There are always two sides to a coin

I am of the belief that because of low interest rates and the ever increasing mountain of debt countries, corporations and individuals have taken on over the past 10+ years we are in a giant bubble. I believe the governments method of trying to fix the great recession was a way of kicking the can.

Like I’ve said. I could be wrong and in all honesty I have been proven wrong for the past nineteen months. In December 2015 I screamed sell and I looked like a hero when the market tanked in January. But then the powers that be decided that it wasn’t time and the market and most asset prices like houses have gone straight up.

What’s wrong with going straight up you ask? It’s not a natural progression. Personal incomes and growth are not increasing at the same rate and that means a lot of people are getting FUCKED in that equation. Notice all the homeless encampments around LA? Know anyone that owns a brick and mortar store? Know anyone that needs to drive for Uber or rent out part of their house to stay afloat?

The other side of the coin is that the country is on the mend. GDP is increasing. Inflation is under control. Jobs are scarce and new technologies and innovations are increasing our quality of life. Everything is awesome! So why wouldn’t the trend continue?

The median price of a home in Lost Angeles has DOUBLED in five years. How many people doubled their income in that same time frame? That’s not normal. We’ve been here before.

They say a broken clock is right twice a day. So am I crazy for thinking this will not end well? Am I the broken clock that will eventually be right?

I have a down payment for a nice home in LA. It makes ZERO percent interest while the prices of homes escalates at 5-10% a year. I am losing. But I cannot afford to lose this money. Maybe losing several hundred thousand dollars is a risk you are willing to take. I am not. I will over-pay for rent and sit and wait. Will I get priced out of SoCal completely? I hope not, but it’s possible because at some point it doesn’t make sense for me to not take this enormous life changing amount of money to a state where my quality of life will increase 10X.

Jeff Paul has a great breakdown of the recent price changes. 

400 Bungalow finally sells

400 Bungalow Dr 90245 finally sells. The price history will make you ask WTF?

This house has been on and off the market for almost THREE YEARS! In that time frame they’ve changed the price so many times it’s hard to get a sense of who the hell was running the show.

Purchased in 2014 for $1.3 mil, listed for sale a year later for $1.6m? WTF! I wonder if that was an Alex Abad move?
Lowered to $1.5 mil and it sat forever. Removed in November 2016.
Listed again in May 2017 for $1.5 mil and it finally sells for $1.4 mil at $481/square foot.

By historical El Segundo standards that’s where you want to be. $500/sqft is good, dropping below is better. It’s a giant remodeled box on a 5000 sqft lot. For a remodeled home at $500 sqft if you are in El Segundo to stay then who care if the market dips 20%?

The home appreciated 6.6% in three years. Still want to go all in on for a paltry 7% return over three years?

DATE EVENT PRICE AGENTS
07/28/17 Listing removed $1,449,500
06/30/17 Pending sale $1,449,500
05/31/17 Listed for sale $1,449,500-3.3%
11/18/16 Listing removed $1,499,000
05/04/16 Back on market $1,499,000
04/21/16 Pending sale $1,499,000
04/14/16 Listed for sale $1,499,000
02/05/16 Listing removed $1,499,000
07/21/15 Price change $1,499,000-6.3%
05/08/15 Listed for sale $1,599,000+23.1%
10/20/14 Listing removed $1,299,000
10/17/14 Pending sale $1,299,000
09/30/14 Listed for sale $1,299,000+58.0%
10/19/10 Sold $821,900+143% Jim Van Zanten
07/31/97 Sold $338,500

Are we running out of flippers in El Segundo

940 Virginia St 90245 gets a slight reduction from $1mil to $939k. 

This tiny 888sqft house is on a 5796 sqft lot. That may be a sticking point but for the past few months would-be flippers have been jumping at the $1 million mark.

I guess to get from 888 sqft to something a family would live in isn’t worth the risk. I figure at $400/sqft you’d need to add at least 800 square feet. Nine months later you are in for almost $1.4 mill for a 1600 sqft house. The math is bad. It can’t be a simple flip without involving an architect and a pocketful of money.

I wonder how low they’d go? I’m interested in the low $600s but even in today’s climate I’m not risking sticking my neck out.

Well, that was quick

There was a sign on the lawn for a while before it hit the market, but after only 9 days on,  300 W Sycamore 90245 has a potential buyer.

3 bed-3 bath, 1520 sqft on a 7308 sqft lot for a measly $1.3 million dollars.

When I step back I can see it’s appeal, it doesn’t have the poor taste of the current homeowner all over it. So many of the homes available just reek of bad taste. When a family is dropping their life savings (and maybe part of grandma’s savings too) and telling the bank that they will be OK spending 43% of their income on the house there’s not much left in the budget to change decor.

Let’s compare. Instead of dropping $260,000 on a down payment for the privilege of writing a check for $6,000 every month someone could rent 624 W Acacia Ave 90245 for a paltry $4000.  It’s not as nice and is a couple steps closer to the machine that makes all that god damned noise, but you still have a quarter of a million dollars in the bank and just imagine what you can do with that extra $2000 month you are saving!

 

813 McCarthy Ct gets a haircut

813 McCarthy ct 90245 finally got a haircut. The price was reduced from $44k to $1.155 million.

After two months of sitting at $1.2 mil Alex Abad finally listed when the market told him the house wasn’t worth $1.2 mil (hey Alex, sorry to tell you but $1.155 is still basically $1.2 mil)

I’ve never seen the house but online it photographs well and is on a big lot. It shows a few updates but not much. I can’t wrap my head why other POS houses have sold but this one is still sitting.

Save your money and go rent that house on Acacia instead.

Want to make yourself sick? This house last sold in 1996 for $230k. That’s the damn down payment ten years later.

It’s not throwing away money if you have a roof over your head

624 W Acacia Ave 90245 is a new 1600sqft 4/2 rental listed for $3995. Ugly, shabby and over-priced but it doesn’t require a down payment of $240,000.  There is no logic in today’s environment to invest a quarter of a million dollars to pay almost 2x/month to buy a similar house.  THAT’S INSANE!

A house is a place to live. We all want security, a comfortable home and here in El Segundo we want to participate and benefit from the schools and sense of community. As with many other parts of the country supply is horribly low. So we are stuck when landlords and selling agents list these ridiculous prices. We have NO choice.  Westchester is cheaper with shit schools. Manhattan beach? Yeah right you wouldn’t be reading if that was an option. Hermosa, forget it.  Mar Vista – crap schools, Venice – ghetto and unaffordable.  You have El Segundo, maybe Redondo or Palos Verdes with the latter two adding extra hours to your commute.

So save yourself the stress of participating in the sham that is the current real estate market. If you have 10% or 20% of a down payment to buy in Los Angeles you have an amount of money that will and can have a significant difference in your life. Why risk it?If you are a working stiff like me it would take another lifetime to save several hundred grand. I pay too much to rent just for the safety of knowing that when the time is right I will be ready.

 

 

We got us a fight!

I’m not talking McGregor and Mayweather I’m talking about all the competition in the $1.2mil range. Just like we had a bunch of competition in the $1.4 range a few weeks ago we now have a GLUT of houses. This comes after a sad pending home sales report and the likes of CNBC calling it a “crisis”.

We have a new 1150 sqft 2/2 for 41.175 at 1538 E elm Ave 90245 there’s nothing worth writing about a million dollar two bedroom house.  If you think buying one is a good idea you deserve what you get.

We also have 840 Loma Vista St 90245. Another tiny house at 1000 sqft. This one has two beds and only one bath. It also lists a mother in law’s quarters so this will go quickly for someone that “wants their in-laws to live close” (read AirBnb). It’s not clear if the garage is the mother-in-law unit, if so the city would like to have a word with you.

Redfin has six homes in the $1-$1.2 million range.

 

The Supply & Demand Equation shifts

It’s been a busy couple weeks and I haven’t been able to look at and review every property that’s come to market in the past couple weeks. As I sit back and review the flood of new and “coming soon” listings in El Segundo I see that the supply and demand equation has shifted. Just a little. We now have ~two dozen houses for sale and that provides options. With options a buyer can compare similar properties and see where one house is priced incorrectly. When a buyer has only a couple options sometimes the buyer is choosing the lesser of two evils. That sounds like an ingenious way to spend a million dollars.

We now know that $1 million is the mark for flippers and tear-downs. I’m anxious to see the flipped homes that should be coming to market in the next six months.

940 Viriginia St hit the market at $999k.

813 McCarthy Ct. languishes at $1.2 mil. It’s been on market for 56 days. There must be something wrong with it. A look at the photos show an old house with new paint and staging. Any buyer that walks in will see that grandma’s house will need a couple hundred grand in upgrades.

424 California St is at $1.25 million is another old house that shows it’s age.

811 Concord Pl is priced at $1.25 million and although it shows signs of a lot of Home Depot upgrades, at $1.25 million for a 1026 sqft house people may not be brave enough to buy this tiny home.

1205 E Pine Ave is ANOTHER $1.25 mil home.  At 1400 sqft with upgrades this makes the other $1.2 mil homes look overpriced. This is exactly what the buyers need.

848 Pepper St at $1.3 mil is ugly but has been upgraded. It’s the house that the $1.2 mil buyers want. Another Alex Abad over-priced home.

511 Oregon St is $1.4 mil and shows cosmetic upgrades . You got to love a photo like this. I wonder if an overweight person can get by the bed?

genmid-sr17091054_9_0

423 Virginia is an enormous 3555 sqft priced at $1.49 mil. This will get some people off their couch just because the price per square foot is enticing. While others are priced around $1000/sqft this house is $419/sqft. You just have to figure out how to fill that much house with stuff. I love that this housed is priced to sell. This is the home the $1.8 mil shopper should buy.

857 Maryland St is  1920 sqft and priced at $1.5 mil. This has been upgraded and has a detached mother in law’s unit but the description written by one Kirk Brown is hard to figure out WTF is going on.

1419 E Mariposa Ave is a failed Bill Ruane fishing expedition. It’s been sitting with a coming soon sign for weeks. No takers so he hits the market at $1.6 for a 3000 sqft house. Priced at $537 sqft this is another reasonably priced house on one of El Segundo’s drag strips. It’s big and it’s old.

I also saw a Gina Hoffman sign on W Sycamore and Concord that’s not listed. Probably another addition to the $1.3 mil club.

There you have it, lot’s of options if you have a ridiculous $1.3 million to spend on an old, small and most likely ugly house.

 

 

 

 

Bubble Talk

Remember in 2005-2007 when real estate was all anyone could talk about? Their price appreciation,  no interest loans, buying to flip or buying to rent out… It was the it thing to do. Everyone was making money and/or using their home equity like a piggy bank to finance remodels, new kitchens, baths, vacations….

I feel we are in a similar spot although it is different this time. Nowadays a borrower need to prove their ability to borrow and the recent price appreciation has priced people out of the market and taken away the SoCal step-up method that allowed people to use their equity to trade up to a nicer or bigger home. What are you going to do today when you sell your home in El Segundo for $1.2 million that you paid $800k? Take your $400k and put it down on a $1.5 mil home adding another $100k in debt and raising your property taxes $88%?

I bring this up because I met a guy this week that was in Oh-Shit I can’t sleep mode. Despite the several hundred thousand in equity he had in one of his two properties, his income was not enough to qualify for a refinance. Oh Shit.

Back in 2010 he had an opportunity to buy a home in Culver city in the mid $600s. He was only approved for $400k and used a hard-money lender to carry the $200k. AT TEN PERCENT! The interest on $200k at 10% is around $1000 a month.   All in he’s in for $4000/month. Then he somehow gets a co-signer that believes in his real estate mogul aspirations and he buys a duplex in Inglewood. He can’t really afford the Culver City home so he rents it and is barely cash flow positive. He pulls a similar move in Inglewood and rents out half of the duplex helping cover the mortgage in Inglewood. Now seven years later he is feeling the cash flow squeeze and can’t get out.

All in he owes $1.3 million and commented that he did not earn a six figure salary.  and he’s a single dad so there’s no second income for the bank to look at.

So despite his inability to sleep he’s unwilling to let go of Culver City because “real estate in SoCal” will always be worth more in the future.

My bubble alarm started going off. He has the potential to make enough money to change his life but thinks if he can only keep this sinking ship afloat for a bit longer he will be on his way. It’s that or the house of cards falls and he loses everything. Is that investing or gambling? Yes I’ll give you that a house in Culver City will be worth more in 20 years than today. But if in those 20 years we have another giant earthquake, or the real estate market gets soft for 10 years (see Japan) or he gets injured and can’t work….the list goes on. If you can’t afford it though the bad times, price appreciation is meaningless.

That is the problem, when people began to look at their homes as an investment instead of a roof over their head it changed the mentality and logic about risking this amount of money for a place to live.

I wish him luck. And if you read this and are thinking of going all-in on a house you don’t really like that costs a million dollars ask yourself if it’s worth it?

 

I guess there is more than one greedy bastard asking $4k for rent in El Segundo

I found another greedy fucker asking $4k/month two bedroom for rent.  Turns out Matt Crabbs isn’t the only asshole.

It’s actually $4200/month and unlike Matt Crabbs’ bullshit listing on Mariposa, at least this is a single family home.

It’s still ridiculous but at least it has a two one car garage. The listing doesn’t show square footage but the internet is limitless. This little doozy is all of 932 square feet.

Some enterprising flipper is hoping to recoup some of that money he spent at Home Depot. He should just throw the $1.2 mil price tag on it and walk away. But then again with his expenses and carrying costs that might not be a big enough profit. Real Estate never goes down! Someone will pay at least $4200/month forever to live here!

Price History

DATE EVENT PRICE $/SQFT SOURCE
06/23/17 Listed for rent $4,200/mo Marine View Ma…
11/02/16 Sold $800,000

So call Ann at Marine View Management, grab a bottle of lube and bend over.

Welcome to El Segundo.