Are Flipped Properties Always a Good Deal?

While many buyers these days have gained more knowledge about obtaining disclosures when buying a property, they don't always know what to ask for.

Walking in to a clean, newly painted home with brand new flooring and granite counters in the kitchen and bathrooms is often a time of easy decision-making, largely because of the assumptions made by buyers and oftentimes their agents. 

The buyer is urged however, to look more closely, because many flipped properties were bought out o foreclosure by an investor.  Investors are just that--they are looking for ways to maximize profit by buying homes they can realize a profit on, so if they buy a "fixer", they are usually experienced in knowing how much money to spend in that local market in order to come away with cash after the sale.

In some cases, property enhancements are reasonably good quality, after all, no one can expect an investor to fix up a property with the most expensive custom  features available.  However, buyers need to still take a careful look, and ask for as much information as possible from the seller.  Just because it's an investor doesn't mean he/she is exempt from disclosure.  One of the fastest ways to find the prior condition of the property is to look for the previous listing's photographs (but many times there is only one exterior photograph, the required minimum for the MLS) and property remarks, which may be revealing.

There is not necessarily a horror story behind every foreclosed property, but more commonly there may be prior deferred maintenance because the prior owner could not keep up a property due to long-term financial problems which led to the foreclosure.  And, the prior owner may have blown his/her budget and spent a lot of money upgrading the house, and then ran out of money.  Either way, the current buyer should go to some effort to find out as much history as possible on a flipped property.

Barbara Nichols, owner of a general contracting firm in Beverly Hills and an expert witness for real estate lawsuits, advises buyers to ask such questions as:

• What was the property's condition when it was taken back in foreclosure?
• Are there receipts from licensed contractors for work performed by seller?
• Is there written documentation on what was done to correct defective conditions?
• Were there unrepaired defects?
• What work was done by a handyman? 
• What work was done with permits, and what work was done without permits?

Finding out if work was done by a licensed contractor is significant, because if the seller is claiming that thousands of dollars of improvements were made, it should be done with permits and not by a handyman.

Will all flippers be able to answer these questions to the buyer's satisfaction? The buyer will have the chance to find out, and then decide if he/she wishes to go forward with the sale by the time their contract contingencies are acted upon.



See the story here.

Do You Own Income/Investment Property? Read This about Proposed 1031 Changes

I just received this in my e-mail this morning:

• "There are currently three different proposals that the federal government is weighing, which would significantly alter Section 1031:
•  Former Sen. Max Baucus (D-Montana), who became U.S. ambassador to China earlier this year, released a draft proposal when he was chairman of the Senate Finance Committee that would potentially eliminate 1031 exchanges. His proposal, which is still before the Senate Finance Committee for discussion, contains other provisions unfavorable to real estate investments, including lengthening depreciation schedules for commercial and residential properties from 39 and 27.5 years, respectively, to 43 years for both and characterizing gains from real estate sales as ordinary income, instead of capital gain.
•  U.S. Rep Dave Camp (R-Michigan), chairman of the House Ways and Means Committee, has released a proposed tax bill eliminating all Section 1031 exchanges beginning Jan. 1, 2015.
• President Obama, in his 2015 budget proposal, wants to limit the amount of capital gains deferred in a 1031 exchange to $1 million (indexed for inflation) per taxpayer per taxable year, beginning Jan. 1, 2015." 

As so often happens, legislators propose laws that probably won't accomplish what they intend, in this case, raise tax money.  Property owners benefit greatly from the 1031 tax exchange laws, and should changes occur which prevent or greatly affect the benefits which have been in existence since 1921, many owners just won't make a change.   Sizeable tax consequences can be faced by some investors, so they could very well hold onto their properties rather than sell.

Real estate transactions generate business for many professionals, ancillary businesses and services. The ripple effect from a change in investment and/or commercial sales will impact not only the brokers, but many other job holders, i.e., environmental companies, appraisers, title and escrow personnel, contractors who restore/rehabilitate such properties.

Currently, the company that sent me this email has just exanded their office space on the East Coast because they are currently doing much more business.   But curtailing 1031 exchange activity may curtail many jobs and other economic activity.

"What can you do to help preserve Section 1031 exchanges? Contact your representatives in Congress to express support for Section 1031 in its current form, and the economic activity and job-stimulating aspects of this powerful tax code section."

California Propositions 60 and 90, Still a Good Tax Tool

These propositions allow for the transfer of a property's tax base, meeting certain requirements, for persons over the age of 55.

Proposition 60 allows for the value of an existing residence to a replacement residence within the same county, for every county in California.  The replacement home must be of equal or lesser value, and must be acquired or constructed within two years (before or after) the sale of the original property.  Transfers between parents and children will probably not qualify, as the original property must be subject to an appraisal (or re-appraisal).

Equal or lesser value of the replacement property is determined at 100%, 105% or 110% of the original property depending on the timing of the purchase/construction: before the original property is sold, within the first year, or within the 2nd year, after the original property is sold.  The guidelines are definite, and the replacement property will not qualify for the tax base transfer if the criteria is not strictly met.

A change from the recent years is the increase in number of counties honoring intercounty transfers.  At one time there were only five counties, there are now nine: Alameda, Ventura, Santa Clara, Orange, Los Angeles, Riverside, San Mateo, San Diego and El Dorado Counties.  These nine counties have passed ordinances which all intercounty base year transfers.  These counties will accept a value transfer from any other county in California as long as all requirements are met.

For the seller thinking of relocating, this is an opportunity to move from, for example, the higher cost areas within Orange or Los Angeles Counties to a lower cost area in a county among the above group of nine. This can work well for someone leaving a condominium to purchase a house in a different area.


If you are considering such a move, I would be happy to provide a list of available properties from several of these counties! Please contact me via phone or e-mail for available properties in areas you might be considering, and also for an estimate of current home value of your current residence.

The California Legislature Considers Tax on Homeowners

 

The state legislature has been considering a tax that would be imposed on homeowners who need to record certain documents with their counties. This $75 per document tax will be imposed on a variety of documents, which will include, for example, documents related to refinancing properties, taking properties in and out of trusts, making lot line adjustments, obtaining constructions loans and upon the death of a spouse.

The tax also applies to foreclosures (the owner would be responsible, not the lender) and filing mechanics liens. For instance, it’s not untypical in a refinance, for six documents to be subject to the new tax, resulting in a tax total of $552. If a spouse dies, up to five documents need to be recorded, creating a total tax of $440 including existing recording fees.

SB 391 is in the Assembly Appropriations Committee. The CALIFORNIA ASSOCIATION OF REALTORS® is opposing this bill. 

Listings Under $300,000 in Long Beach

My last post was in July, 2013, when there were 47 SFR active listings in this price range, the rest being condos or own-your-owns. 

Surprisingly, the number hasn't really changed since then:  As of today in Long Beach there are 49 active single family home listings, with a total of 162 of all types.  See current listings  here.

Since the majority of these are condos, it's good to know that downtown Long Beach and Alamitos Beach offer quite a few opportunities in this range.  Due to the price range, many investors consider them as good rental purchases. Condos are a good opportunity, for the right buyer.  Just some of the things important to look into, especially for a first time owner-occupant buyer: 

1. Is the HOA already FHA or VA approved if that's the loan type being used? 2. For conventional loan buyers, does your lender want to see 70% owner occupancy, or is 52% OK?  You must this before writing an offer, and you should find out the owner occ % before writing an offer.  3. If an investor, find out first if the CCRs restrict the number of rentals, or allow any at all--why waste time finding out later you cannot close escrow without it becoming a primary home for you or an immediate family member. 

For the right buyer, a single family home opportunity is at Windward Village--a community of manufactured homes converting into a Planned Unit Development meaning the owner has his/her own plot of land inside a gated community with open space and recreational facilities. These are priced in the mid and low-$200,000's for homes in the 1500 sq. ft. range.  And, as with condos, you should consider your loan type and ask all questions from your lender as to what conditions could an appraiser expect to note--these may be issues for your loan as well.

Do you think a Spanish style bungalow in North Long Beach could be a great buy at $290,000?  It could, because you might also find one that's been "flipped", or was otherwise remodeled by it's most recent owner.  And because it's in clean condition, it probably won't last long.

If you're concerned about neighborhood crime conditions, or the schools serving the area, it's easy to look up this information at the sites for Long Beach Police Department and the Long Beach Unified School District.

Currently, the average list price for a Long Beach house under $300,000 is $263,000; the average list price for a condominium under $300,000 is $205,000.

For more information about any area in Long Beach, please contact me:

Housing Affordability in Southern California Is Once Again Raising Its Head

March 2014 Prices for Long Beach

Sales of lower to medium-priced homes have become a challenge. 

First time buyers are feeling the effects as inventory levels remain low, and multiple offers are a continuing feature of the market in many instances.   In the last year, some zip codes in the Long Beach area saw a 20% increase in the average price of a single family home, yet sales volume is low.  Younger, first time buyers are the most impacted by the increase--financing has higher requirements to meet and many younger buyers have heavier debts. 

"Housing affordability is really taking a bite out of the market," said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. "We haven't seen this issue since 2007."

Investor activity in the market has actually leveled off since 2013 as prices have risen, and combined with some buyer frustration and buyer loan qualification issues, this combined effects have actually left many homes on the market for longer, a paradoxical effect to the competition over certain homes.   The March stats for Long Beach, for example, show a 20% range increase to the average and median home prices of $450,000 to $504,000 for the last 12 months, as well as a very modest 15% increase in supply of inventory.  But that inventory is still well below the 6-month supply level, but still, it's an increase. 

So it's unknown how long this slowdown in the lower ranges may be here, but if you're a solidly pre-approved homebuyer who is financially prepared, seeing some houses sit on the market a little longer could mean the chance for you.

http://www.latimes.com/business/realestate/la-fi-home-prices-20140416,0,4794538.story#ixzz2z5asarPC

Appearances are Important, But Housebuying Involves More Than Looks

Everyone has heard of "flips". They were often foreclosed houses or condos bought, usually by an investor or some legal entity for the purpose of "fix and sell".

 

Often, they have updated or completely remodeled interiors that usually include granite countertops in the kitchen, new ceramic tile flooring in the baths plus new shower and tub tiled walls, all new sinks and toilets, stainless steel (or brushed stainless look) appliances in the kitchen, new paint, new carpet or newly refinished floors, sometimes new landscaping outside, maybe a new garage door, and if you're really lucky, a new roof.  What's not to love?   Anyone could get excited about moving into a new home that has that new look that will not need work for quite a while.

But since most buyers are obtaining financing (all cash buyers are about 30% of the market overall), the loan people have requirements.

What You Need to Find Out Before Making An Offer:

Did the seller acquire this property less than 30 days ago? If you're a "regular" buyer with standard financing, you will be locked out of making an offer on this property UNLESS is it a Fannie or Freddie property, owned by a state or government agency, an approved non-profit which handles HUD REOs or one connected to "Neighborhood Community Stabilization Program".

If the seller has owned the property up to 90 days, and the new sales price is 20% or more higher than what the seller paid for the property, then there are more issues: There must be a second appraisal (on top of the first one by the buyer's lender), not at the buyer's expense, but at someone else's, which could be another $500 to be paid up front when it's completely unknown if the two appraisals can somehow agree with each other (and many times appraiser don't agree with each other); additionally, another property inspection must be performed and paid up front by the loan officer.   THEN, copies of all work performed by the seller in renovation must be produced, which only a very caring property flipper will probably have on hand. Remember, property flips are often financed by short term loans by sellers who have never lived in the property and have no attachment to it, and whose disclosures to the buyer will probably be very minimal.  And even if you find a loan officer willing to front another $800 up front, this will not all be accomplished in a 30-day escrow. 

After 90 days? You're good to go.

Who the seller is, the length of time it's been on the market, these are very critical to know before an offer is made. And then the buyer will have to realize that should any items be called out on the home inspection by your inspector (there is no such thing as a perfect home), the seller almost always will refuse to do any additional repair because it's "already been done".  Perhaps, but anything your lender notes on the appraisal(s) will be critical before the loan can close, and if the seller refuses, you may decide to walk. 

SO, let your agent help you with finding properties that will meet your buying and lender criteria. Professional help can save you a lot of time and wrong directions.

Just Listed in The Lafayette

Lovely 10th floor studio unit in The Lafayette in downtown Long Beach. Faces south for panoramic city, neighborhood,

and ocean views. Lots of light in this spacious unit. Kitchen upgraded in 1995 with cabinetry, counters and ceramic tile flooring in kitchen/dining areas. The bathroom tile reflects the Art Deco historic style. Unit is close to the elevator. Visit the solarium on the 11th floor for more views, and the patio on the 7th floor. Extra storage units (see HOA for fee) are on availability basis. A former ballroom has become the association gym. Tax records show as one-bedroom, however, this is a studio unit with a Murphy bed in a double-door enclosed area in the living room area. Dining area offers direct views to the south. The historic Lafayette has a beautiful lobby reflecting its Art Deco past, and is located in prime urban downtown with shops, restaurants.

List price $193,000.  Lic 01188996

 

Note: Sold 4/28/2014 for $203,500. If you want a free market analysis for your property, please contact me!

 

A Few Things I Have Learned From My Clients and Selling Homes

Learning does not necessarily come in the form you think it will--sometimes you learn from mistakes, or you learn from what others tell you and what they know, or you learn from having been around that bend in the road before.  We are in the business of having to explain to our clients what they must do before, during and after transaction, and hence, we are constantly in the business of explaining and talking.  But the learning process goes in both directions.

I was so surprised when I was helping a buyer in  a purchase transaction for a WWI era Craftsman-style home to find out that those foundation blocks that look like solid concrete are in fact . . . hollow.  It turned out the particular house in question had a very poor deteriorated foundation on 3 sides.  The remaining side with hollow ornamental concrete block was providing the most support, which was not full support either. It turned out my buyer, who had prior experience with this type of foundation and didn't like them, knew and expected the concrete block to be hollow, a fact I ended up learning from this one client and which was emphasized by his physical inspector as well. Yes,  they finally bought the house anyway because in the end, he wanted an older house style.

I've learned this more than once:  Sometimes what people think they must have and they can't live without can be laid to rest if they find something that's desirable enough to make them forget their first "must have".  When working with a couple who had the expectation of buying at the standard of the brand new housing their parents could buy in the 1950s, I was beginning to wonder if I could sell them a home in a city of 50-year-old homes. After all, most houses have cracks in the driveway if it isn't brand new concrete.  I pulled up to preview a property and thought twice about going in--it had cracks in the driveway, among other things.  But I thought, what the heck, I'm here so I may as well look.  After seeing the vaulted and beamed ceiling family room, I knew I had to get them in there.  It turned out that was the feature that sold them on it, and even though the cracks in the driveway were noticed, they paled in comparison to the family room.

Sometimes the talkative partner who says they have the final word just turns out to not be the ultimate decision-maker.  If you have to talk about it too much, you're probably not it.  Like these birds milling around in the parking lot and not going anywhere, such people don't buy or sell because they don't come to an agreement.  "Meeting of the minds" is what makes everything move forward.

As Realtors helping our clients understand the market, we get used to telling them things, sometimes over and over.  And then again and again, because there's a lot to know in all that paperwork, and data about the market, and what comes from our knowledge and experience.  But, sometimes (and I learned this from a garage mechanic one time who was good at listening to me ramble on about my car's symptoms) people have their own intuition about their own deal. In the midst of a counter-offer meeting, the buyer insisted on a low price I believed the seller was unlikely to take, even though that market had more sellers than buyers. Maybe it was the glint in the his eye, but I decided to go ahead and print up the counter offer with the buyer's price.  With no further ado, the next day the seller accepted it, and escrow was opened.

So sometimes you know a lot, but you still have to keep your alert system on for incoming unrecognized sources.

Water Conservation in Southern California--It Can Save You Money!

Ironically, on the day of heavy rain last week in Long Beach, drought conditions were officially declared (again) by the City, and water restrictions were officially put into place, and/or reminded of once more. So diners must ask for water in restaurants, and water users are not to water more often than 3 days per week at specified times and for no longer than 10 minutes. Most people don't think about how much water a dripping shower wastes, or sprinklers that are constantly leaking--you can save lots of money by fixing these problems.

Here are 10 tips from the Community Associations Institute to conserve water, because about 60% of water usage is used outdoors, according to the Irvine Ranch Water District.

1. Water early in the morning or later in the evening when temperatures are cooler. Save 25 gallons per day.
2. Choose a water-efficient irrigation system, such as drip irrigation for your trees, flowers and shrubs. Save 15 gallons each time you water.
3. Maintain your irrigation system. Check your sprinkler system frequently for leaks, and adjust nozzles so only your lawn is being watered and not the house, sidewalk or street. A well-functioning irrigation system can save 500 gallons per month.
4. Water deeply, but less frequently to create healthier and stronger landscapes. Reduce water runoff onto sidewalk, streets, by watering as frequently as possible and for less time. For a free watering schedule, visit irwd.com. Save 12-15 gallons each time you water.
5. Monitor the performance of your landscape and adjust the run times up or down accordingly. If your lawn does not spring back when stepped on, it’s time to water.  Be sure to turn off your irrigation system when it rains, and depending on rainfall wait to restart. Save 1,100 gallons per irrigation cycle.
6. Consider investing in a weather-based smart controller. These devices will automatically adjust the watering schedule based on soil moisture, rain, wind and evaporation and transpiration rates. Check with your local water agency to see if there is a rebate available for the purchase of a smart controller. Save 40 gallons per day.
7. Replace your lawn with drought-resistant trees and plants. These plants are well suited for California’s mild winters and dry summers. They are low maintenance, use less water and don’t require soil preparation or fertilizing. Remember to contact your association and obtain prior architectural approval, if necessary.  Save 30-60 gallons each time you water per 1,000 sq. ft.
8. Plant the right plants for your climate. Use the Save Our Water-Wise Garden Tool to learn what plants and flowers will work best in your neighborhood. Or, download a free copy of A Homeowners Guide to a WaterSmart Landscape.
9. Put a layer of mulch around trees and plants to reduce evaporation and keep the soil cool.  Organic mulch also improves the soil and prevents weeds. Save 20-30 gallons each time you water per 1000 sq. ft.
10. Avoid using water for outdoor clean-up. Use a broom to clean driveways, sidewalks, and patios. Wash cars with a bucket, sponge, and hose with self-closing nozzle. Save 8-18 gallons per minute.

See http://www.lblawntogarden.com/ for the City of Long Beach conservation and rebate programs for residences.

For more tips and samples of drought tolerant landscapes, visit www.bewaterwise.com, http://saveourh20.org or download the toolkit.