Another over-improvement property praying for a knife catcher. Are there any left?

Asking Price: $729,000

Address: 4535 Sandburg Way Irvine, CA 92612

Another dream that will never come true
Just to compliment your sorrow
Another life that I’ve taken from you
A gift to add on to your pain and suffering
Another truth you can never believe
Has crippled you completely
All the cries you’re beginning to hear
Trapped in your mind, and the sound is deafening

Prayer — Disturbed

I have profiled a number of properties that were over-improved for the neighborhood. One of the more recent was You Must Be Joking back on April 1. There is also that monstrosity in University Park. Everyone believed that no matter how much you paid or how much you spent on improvements, someone would come along to pay even more to make you a flipping genius. It doesn’t work that way.

{book4}

Profiles like this are important because people need to see that the flipping craze of the Great Housing Bubble was an abberation. That is not how the housing market works. The Home and Garden channel is not going to chronical many of these because their ratings depend on people believing it can be done (they have done a few shows like this). Personally, I think these shows would be well served by showing the complete train wrecks where people lose $250,000 or more after busting their butts improving a home. I would tune in to that, and so would many readers here.

Asking Price: $729,000

Income Requirement: $182,250

Downpayment Needed: $145,800

Purchase Price: $595,000

Purchase Date: 7/28/2006

Address: 4535 Sandburg Way Irvine, CA 92612

How can an addition be AMAZING?

That oil painting effect on Photoshop is becoming more common. realtor see, realtor do?

Figuring out what is happening with this property is very difficult as the property records are incomplete. The property was purchase at the peak on 7/28/2006 for $595,000. The buyer used a $416,500 first mortgage, a $100,000 HELOC and a $78,500 downpayment. It is likely that this guy actually put $178,500 down and opened the HELOC to fund the renovation.

He must not have though much about his chances for success flipping this beast:

Foreclosure Record
Recording Date: 07/30/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000362192

Foreclosure Record
Recording Date: 04/28/2008
Document Type: Notice of Default
Document #: 2008000197601

Here is where it gets strange. There is no foreclosure sale recorded. On 2/3/2009 — more than a year after the owner stopped making payments — the property was transferred via a Quit Claim Deed to a woman. There is no record of the sale amount or what happened to the mortgages. It seems most likely that the woman bought this property at a foreclosure auction by outbidding the lender. If this is what happened, then this is a flip for profit. Good luck with that.

Does anyone think this is a particularly good time to flip properties in this price range?

I hope she finds her knife catcher before these prices sever her hand….

Today’s featured property shows what happens when you do everything wrong when investing in real estate. The result is the wrong house in the wrong neighborhood at the wrong time. Someone is going to lose money on this one; it is only a matter of who and when.

Asking Price: $1,399,000

Address: 4931 Karen Ann Ln, Irvine, CA 92604

{book4}

April Fools — Rufus Wainwright

Oh what a shame that your pockets did bleed on st. valentine’s
And you sat in a chair
Thinking “boy i’m such a prince!”

Irvine is working class, despite its attempts to recreate Versailles and erect homes for the nouveau riche royalty. Does anyone remember the Castle at Kron and Ecclestone Circle? Or perhaps the monstrosity at Angell and Michelson? There are always properties that are out of place in their neighborhoods because eccentric owners over-improve them, but these people do it for themselves, not for profit. The people who build these structures in Irvine are generally trying to flip them for a profit.

In recent post I noted “…our economy accumulates unsound business plans, Ponzi Scheme financing
arrangements, idiotic investment strategies, and behavioral moral
hazards.” Building and flipping properties like these are examples of idiotic investment strategies. Let’s look at what they did wrong.

The Wrong Neighborhood

People who want to buy a $1,000,000 home want to be surrounded by $1,000,000 homes. If you over-improve a home to the point that it is worth double the rest of the neighborhood (which all of these homes are), it is very difficult to find a buyer. Values in a neighborhood will tend to cluster within a range. It is far easier to increase resale price by improving the least valuable property in a neighborhood. If you improve a property beyond the surrounding values, diminishing returns set in quickly.

The Wrong Design

Another trait all these properties have in common is ostentation. There is nothing subtle about their designs. They want to stand out as unique and apart from their surroundings. Perhaps this does attract those special buyers who wants to feel superior to their neighbors, but this makes for a very limited buyer pool (thankfully). If you lived in these neighborhoods, would you want to go make friends with the neighbors that moved in to these places? What would you have in common? If they can truly afford the home, they are in a completely different economic bracket. Perhaps these things should not matter, but we all know they do.

The Wrong Time

The property on Angell, and today’s featured property were both improved after the property bust. Creating high-end McMansions for the nouveau riche doesn’t work particularly well during a bust. One common characteristic of financial busts is that that over-leveraged nouveau riche get wiped out. These people fly high during the expansion and flame out when the bills come due. This is the worst possible target market to pursue when the markets turn, just ask the luxury automakers how they are doing right now.

This investment strategy must die, and everyone pursuing it must be wiped out. That is the nature of recessions; they cleanse the system of dumb ideas like this one. I hope it happens before more of these eyesores are built.

Asking Price: $1,399,000

Income Requirement: $349,750

Downpayment Needed: $279,800

Monthly Equity Burn: $11,658

Purchase Price: $$627,500

Purchase Date: 6/28/2007

Address: 4931 Karen Ann Ln, Irvine, CA 92604

Truly a diamond! Yes, a diamond in the rough. This property is in an undesirable neighborhood, and the realtor had to stop from herself from saying it.

For those with sophisticated tastes, don’t miss the “Swarovski
chandeliers.” I assume that makes them special. Commoners like me don’t know things like this, so whoever buys here will undoubtedly be superior to me.

What do you think of this front elevation. I wonder if it was inspired by Kilroy.

Think about your sense of arrival. IMO, it has all the warmth of a federal penitentiary.You approach the overpowering front entry over a barren wasteland of concrete; there isn’t a plant within 20 feet of your trek. The square, prison-block appearance and wrought-iron gates add to the jailhouse motif. If you were to buy this place and watch home values plummet, you would be literally trapped in your own gilded cage.

Almost 6,000 sqft… Why would anyone need 6,000 SF? The heating and cooling bill would match your mortgage payment. You better have a full-time maid to keep the place clean. And why would you put a 6,000 SF home on a lot that isn’t even 8,000 SF? Perhaps in Corona Del Mar this might be understandable, but here in Irvine?

The property records do not show the construction loan for the renovation, so I do not know how much debt is on the property. It is possible this owner built everything with cash, but I doubt it. When the property was purchased for $627,500 on 6/28/2007, the owner used a $502,000 first mortgage, a $62,750 second mortgage, and a $62,750 downpayment. It isn’t likely that he only put 10% down but yet had the cash to finance the complete renovation.

If he can manage to sell the place for $1,399,000, he will make money. I am guessing about $400,000. Since the rest of the neighborhood is drifting from the low 600s into the high 500s on its way down to the mid 400s, I believe this property will ultimately bottom in the $750,000 range. In short, all the renovation money was wasted.

BTW, Marilyn Kalfus from the OC Register sent me a link to a story about a $2,000,000 REO that is completely trashed. You have to wonder who trashed the place…

{book5}

Oh what a shame that your pockets did bleed on st. valentine’s
And you sat in a chair
Thinking “boy i’m such a prince!”
Well, life’s a train that goes from february on
Day by day
But it’s making a stop on april first

And you will believe in love
And all that it’s supposed to be
But just until the fish start to smell
And you’re struck down by a hammer

April Fools — Rufus Wainwright

We are thinking about starting the Irvine Housing Brokerage.

Are we joking?

Whip It — Devo

When a prop'ty comes along You must flip it

Before the home sits out too long You must flip it

When somethings going wrong You must flip it

When you buy as a flipper, you are a fool. Your task is to find someone more foolish than yourself to buy you out before prices crash. There are bagholders for every price crash. Someone has to own the asset while it declines in value. The trick to flipping is not to be that someone.

Speculative flipping only works when prices are rising. There are a few people who manage to make a few bucks buying at foreclosure auctions and quickly selling before the declining prices take them underwater, but these people are the exception rather than the rule. Most people who made money flipping during the bubble simply bought property, waited for a while, then sold it to some greater fool. That method does not work when prices are falling.

Despite the total collapse of pricing at the bottom of the market and the obvious signs of an impending market implosion, some people chose to buy real estate as speculative flips in recent years. I have already profiled a couple who have changed their minds and are trying to get out, but it is the ones who actually price the property to make a profit I find most interesting. They really believe there is someone out there who is even more stupid than they are.

Today's featured property is one such flipper. I know the penthouse is supposed to be nice, but is the premium really $900,000 or worse yet $1,575,000? Should people really pay $1,000/SF when properties in the same building are selling for less than $400/SF?

Asking Price: $1,950,000

Income Requirement: $487,500

Downpayment Needed: $390,000

Monthly Equity Burn: $16,250

Purchase Price: $1,823,000

Purchase Date: 8/3/2007

Address: 8153 Scholarship, Irvine, CA 92612

An urban lifestyle second to none? LOL! This is Irvine, not New York.

How does one upgrade a penthouse? Do they have a downscale version of a penthouse?

Perhaps the high end is immune. Perhaps that is a $2,000,000 view and a $2,000,000 kitchen. Perhaps this seller will find that unique buyer who recognizes the special attributes of this property. Perhaps some savvy foreign investor will come in and pay cash for the place. Perhaps the buyer at $2,000,000 will find someone willing to pay $2,500,000 in a couple of years.

When does it end?

It may end right now with this bagholder.

Crack that whip

Whip it good

Whip It — Devo

Living on the Edge — Aerosmith

There’s somethin’ wrong with the world today
The light bulb’s gettin’ dim
There’s meltdown in the sky

Fringe markets are those regions where properties are less desirable due to proximity to large employment centers. These markets develop as people are priced-out of the more desirable markets closer to work. Eventually, employment centers also migrate to these fringe market areas, and development pushes even further into the wilds.

When Irvine was first developed, it was a fringe market. The primary employment centers were in the LA basin, and those who bought in Irvine commuted to these far-away employment centers. As Orange County continued to develop, it became a strong employment center of its own.

There are still fringe markets even in Orange County. San Clemente and Rancho Santa Margarita are examples. There is limited employment in these sub-markets, and people commute to employment centers.

Fringe markets have characteristically volatile house prices. People only live in fringe markets because they are priced-out of more desirable areas, so when prices drop in the better areas, people leave fringe markets, and prices really plummet.

{book}

Proximity to employment is not the only defining characteristic of a fringe market. Even within primary markets like Irvine, we have fringe neighborhoods that experience greater price volatility because they are undesirable for other reasons. One such neighborhood in Irvine is Columbus Grove.

Columbus Grove was developed at the peak of the housing bubble, and it was overpriced from the beginning. The continuing activity of the builders coupled with the ubiquitous toxic financing has resulted in many home sales of the must-sell variety. This created a nasty downward spiral in prices.

Columbus Grove also suffers from its proximity to powerlines, underground toxic waste, a nearby cement factory, and other elements which make it less desirable. The combination of inflated prices, huge numbers of must-sell homes, and low desirability has caused prices to absolutely crater.

Every single homeowner there has a property worth less than the paid for it, and the vast majority are hopelessly underwater on their mortgages.

Tell me what you think about your sit-u-a-tion
Complication – aggravation
Is getting to you

Actually, conditions like these make for ideal places for vultures to be active. When we do reach the bottom, the best deals will be in neighborhoods like this one. Unfortunately for the flipper who owns today’s featured property, we are not at the bottom.

If chicken little tells you that the sky is fallin’
Even if it wasn’t would you still come crawlin’
Back again?
I bet you would my friend
Again & again & again & again & again

Asking Price: $699,000

Income Requirement: $174,750

Downpayment Needed: $139,800

Monthly Equity Burn: $5,825

Original Purchase Price: $800,000

Original Purchase Date: 11/28/2006

Flip Purchase Price: $479,774

Flip Purchase Date: 10/30/2008

Address: 78 Fringe Tree, Irvine, CA 92606

Notice how much more detailed and cared about the description is when people think they are going to make money on the deal.

What Is With Title Case?

This is Truly a
Remarkable Area. Yes, the price drops have been truly remarkable here…

If this property sells for its asking price, and if a 6% commission is paid, the flipper stands to make $177,286. It certainly looks like there is some room to negotiate…

What is interesting about this property is the impact it is having on the neighbors. Imagine you were a buyer in this neighborhood in 2006. Then you see an REO go for 40% less than you paid 2 years ago. It must be very disheartening.

But wait! the new owner is asking a more reasonable market price. Perhaps you didn’t lose $320,000 after all, perhaps you are only down $100,000. Can you see how this little property has taken the neighborhood from despair to delight? Oh, but there is more…

What is it Worth?

Those high HOA fees are a killer

P.S. I notified the forum of my writing of this post yesterday. I received the following email:

“I see that you are planning to try to attack me personally again, by means of showing a distressed sale in my neighborhood. I would expect nothing less of you. I really don’t know where you get off, with your bottomless pit of arrogance and general spitefulness. You explained to me privately two years ago that it is your “persona” who is the one being so obnoxious, and that you personally don’t have any/all answers. I never revealed that conversation, even though I could have, and respected you enough to let it be. I never once attacked you after that, despite any accusations of the same. I am happy that it gives you so much pleasure to see me hurt financially. Congratulations, you have got your fondest wish. Both my husband and I, and everyone else we (and you) know (both homeowners and not) are suffering. You clearly have your opinions on the cause, as do I, but only you are allowed the freedom to express them, apparently.”

No, I will allow you to express your opinion too…

“It is too late for me to participate in any general forums, due to the unending belligerence I have had to suffer through, and any comments on 78 Fringe Tree will bring nothing but personal attacks, as is your intention. For every person you feel you have helped, I feel you have harmed another…I genuinely do. I think you have convinced yourself that everyone who owns a home has intentionally harmed you, and I find that (thinking) a fate worse than being wiped-out. Come what may, I will carry on with my life. I am proud beyond measure with who I am and what I stand for. I am only interested in lifting others up.“

I know I feel very uplifted…

As for the statement, “I never once attacked you after that,” how about this little gem, “I don’t think Irvine Renter is really capable of an honest discussion.
In fact, I firmly believe he exhibits some of the characteristics of a
sociopath. This issue has certainly brought out the vilest aspects in
all of us. That may be the saddest part of all.” Or perhaps this one, “This is no first-time homebuyer crying out for fairness. This is a
self-serving greedy bastard, who doesn’t care how much damage happens
to others, or the economy in general. What they care about is lining
their own pockets, period.”

Do you feel the love?

Due to our policy at the Irvine Housing Blog, I will not share the name or email address of the correspondent.

The astute observations should be interesting today…

{book}

There’s somethin’ wrong with the world today
I don’t know what it is
Something’s wrong with our eyes

If chicken little tells you that the sky is fallin’
Even if it wasn’t would you still come crawlin’
Back again?
I bet you would my friend
Again & again & again & again & again

Living on the Edge — Aerosmith

Terror & Hubris in the House of Frank Pollard — Lamb of God

It is a recurring theme in our culture that the rich and famous live by a different set of rules than the rest of us. Once you achieve wealth and fame, people treat you differently. They look up to you with respect and envy. Many people desire wealth and fame for the status it brings — at least in their own minds. Some people want to be envied, they want to believe everyone wants what they have, and they find it very empowering to be able to put themselves above others. For these people, the lure of a prestigious neighborhood is their belief that living there makes other people envy them. The pretense of owning a McMansion in Turtle Ridge or Shady Canyon makes some people do whatever it takes to purchase there — including paying ridiculous prices. There are people who buy in these neighborhoods because they are nice places to live, and they want a beautiful home just for their own enjoyment. Many people do not care what others think, and they do not base their home buying decisions on those considerations. However, there is a significant group that does, and these people often have artificially inflated opinions of themselves and the value of the properties they own.

Kill my hopeless life I cannot be hypnotized. You owe me.
Push aside the veil to welcome in the visitors.

I don’t know the owners of today’s featured property, and I have no idea why they bought in Turtle Ridge. They may be very nice people who bear no resemblance to the profile above. However, the asking price they have put to their property says something about them: they do not live in a reality-based real estate market. The high-end of the Irvine market has shown the least stress so far. Very little is selling, but those few properties that do sell do not show large losses. I recently profiled a $5,000,000 property selling for 10% off in Shady Canyon, so prices are starting to fall, but by and large, the high end has not seen the carnage witnessed at the low end so far. However, these properties are certainly not appreciating, and to believe they have doubled in price, well… that is a little crazy. The kool aid still flows in Turtle Ridge.

Asking Price: $2,860,000

Income Requirement: $715,000

Downpayment Needed: $572,000

Monthly Equity Burn: $23,833

Purchase Price: $1,433,000

Purchase Date: 9/29/2004

Address: 28 Blue Summit, Irvine, CA 92603

prestigious Turtle Ridge… of course it is.

Did you notice all the meaningless adjectives? Exquisite, Gorgeous, prestigious, comfortable, Excellent, Highly
upgraded, Exceptionally,
beautiful, and lush.

This property was purchased on 9/29/2004 from the builder for $1,433,000. The owners used a $250 first mortgage and a whopping $1,183,000 downpayment. They were not pretending about that part. Later they opened a HELOC for $500,000, but it doesn’t look like they spent it. They did refinance the first mortgage twice. Each time it was for $1,000,000. Since this is the tax deductible limit, this was probably a tax decision used to free up capital for other purposes. They still have the $500,000 HELOC. In short, these people really are rich, and they are not in financial distress.

So why are they selling now?

They’re not. They have put a WTF asking price on their property that will never sell. They have no need to sell, and since they are priced so far above the market, they will not sell it. I am sure most owners in Irvine would sell tomorrow if they could get twice what they paid.

So why are they listing now?

That is an item open for speculation. I have no idea.

{book}

All the f@#$%ed up things trap & punish me I cannot explain my problem.
Kill my hopeless life I cannot be hypnotized. You owe me.
Push aside the veil to welcome in the visitors.
Eyes like halogen illuminate the soma peering out of spherical night mask.
Paleolithic subconcious icons lumber through dreamscape archetype of archangel.
Topside its far worse- infants painted gauze peer through murky jars; soon I’m wearing the skin
of the morning star.
Green locks my name fills an empty banner. Frank, what have you gotten me into now?
I am not afraid to speak my heart & mind it cannot be saved sell me over. F@ck your hopeless
world, I am blacker than the sun. Tragedy. Have you seen the speedy, yes?
Bleeds through the sleep onto the page. I’m sailin’…

Terror & Hubris in the House of Frank Pollard — Lamb of God