Fix and flip investors pulling back in LA?

Julian L.

Los Angeles, CA · Member since 2014 · 76 posts · 36 votes

7y

I haven’t noticed a difference at all. I’m in south LA. A flip tha was purchased in Feb for $499k just sold for $790k.

4 Reply

Brett Goldsmith

Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes

7y

Things have been slowing down on the diposistion side for retail buyers. I'm seeing seeing a high demand for great deals on my short sale listings from investors. I'm still interested in purchasing great deals in LA county myself but am more wary of homes that need to sell Est. 1.5M+ on the backend.

Exavier Hamilton

Lender · Los Angeles, CA · Member since 2018 · 95 posts · 16 votes

7y

To answer your question as a lender. (Yes) Even if you haven't been affected by it now you will in the very near future. The affects are trickling down. The big guys are pulling back and shifting their focus.

OP

Lender · Hermosa Beach, CA · Member since 2015 · 70 posts · 32 votes

7y

@Nabil Suleiman @Brett Goldsmith @Exavier Hamilton Thanks for your feedback. Everything you guys said makes sense and is in line with what I'm seeing.

@Julian L. I have noticed there are still plenty of end user buyers in areas still going through gentrification or in the entry level neighborhoods. I am just noticing there are not as many investors willing to take the risk to flip anymore even though there are still plenty of buyers for their product. That deal you mentioned had a nice spread but must of needed a lot of work to take so long to turn around. Are most of the flips you are seeing similar to this?

Matt Devincenzo

Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes

7y

This isn't for LA specifically, but SoCal...here in San Diego. A friend from Church flips and mentioned this summer they were sitting on 6 homes for an extended period of time....essentially all summer, for no apparent reason even with price drops ect. They are seriously rethinking any new acquisitions and what a comfortable spread is going forward.

We bought a new primary in Sept that should have been snatched up. After 60 days on market, and 30K in price drop from 569K to 539K, we got an accepted offer at 520K....it's a fixer but any other time it would have been a flip for a 700K exit.

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

7y

Originally posted by @Matt Devincenzo:

This isn't for LA specifically, but SoCal...here in San Diego. A friend from Church flips and mentioned this summer they were sitting on 6 homes for an extended period of time....essentially all summer, for no apparent reason even with price drops ect. They are seriously rethinking any new acquisitions and what a comfortable spread is going forward.

We bought a new primary in Sept that should have been snatched up. After 60 days on market, and 30K in price drop from 569K to 539K, we got an accepted offer at 520K....it's a fixer but any other time it would have been a flip for a 700K exit.

Interesting. A guy bought a flip near my house for 1.1m. I figured he was insane. He put about $300-$400k in and has listed it for 1.9m. Now at 1.8m. It’s been listed for sale for 8 months. He keeps dropping the price a few bucks at a time to keep his property on the email blasts.

Anyway. I’d have to think his holding costs are killing him. I’ve offered him $1.3m. He’ll take it at some point.

Arash Sayyar

Developer · Irvine, CA · Member since 2018 · 9 posts · 3 votes

7y

@David Varvaro

This is a great discussion!

As a Newbie it is a bit discouraging since I am counting on couple of flip projects (along with new builds) for my next year plan where I want to go full gear REI! It seems that some feel the subject of Flip in SoCal! (except for higher market) belongs to the past. I hope they're wrong!

Although public awareness/interest on the subject is still on (maybe reality TV affect!)

Shawn Ward

Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes

7y

Not pulling back. Just looking for larger spreads now. Will put more low ball offers out and try to find very motivated sellers.

Summer Brighton

Real Estate Agent · Los Angeles, CA · Member since 2017 · 27 posts · 11 votes

7y

@Shawn Ward @Arash Sayyar @David Varvaro The buyers are most definitely still there for well-designed thoughtful flips under (or around) a million, so I think those willing to be bold will be rewarded. Some of the flippers we work with are pushing just a little past the bubbles where the comps are obvious, and so far it's worked well for them. I'm doing research to do one this winter myself, and I'm surprised to see what people are passing up right now.

@Julian L. I'm seeing the same thing.

OP

Lender · Hermosa Beach, CA · Member since 2015 · 70 posts · 32 votes

7y

@Arash Sayyar I definitely agree with @Shawn Ward and @Summer Brighton. There are still opportunities and still buyers but it's just not the frenzy it has been over the last few years. I think it is actually going to lead to better deals because there will be less competition.

I just helped a client buy an off market fixer for $33K under asking. Last year I would see investors bid so far over asking on fixers that they were actually paying close to the ARV. It didn't matter if it was a good deal or not, they just wanted it because they knew someone would overpay for their end product. Renovated homes were getting multiple offers well over asking and would sell the first day it came on the market so they could justify paying so much.

Now, end buyers want deals too so you can't set your listing price as the new high in a neighborhood by a $100k and think it will sell because it's newly renovated. You have to be smart, make sure the spread is large enough and make sure you are putting a quality product on the market at the right price.

Kenneth Kussman

Investor · Irving, TX · Member since 2015 · 101 posts · 23 votes

7y

What do you consider entry-level neighborhoods in the Los Angeles area?

Jeff C.

Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes

7y

There are tons of nicely remodeled great looking flips just languishing on the market right now, undergoing price reduction after price reduction. These would have been gone in days a year ago. Many are definitely not going to be profitable, judging by their acquisition costs and current listing prices.

Rental Property Investor · Los Angeles, CA · Member since 2017 · 210 posts · 155 votes

7y

@Kenneth Kussman entry level neighborhoods in LA are primarily in south LA because the prices are lower like Jefferson park, Crenshaw, west Adams, Vermont square, etc. There have been quite a few new young families moving into the Vermont square area (where we live) and they’re all young professionals buying their first home in LA.

4 Reply

Kenneth Kussman

Investor · Irving, TX · Member since 2015 · 101 posts · 23 votes

7y

Hi,

I grew up in Glendale. I moved to Dallas Texas 10 years ago for a good job offer.

I come back to LA all the time, this weekend in fact. I have watched so many areas go from ghetto to very nice.

When you say South Los Angeles, that was a rough area. So are the low-income residents being pushed out and new home buyers moving in and upgrading or re-building the homes there?

Are you talking about the areas around USC, or Crenshaw, or maybe even Watts?

Sounds interesting. What do the fixers go for in South Los Angeles areas?

Ken

Rental Property Investor · Los Angeles, CA · Member since 2017 · 210 posts · 155 votes

7y

@Kenneth Kussman
The South LA areas have an aging population and there are alot of elderly individuals selling their properties and leaving the area, probate sales, and family members are inheriting homes and selling them as well. South LA has favorable zoning as well; our street is primarily R2-R3 zoning.

If you drive the neighborhoods, you'll see a lot of wheelchair ramps and accessories for the elderly. There's a lot of flipping occuring in the area and there's also been more focus on student housing development as USC continues to expand.

There's also been a few new projects in the area like LAFC stadium, the George Lucas Museum, LACMA's new South LA project near the swamps, and even new bars and coffee shops (starbucks) showing up near Jefferson Park. CD9 has also been focused on cleaning up the parks in South LA which has been attracting more people to the area.

The neighborhoods I'm referencing are primarily Leimert Park, Crenshaw District, Jefferson Park, West Adams, Vermont Square, Ladera Heights, Baldwin Hills, Expo Park, etc. We tried searching in Watts, but the prices there have increased a lot as well and even though others are flipping down there, I'm personally not interested in Watts. We've also heard that investors are moving into Compton. We've seen more movement in San Pedro too since SpaceX is expanding their presence there and there are other projects going on in SP.

Rental Property Investor · Los Angeles, CA · Member since 2017 · 210 posts · 155 votes

7y

@Kenneth Kussman
Oops, sorry I didnt answer the last part of your question. We've seen flips go for $650k-$1MM in South LA depending on the neighborhood. If you're looking for a flipped SFR in Crenshaw you'll probably pay $800k+. If you're looking for a flipped SFR in Baldwin Hills, you'll probably pay $1MM+ and in Vermont Square area $5500k+. And of course, the closer you are to USC/Coliseum and the further north you are, the more you'll pay.

Idk how much the softening RE market will affect the prices in our area.

Darrell Lee

Investor · Springfield, VT · Member since 2014 · 158 posts · 75 votes

7y

Sounds like the market is running out of steam... It's time sell and invest in cash flow properties...

0 Reply

Peter Brach

Investor · Pasadena, CA · Member since 2016 · 44 posts · 11 votes

7y

I thought that new laws allowing for additional building would enable developers to increase profits on choice properties. Any thoughts about that?

0 Reply

OP

Lender · Hermosa Beach, CA · Member since 2015 · 70 posts · 32 votes

7y

@Kenneth Kussman Entry level in my part of LA (South Bay) is Hawthorne, Gardena, Lawndale, Lomita, parts of Inglewood and Lennox. Basically working class neighborhoods that aren't the greatest but aren't war zones either.The key is finding the little pocket neighborhoods. Prices for fixers usually in the $500-$600K range.

Kenneth Kussman

Investor · Irving, TX · Member since 2015 · 101 posts · 23 votes

7y

What I can't figure out is who's buying these homes. Are the jobs in Los Angeles as well as Los Angeles County that high paying ?

0 Reply

Rental Property Investor · Los Angeles, CA · Member since 2017 · 210 posts · 155 votes

7y

@Kenneth Kussman The people who are moving into the flips in our areas are mainly young couples (i see a few DINKs - dual income no kids) who have received inheritance or most likely have 6-figure household incomes. Like us, they're probably just exchanging their rent expenses for mortgages.

Geo Tan

Real Estate Broker · Los Angeles, CA · Member since 2016 · 112 posts · 34 votes

7y

Just recently attended a conference and most of the flippers that were on the panels were saying what the vast majority here are, in regards to a lot of flippers slowing down and making spreads larger. They've been focusing more on offloading their remaining flips and aren't acquiring any new ones until they know how the market goes. Interest rates are still going up and many development groups have been saying that it's going up so they have a cushion to drop back down to when the correction hits full momentum. It's a very odd time in the market, especially in LA County in my opinion.

Account Closed

Los Angeles, CA · Member since 2018 · 95 posts · 46 votes

7y

Originally posted by @David Varvaro:

Just curious to see what most Los Angeles area investors are looking for these days. I've noticed a significant change in the demand for fixers in the LA area over the last year. A year ago, you could list anything that was a fixer and it would sell with multiple offers over asking within a day.

Now most of my investor clients are passing on most traditional fix and flips even off market properties with nice spreads that they would have swooped up year ago. Almost all of them have shifted to higher end markets and are only buying complete tear downs and doing new builds or smaller MF complete rehabs.

The market has softened somewhat but there is still a high demand in most of the entry level neighborhoods. Just wondering what other investors are focusing on in the LA area.

hi David,

how is the higher end doing in LA? i see most new constructions selling in the 2 - 4 millions in LA move pretty quickly (less than 3 months)

There is without any doubt a slowing down in southern california but maybe part of the problem lies in the quality of the flips and more generaly the real estate. The market is just becoming normal and more reasonable. Truth is 99% of real estate in LA is absolute garbage, and the prices cannot be pushed up forever on obsolete junk houses. Litteraly anyone can do a flip, hence the increasing loss of interest for rehabbed homes. Customers are more careful and want value; investors will have to work harder and harder to make their money. You can spend as much as you want in upgrades and renovations a bad house will always remain a bad house. I've seen since 2012 the interest shifting toward modern homes with new sleek and efficient and cost effective designs

OP

Lender · Hermosa Beach, CA · Member since 2015 · 70 posts · 32 votes

7y

Hi @Account Closed,

I definitely agree that if you are flipping these days you must turn out a very high quality product. In higher end areas, it's more cost effective to just pay the land value and do a new build because that's what end buyers are expecting in that 2-4 million price range. I def have seen developers dropping their listing prices as more and more new builds come on the market though. Usually if you are priced right and have a quality product in the right neighborhood, it will sell. It's just taking weeks not days to sell now.