Fix and flip investors pulling back in LA?

38 Replies

@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.

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.

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

Hi @Cedric B. ,

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.

I own places in Hollywood Hills and OC, and I shop around a but in Hollywood Hills. What I'm seeing is that the asking prices are quite a lot higher than selling prices these days. There's always that gap, but right now it's gotten very large. Great houses priced right sell very fast. The overpriced stuff sits forever, buyers just won't touch them. I agree with Cedric, a lot of flippers are putting lipstick on a pig. Once in a while it works, if the place has a great view or something else that interests buyers. I see old houses on tiny plots of land, and they're all decked out and staged....they sit forever. I see some houses getting pulled off the market after multiple price cuts and they end up as rentals. 

I've also see absolutely TERRIBLE stuff priced 25-30% over market value, and this is bad for all sellers. It sends a message to buyers that the market is unstable and sellers are crazy. Buyers pull back and start to say "hmmm, I'll wait for the next crash." Buyers are in no rush these days from what I am seeing, maybe because of the media talking about the economy slowing down.

@Julian L those are great numbers, would you share what part of LA? zip codes? I'm actively looking to buy 2-3 flips under $500,000 each. If you're an agent I'd like to use you to buy the houses if you want.

My last deal was in zip 90018 on Ruthelen St, I paid $510K put in $85K and sold it for $760K in 17 hours and she closed in 21 days with 30% down payment

@Kenneth Kussman   The last few deals I've done the buyer all depends on the price point and location of the home.  

$360,000 SFR in compton was a first time buyer, she was a teacher who wanted to be in that area. She did an FHA loan. Sold in 8 days full price

Silverlake $635,000 sales price was bought by a couple in their 30s with no kids. They got the 25% downpayment from the girl's parents, both people work in LA make probably $150,000 combined income. Sold in 14 days 96% of list price

Watts Duplex for $350,000 buyer was a nice family who owns a lawn care business, bought it with an FHA loan, sold in 7 days full price

Jefferson Park $759,000 sales price, it was bought by a nice lady in her 30s, she makes $15-20,000 per month as a financial adviser and put down 20% herself

Long Beach $500,000 sales price, bought by an investor in a 1031 exchange, he paid full price all cash and closed in 21 days. He sold a 10 unit in Inglewood and needed to buy $2,000,000 worth of property immediately , as the seller I had good luck and good timing. He converted the garage to an apartment and he gets $4,000/month rent on $500,000 invested

A friend flips in Highland Park and his buyers are all over the map. 20 something French girl who obviously has a rich family paid $880,000 cash for a house. Elderly couple paid 1.1M cash. Another buyer was a music producer, paid 1.2M cash. Another buyer owned 3 restaurants and put down 30% on $850,000. Another one was a husband and wife who are both engineers and make almost $360,000/yr they put down 20% on $869,000. 

If you go into the inland empire the prices are lower and almost all of my flips are sold to buyers with 1% down, 3.5% down or 100% financing. I cant think of any sales i've done in the inland empire where the buyer put down more than a 5% downpayment 

I am currently whole saying and representing an investor client in the SoCal area so I find this topic very interesting. I find markets like Inglewood and Culver City to be still  good for aggressive returns. But yeah beyond that, I find myself searching for those needle in a haystack, adjudicated property deal. I've found good deals in Roseda, Pasadena, etc. But they are a dime dozen and you really have to work hard for them i find. 

Originally posted by @KJ L. :

@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.

Interesting. Will check out Vermont Square. Thx!

@Peter Hanson How are people getting 100% financing???

Thanks for providing the information regarding the transactions you've seen. It's a little unreal how much cash is floating around in Los Angeles.

@KJ L. VA, CALHAFA, USDA, SILENT SECOND MORTGAGES, last sale in Perris they got 3 LOANS but they never told me that. Somehow it still closed in 30 days! I only found out buyer got 3 loans by accident, escrow told me when they got approved. It was supposed to be 1 loan but escrow slipped up and said "yeah! buyer got approved for all three loans..."

I was like "......uh....what?"   Buyers are totally tapped out. Rialto buyer had to borrow $800 from his cousin to buy a new water heater LOL.  People are crazy.