandma’s house. A PoS home that needed a lot of work to get it up to a decent standard of living. Not a tear down like Walnut is; Grandma’s house would probably need new electric and plumbing, most likely a roof and more than likely additional square footage.

I talked to architects, builders, contractors and friends that had lived through their own renovation projects. My take away was that buying to fix was a bad idea. Everyone said not to do it unless I have a backup pile of money. The lessons I heard were:

  1. The project is going to cost more than they tell you (usually by 30-60%)
  2. It’s gonna take a lot longer than they tell you (could be as bad as 2x)
  3. To live in a home going through major renovation is grounds for divorce and during this extended period of time I would be paying a mortgage and rent and writing checks for overages and additional construction costs.

I also tossed around the idea of tearing down and starting over. In many cases the cost to do a major renovation along with its potential 30-60% in overages was bumping up to the cost to tear down and start from scratch . I talked to a friend that has built a lot of homes in the southbay as well as a couple firms and architects that specialized in pre-fab homes. During these discussions no one wanted to put their stamp on costs. Ask a builder how much to build a 2,000 square foot home and their answer will always be…”it depends”. I was finally able to pin a couple people down on some back of the envelope figures for me to use in my cost analysis.

Soft costs – permits, studies, architects, plans. All of that costs money. So after you buy your piece of dirt you have to wait. From a retail perspective I could expect this to cost $40-$60k and take 6-9 months to get settled. 650 W Maple Ave is a good example. It changed hand in July and they are just now demoing the house.  Someone paid $1.1 mil six months ago. Now they get to knock the house down and start building. My bet is that it won’t be ready to sell/move in until May 2019.

Demo costs. I think I was told to use $7/sqft as a figure. In the case of Walnut that’s about $7000.

Hard costs. As opposed to renovation with so many unknown and unpredictable variables, once a builder has plans he can provide a cost that’s with a fairly small margin of error. I think I was told that the cost would be within + or – 5%. He said he needed to be this close because business loans didn’t often provide provisions for large variances.  So unlike a renovation that could cost you double the original estimate and take twice as long, a build from the ground up is pretty straightforward in both time and costs. The big variance in price will be in build quality and finishes. A few years ago he said I might be able to get away with $200-$300/sqft. But at that end of the spectrum the finishes, fixtures, cabinets would be of the budget quality (think home depot and fake wood flooring). For a nice home with quality finishes expect to be in the $400-$500/sqft range. (This price compares to $400-$500/sqft for additional square footage renovation). The builder also cautioned on building a conservative sized home. I know that our family fits well in 1800-2100 sqft but he mentioned resell value as well as the lower costs to add a bit more now vs the pain in the ass to add later. So do you build your custom 2000 sqft home thats really all you need or do you build a 2500-3000 with room to grow?

Time: I was told the time from start to finish would be in the 12-15 month range AFTER all the plans were approved and finished. So you buy the land, wait 6-9 months and then start the clock. Even best case you might have a home to move in after 18 months.

The math and the timeline were both deal breakers. Not too mention the rings that bankers started talking in regards to construction loans. This is not for the faint of heart nor average joes that just want a nice home to live in. This is for developers and those with access to cheap credit. Not you and me.

Back to W Walnut.

Property and demo costs – $1 mil

Soft costs – $45k
Carrying costs on a mil for 18 months – $125-$150k Who knows what kind of shannigans go on in this department. Some say there are no carrying costs and that the lender gets a higher return in exchange for waiting. I guess either way he either gets his cut during construction or after.

Building costs – Let’s say you aren’t a retail shmo like me and get costs down to $300/sqft for a nice home. Back to the build it for the future figure and let’s pretend 2700 sqft (after 3000  sqft rules start to change. Plus at 60% of lot size you need room for hardscapes, driveways and decks. So much for your granny unit. $810K

Landscaping – $35k
Staging – $7k
Commission @ 5%. We are guessing but a new custom 2700 sqft home might list for $2 mil. $100k

So a developer has paid approximately $2 mil for a home that will retail for about $2 mil….

Even if you have an architect friend, run your own general contracting company and your wife is the listing and buyer’s agent the margins are thin. That’s a BIG ASS gamble to play with $2 mil over the course of 18 months to make 10%…

Let’s site back and watch.

Where are the sellers going?

I’d hold on to your hat and talk to your financial adviser if you haven’t already; I don’t think this roller coaster in the stock market is over. It doesn’t look to be a major domino but some have mentioned it’s a fault line that is showing the stress in the financial system. I was wrong about the losses in the short volatility being in the $1 bil range, they were in the $8 bil range. Funny how everything gets quiet when people get their ass handed to them.  Funny how the bitcoin preachers have crawled back into the shadows.

Anyway I write to ask for your help. Where the hell are people going after they sell? With the current 10% price gains per year and the new tax plan it makes even less sense to do the SoCal step-up to a bigger and better home.  Low cost basis, low taxes, improved tax deductibility are all reasons to stay. Maybe you take a couple hundred grand in gains but now you are jumping into a price per square foot that is stretched, losing your low tax basis and jumping into a situation where you get less deductions. This is all moot for people taking their money and moving out of state.

So if you have some info hit me up in the comments or email.

The first domino or just some turbulence

Today was a very bad day in the market. I won’t bore you with specifics but will fill in some details that you won’t hear from the talking heads on TV.

The Volatility index is a measure of how much the market is expected to swing. High volatility = big swings; low volatility equals smooth sailing. We’ve had smooth sailing for a very, very long time. So long that enterprising investors have taken to banking on it. Many funds and institutions have assumed that they can make a bet that the market won’t move too much in either direction. Well those bets got called today. And they got called in a big way. This is a six month chart. Smooth sailing until Friday. In two days this index jumped 177%. The jist is everyone has made bets that the index would not move and when the index moves over 100% in a couple days they lose most if not all of their money.

vix2

Some of these bets have stipulations that say if the bet loses more than 80% in an event then they close the bets for everyone. Unlike a traditional bet in the stock market where there could be some wheeling, dealing, praying and hoping tomorrow when a fund reaches a “termination event” like today it’s game over for this pool of bets. And today’s termination events will be in the tune of probably one billion+.

What does that mean to you and me? Well it could be the first domino. It’s cataclysmic in a way that so many investors, institutions and funds will be affected and it’s potentially detrimental to any investment bank taking on these bets. Word is Credit Suisse just lost about $500 mil or about six months of profits. In one day.

It’s also a psychological event because we had a bad day friday, woke up to a really bad day today. The Asian markets get spooked and they are down tomorrow (which is happening right now), then Europe will likely follow suit then we open tomorrow at 6AM.  It’s a vicious cycle. When you’ve made so much money on the way up, many will want to lock in gains and not get caught in the stampede. Or maybe people see it as a buying opportunity as many have for the past 7 years.

Time will tell.

Talk to your investment adviser (if you can get them to take your call) and ask them if and how you are protected?  There are ways to profit as the market drops, call it insurance but after today insurance just got really expensive.

 

New listings in El Segundo 2/2/18

Another week, another couple listings with wildly different claims on the value of a home in El Segundo.

433 W Maple is also back on market and it somehow increased in value 4% in a month!!!! Better get in fast next month it will be worth $1.5 mil.

I guess Terry Rogers thinks us backwood hillbillies in El Segundo don’t have the internets yet. They fired an agent for not selling it at $1.3 mil during christmas then they stage it and raise the price $51K. FUCK YOU. Everyone plese call Terry to schedule a private showing. Let’s show her some El Segundo hospitality and have her drive up from Orange County so she can earn that $33k. Her number is 562-713-4630

Charles Fisher of ReMax seems to think a 2390 sqft home home is worth $753/sqft. 535 Lomita is a big home on a big lot with lots of upgrades and doesn’t reek of the bad taste of the previous home owner. It’s yours for the low, low price of $1.8 mil.

Lynn O’Neil comes to market with a similar sized 2300 sqft home on a 9000 sqft lot priced at $648/sqft. While Lomita is updated, 1500 E Maple looks like a 1980s time warp but it’s yours for $1.5 mil.

 

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I’m must be completely wrong

I just can’t help but feel that I have all of this completely wrong.

  • Real estate will go up forever unabated
  • the stock market will go up 20%/year forever
  • interest rates will be remain low forever
  • there will never again be a decent return investing in government bonds
  • savers will continue to be punished

How could it be otherwise? Despite years and years of economic study and every fiber in my body screaming that the economic world is FUBAR I can’t help think that I am wrong.  I should just accept the fact that everything is awesome, grab a cup of kool aid and buy some Google, Apple Amazon stock tomorrow.

What set me off is coming home to see the El Segundo Herald and looking at the real estate ads and seeing the giant box on Sheldon is now being advertised as in-escrow. But so is the giant gaudy two bedroom on McCarthy! 

I get that $643/sqft for a 2700 sqft house isn’t horrible. But who in their right mind pays $1.6 million for a two bedroom home?

I guess maybe I’m am just out of touch in thinking that there is a limited supply of people making $500k/year that want to live in El Segundo.  I guess I’m just a working class joe that’s gonna just punch the clock to pay too much in rent so my kids can have a good life. For those of you poor people making a measly $200k, time to start looking for homes in Hawthorne, I hear that they got a great school. And if you don’t make $200k I’m sure there will be bus rides that will drop you off in San Pedro with the other indigent.

Recent sales in El Segundo

A reader emailed and wondered why I hadn’t mentioned the $3 mil sale which may have marked a milestone for El Segundo.

1220 E Maple Ave closed at $3.1 mil. Based on the lack of info online it looks like a closed sale with no listing. When I first encountered the sale I was a little surprised to see the $3 million mark, but when you read between the lines you see why “one” property would sell for $3 mil.

The answer is easy – 21,780 square feet of South Bay land. That’s $142/sqft!

A normal lot is 5000 sqft. In El Segundo we have also have lots from 6000-7000. In Parts of town you may even find a 10,000 sqft lot. This is double that. When a tear down on a 6700 sqft lot in a shitty part of town is asking $995k, you can see why a big home on a giant lot on the quiet side of town garners $3 mil.  At $995k, 430 W Walnut is priced at $148 sqft….except it doesn’t have a nice big home. Walnut will take 12-18 months and about $2 mil in capital to have a nice home on a shitty street.

1220 E Maple includes a 5/5 3000sqft home with a pool….and a giant yard…..with room to grow. You may have to live next to boo radley for a few years but this is what VERY, VERY, VERY few areas in the south bay can offer. A big ass parcel of land that can accommodate a big ass house. I’d venture to get that much land you’d have to head up the hill to PV or into parts of West LA.

1220

Another Giant house closed. 707 Bungalow closed at $2.3 mil.  5/4 4000sqft home  on a 6590 sqft lot.  Sold at $560 sqft. That’s the price point you want to be at. Historically this to me is a good price per sqft.

633 California sold for $1.42 mil. 4/2 1889 sqft on a 7060 sqft lot. Sold at $738/sqft and went for $21k over asking. Man, that hurts. I can’t help but think of what a nice $1.2 mil house this person just bought.

But maybe everyone wants to live on California because back in November 835 California sold for $1.775 mil. It’s a 3/3/ 2556 sqft home on an 8804 sqft lot. This closed at $702/sqft.  I guess those were the comps used to sell 633 California.

But hey, everything is awesome. Stay tuned tonight to hear Drumpf tell us how good he’s made it for us plebeians.