Phoenix Real Estate Market Keeps Tanking (Mesa, Chandler: sale, HOA fees, loan)

[MN-Born-n-Raised]

Originally Posted by Captain Bill

It doesn't matter what an individual, or a rehabber paid for a property.

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Agreed. If I found a $100 bill on the ground, should I sell it for $50??

[stephen431]

Originally Posted by azriverfan.

I'm already seeing the flippers in action.

I'm seeing this in my neighborhood too. Over the past 2 months I've been seeing houses getting sold, fixed up, and a new "for sale" sign in the yard 3-4 weeks later. In fact, the house right next door just had its exterior walls pulled down to the framing and has new insulation being installed. Its a rental property and I was really hoping the owner would finally sell it to someone who actually plans to live there.

[ReadyFreddy]

Originally Posted by bgray9

A lot of these flipped homes we've watched over the last months are bought and then are back on the market very quickly, sometimes within a couple weeks, sometimes a month or two.

The problem we saw with buying a flipped home is that a lot of ones we looked at, the flipper didn't have a quality job done on the things they did. It's a headache to get that stuff done yourself (we're going through that right now), but in the end the net you pay is much lower and you also get to decide how a lot of things are done (paint colors, appliances, etc.) instead of the flipper making those decisions.

I agree, but some of us don't like the decisions any better than the headaches. With a "done" house, you don't have to speculate on what ext. paint color would look good, what landscaping, how the dining room wall would look knocked out, etc., etc.

I think today's "flippers" are necessarily "rehabbers" so there's not much need to distinguish. Even in the height of the market run, the flippers I knew did (mostly cosmetic) improvements to the houses.

I also wholeheartedly agree with you will never see, and should never see, profit caps in America. Capitalism is based on maximizing the profit motivation. The check mechanism against "too much profit" is that as a task becomes very profitable, competitors enter the field, driving prices down, and/or buyers refuse to pay the high prices, driving prices down. But as long as people are willing to pay 'rehabbers' to buy and fix the house up and sell it at a profit, that's a valuable service they're providing. Especially for the 'cash only' auctioned houses. If they buy it and make it a mortgage-able property, that's a big service.

[azjack]

"I'm already seeing the flippers in action. Three houses I'm watching were purchased for fire sale prices and in less than a year, they are back on the market listed for 30%-40% higher than what was paid for them. And they really didn't do much but essentially clean up the places (new paint, mowed the lawn, furnished the home, took better pics). It's ridiculous. What's comical is that in the internet age, you can see what the flipper paid for the home 8 months ago. Do they really think people are that stupid and desperate to pay $200K-300K more for a home that was purchased a year ago when they did nothing? The Greed is back!"

It really is silly for an end user (or any user) to pay a premium. But people will do foolish things. The long-term supply of foreclosed houses in Maricopa County will remain abundant. I look at the records of streets that I know, and see the past foreclosures. And then see all of the 2003 (sometimes earlier) - 2008 purchase prices and loan amounts that far exceed the house's value. For every bank-owned bargain (bid higher or not), how many people are brought closer to capitulation? I can not say that I know with absolute certainty, but my gut tells me that close to 100% of those in that situation will eventually choose foreclosure (or try to mitigate with short sale, other scenarios).

Of course, many already have capitulated, but there is no public record of their loan not getting paid for the last 3, 6, 9 months or more. How soon Trustee Sale notices are filed seems to be largely luck of the draw, but clearly Fannie, Freddie, FHA, etc will have plenty of inventory in Maricopa County on their hands. A tighter MLS inventory is just not a good reason to overpay when the large-scale picture is quite different.

[Captain Bill]

Originally Posted by bgray9

So in that example, you pay someone else $80,000 to do $25,000 of upgrades/repairs for you. Maybe that seems like a good deal to some, but not to me.

If you give a little more thought to it, you'll see that, if an individual takes on the same project they will have close to the same expenses, and probably more.

• It's going to cost them time and money to have someone find that house and bid on it for them, because about the only place one can find a home to rehab today is at the trustee sales.
• They will have the same closing costs for the purchase, title insurance, escrow fee.
• They will have the same carrying costs of the vacant home until they make it move in ready including insurance, utilities, HOA fees, and so on.
• They will either pay cash, use hard money, or have a mortgage.

It will probably cost the individual more than the $25,000 that it would cost an experienced rehabber who has the contractor sources and knows how to be sure s/he's not overpaying for the work.

Plus they are going to have to manage the project themselves, or pay a general contractor a fee for managing the project. Then they still have to oversee the contractor.

The only amount that would not be in there is the final sales expense, as long as the owner keeps the house. But at some point in time if they sell the home, they will incur sales expenses. Therefore, they will probably have more than an $80,000 cost to rehab.

To me, if I didn't want to do the work myself or manage someone doing the work, I'd shade toward an owner-occupied house. We looked at a number of flip/rehab houses in the Phoenix area where when you looked closer, you could see that they cut corners to make things look cosmetically good, but that there would be problems down the road.

I agree, and on some it only takes a glance to tell there are corners cut.

Sure, some do a better job than others, but that can be hard to determine in the limited time you have to figure out if you want to buy a house.

I agree it's hard for a layperson. But I can walk into a home that's been rehabbed, and tell within a couple minutes if corners have been cut. That's because I am an experienced rehabber. I didn't do any rehabs in 2011 because the homes were too difficult to buy. But with my buyer clients I see these homes every day, and I cringe when I see the bad job that some of these people have done.

I agree that setting artificial limits on these folks' profit and such things don't make much sense. Let them try to make a buck, or risk losing a buck, if they want to.

Right, that's what free enterprise is all about. And I think that those who have suggested that, would also agree, after giving it some more thought.

[Captain Bill]

Originally Posted by azjack

... A tighter MLS inventory is just not a good reason to overpay when the large-scale picture is quite different.

I don't think anyone overpays when they are paying 1999 prices for a home today.

I'm not sure what your "large-scale picture" is, or who drew it. However, there are others who also have a negative view, even in a positive environment, and of course everyone is entitled to their view.

Here is a negative view by Trulia:

...Arizona also went through a period of significant overbuilding that has left its housing market hurting. Since home prices peaked in the state, they have fallen by 47.9% — the second largest amount in the country.

The excess inventory of inexpensive housing is expected to continue to depress prices for some time. Prices are projected to drop another 7.2% from the third quarter of 2011 to the third quarter of 2012 — the third largest decrease in the nation...

Not only do they have a negative view, it's also inaccurate.

"The excess inventory of inexpensive housing" Tell that to our buyers who are faced with multiple offers on every home they offer, with the winning bids going far above list price.

The Phoenix Metro area average price per square foot is up 12% from September 2011 to today.

If Phoenix is to meet Trulia's forecast then it will have to drop 19.2 % during our busy season, by the end of September. I don't think that's going to happen, so we'll wait until the end of September to see what Trulia says then.

[AZ bound]

Originally Posted by MN-Born-n-Raised

Agreed. If I found a $100 bill on the ground, should I sell it for $50??

Sure. Send me a DM, and I'll buy it

[ReadyFreddy]

It really is silly for an end user (or any user) to pay a premium. But people will do foolish things. The long-term supply of foreclosed houses in Maricopa County will remain abundant.

It's not even abundant now, and its shrinking.

It's a premium to you but not to those buyers, which is why they're all getting sold.

A lot of home buyers are women these days. A lot of us don't want to deal with contractors and painters and landscapers and countertop installers. We've got jobs and kids and other hobbies. A lot of men don't want to rehab a house in their spare time, either. Preferring to pay someone to do it for you isn't silly or foolish.

It doesn't matter much how much profit the rehabber is making. When I buy a house I compare it to other houses in the same price range, not its historical sale price. I'll take note of the prior sale price, mainly to note its likely condition at the time of sale and I do often think, "I could've done this much repair for well under that mark-up!" But now that I'm in there doing it, I know I underestimate the costs and the headache factor.

Plus there's the risk the rehabber took on. What if house prices tank further during the rehab? What if the house winds up needing more repairs than the next sales price can support? They need to apply some skill and capital to make it come out profitable.

[Captain Bill]

Quote:
Originally Posted by MN-Born-n-Raised
Agreed. If I found a $100 bill on the ground, should I sell it for $50??

Originally Posted by AZ bound

Sure. Send me a DM, and I'll buy it

I'll give you $60 for it.

[MN-Born-n-Raised]

Originally Posted by Captain Bill

Quote:
Originally Posted by MN-Born-n-Raised
Agreed. If I found a $100 bill on the ground, should I sell it for $50??



I'll give you $60 for it.

I finally sold that $100 bill for $70. I just felt guilty asking what the market was willing to pay because I got it for free. I felt "greedy".