Here’s a great 1920’s bungalow project. It’s a bank owned REO in a highly sought after neighborhood. I missed this deal yesterday literally by hours. By the time we went to submit an offer they had just accepted another one. There’s another great investing tip back story with this house, I’ll share it after I know it’s gone for sure.
“Welcome to San Diego, Now Go Home!” This was a popular bumper sticker back in the day and I kinda feel like the real estate market is telling me this. After spending the first few weeks settling in I’m now excited to started looking at property and assessing the local market conditions. Here’s my take as an outsider just arriving. There are tons of deals here but tons of competition to boot. Several agents have showed me stuff and of course I am searching MLS daily for hours and getting to know the “new” old system. I’ve found the San Diego market to be quite energized with a flurry of seasoned investors, newbies and first time home buyers all competing for what really appears to be a limited amount of inventory. When getting in a bidding war against a potential homeowner for a MLS property you’ll likely get outbid unless its an all cash sale. All the newbie investors that seemed to come out of the woodwork, are also bidding the MLS REO properties up to a point where its difficult to make a decent margin. Some of these guys are settling for skinny profits just to try and keep their volume up. Investors are commonly using POF from hard money lenders, tying up properties with a winning bid and then going back to negotiate round two after inspections. This isn’t anything new but seems to really have listing agents’ guard up here. Local wholesalers are running around town touting their overpriced deals as well. Foreclosures at the auctions have picked up this year substantially but you have several big players to compete with who are paying up to 90% ARV minus repairs. One of these investment groups is backed by Chinese investors and bought over 350 properties in 2010, that’s more than 30 a month. Another group is doing almost the same volume and a third player has about 20 million floating in entry level houses as this has been where the easy sales lie. It was interesting to see that the San Diego Courthouse foreclosure auction is daily, not just the first Tuesday of every month as in San Antonio. That shows you the volume difference here. There are many partnerships of guys doing 5-10 rehabs a year as well and they are all competing for the same stuff.
Being in a new market certainly has its challenges, even if it is my home town. Looking back at our move to San Antonio makes me realize how lucky we were to pick a killer rehab off, right out of MLS on day 3 after arriving. Reality is setting in now, its going to be way more difficult to find juicy deals here. I’m sure I can pull it off, after all we have no choice. There are several avenues I have to chose from, one being to chase down the 3/2 bank owned properties in MLS that basically just need cosmetics like kitchen, bath, flooring, windows, landscaping and paint. With this model I would be bouncing all over San Diego County for sure. The other avenue would be continue with our specialty which is finding the inner city bungalows which are generally 1/1’s or 2/1’s and very small at around 600 s.f. and do the larger structural rehabs adding master suites to them. I viewed quite of a few of these this week to get an idea what my competition looks like.
Here’s a sweet one in the neighborhood that I like. Checking out the rehabbed homes I was interested to see some of the material choices as well as paint schemes. This one is really cool and new construction but some of the other rehabs really lacked the design sense that I know help sell our houses. One rehab selling for top dollar still had some 1970 aluminum windows left in the kitchen, another had some new concrete steps blocking access to the garage and the craziest of all; the top dollar, king of the area rehab that’s now Pending for $650k probably had the worst prep job for paint than I’ve ever seen. This was new construction addition where none of the blocking between the rafters or siding was even caulked before they painted it. The eaves were raw OSB with roofing nails poking through. I was alarmed to see this quality or lack thereof on the highest comp in the area. A new friend told me I should be happy to see this, and I was: ).
The 4-5 adjoining neighborhoods that I have targeted as my new farm still have a plethora of distressed homes in them. These of course are not for sale nor in MLS. We’ve started to ramp up out direct marketing campaign or what I call “the system” that worked so well for us in San Antonio and have been pleasantly surprisedwith a 10% response rate from our efforts. Doing the big remodels will thin out the competition for me as there are no homeowners to compete with, the newbies just aren’t capable and even the big players don’t want to get tied up in a 6 month rehab because they have to keep their money moving, as its borrowed. For me this works great, we enjoy the larger projects because we don’thave to find that many deals a year and we can squeeze every bit of equity out of them by doing the construction ourselves. The big budget rehabs with big profits are where it’s at so I hope I can end up back in this model. You’re not just getting paid for adding the latest “pergraniteel finishes” but you’re adding real value and forcing the house to appreciate by the additional square footage. Hopefully this is where I’ll land but I cant wait forever to start finding them, so we might have to knock a few lipsticks down in the meantime.
Here’s an example of the diamonds in the rough I am finding. There are some great old houses here, its just going to take time to start getting them. If you are a wholesaler or agent and got one of these, or know of one for sale, please contact me, we pay top referral fees. With all the heavy competition here it apparently has corrupted a lot of the local agents. One Top Producing “bus bench ad” agent would not even accept a full price offer when it was Active in the computer, holding out so she could double-dip and represent the buyer as well. Other agents getting REO’s from the banks seem to magically have a buyer lined up at the same time they get around to putting them in the computer, very discouraging to see such unethical behavior. Short Sales in San Diego are all the rage, its easy to get a list of everyone who is upside down in the mortgage and then contact them and offer to help. You don’t have to be an agent to negotiate with a lender on behalf of an upside-down homeowner. Once you get a low offer accepted you sweep in and scoop the deal yourself for rehab. Being new to town I’m being very picky on what we write offers on, it’ll be interesting to see what direction we end up going. You have to stay flexible as an investor and change your strategy for the current market conditions but we aren’t giving up so quick and bowing down to a cosmetic skinny deal yet!
We are in San Diego now! Over a 10 day period I drove from San Antonio to San Diego twice, bringing 2 work trucks, a 26′ UHaul and the family SUV. The trip takes about 18 hours, it was way more difficult to get out of Texas than it was to go there but well worth the effort now that we’re back. Pulling into San Diego was the best feeling ever after our 4 year hiatus but unfortunatley we were blindsided with disgusting conditions at our house which had been rented in our absence. The place was so bad we had to clean, paint and repair things for 3 days before we could even unload the truck. Not what I was hoping for after the huge move. It was all worth it now and we’re busy settling in, hopefully soon we’ll be writing offers and landing some deals.
There are tons of bargains on San Diego Real Estate right now and a lot of investor activity and house flipping. All of the deals I’m seeing here are cosmetic rehabs, mostly bank owned stuff. Not to say that we wont get back into some room additions and huge projects but I’ll probably warm up with some light renovations while I build my team of sub contractors. I’ve sent in the application to take my real estate test so hopefully I’ll be licensed by the time we sell our first project. It’s been a crazy move, stay tuned for some updates from the front line as I start to look at potential projects soon.
After 60 days on the market, we sold The Target House last week. We had a flurry of activity right after Christmas and then someone popped up who had actually seen it weeks earlier. Their inspector told me this week he loved the house more even after the inspection and that my quality of work was 2 levels above most renovations he sees even in the nearby pricier Alamo Heights neighborhood. I’m really going to miss this project, its one of our favorite houses. The sale wont close until the end of the month but we’ve got alot of packing to do and loose ends to tie up before we leave town. The 30-day notices were flying last week, one to our tenants in SD and another to our landlord here in SA.
It’s been a great final year for us here in San Antonio but I truly feel we are leaving at the right time. When we first got to S.A. there were tons of other California investors here rehabbing but they fled when the market here slowed and simultaneously CA started to rebound. The San Diego real estate market reached a bottom in Q2 09 and throughout 2010 saw steady home price appreciation up until July where things started to back off a tad. Depending on who’s numbers you are looking at they gained back about 3-8% of the 35% they were down from 2005 peak. I’m sure interest rates will continue to creep up in 2011 and the big lenders will continue to dribble out the REO’s for everyone to fight over but even with the Fall sales decrease I am optimistic that San Diego will hold ground throughout 2011 and then really take off in 2012 if the unemployment situation improves. Of course there is the double dip crowd that sees the opposite and anything is possible. San Diego is on sale right now, and 2011 is going to be a great year there for experienced investors. It’s a perfect storm of higher affordability, low interest rates, tons of bank owned properties that need to be fixed up, decreasing inventory levels, price increases and first time buyers chomping at the bit after waiting nearly a decade to be able to get into the market.
We had tons of fun this year sharing our adventures on the blog and attracted alot of attention doing it. This Spring my blog was voted Top 10 Real Estate Investing Blogs by Biggerpockets.com. This summer I was approached by 2 different production companies to do Real Estate Reality Shows and we completed and sold 2 big rehab high-end projects; The Neighbors House and The Target House. My killer rehab called The Hat Trick House was also featured on the front page of the local newspaper this summer which drew the attention of a local City Councilwoman who called us in to consult on urban redevelopment for the City. Our blog traffic doubled from last years numbers to over 80,000 visitors and my YouTube channel is blowing up. Happy New Year to everyone who’s followed along with us, thanks for all your comments and in less than 4 short weeks you’ll get to see a Great change of House Flipping Scenery from us, San Diego here we come!
This is the last big weekend before the Federal Tax Credit expires on next Friday, April 30 so we are now in what I consider Last Call for this years hottest real estate sales period. Undoubtedly we are pulling future demand forward as everyone looking to make a purchase this year will try and have something under contract by next Friday. As many folks work during the week , today and tomorrow will be the last chance to get out and find something. The question remains though, what will happen to the real estate market after this credit expires? San Antonio will be o.k. but I’m not sure about less stable markets.
Sellers should be extremely cautious accepting offers this week as many buyers out there are simply not qualified, even if they are waving a “pre-approval” letter, as I personally found out several weeks ago. To get the $8000 back you just have to purchase an $80,000 house so we arent talking about the strongest buyers out there anyway. Couple that with a buyer going FHA and asking the seller to contribute 6k in closing costs sends up a red flag to me that they don’t even have the 3% to put down. Buyers not having any skin in the game simply shouldn’t be allowed to purchase a house in my opinion. It’s been said that some buyers are even tying up several properties at a time to make sure they get one that sticks so they get their free government handout. In this case the other sellers will get left out to dry with their properties going back on the market after the tax credit expires and in what could be the slower summer months. How many of these tax credit sales will wind up being next years foreclosures?
Neighbor’s House is under contract again, we had a back up offer so when the last buyer couldn’t arrange financing we went to plan b. Maybe 3rd time will be a charm, someones eventually going to be the lucky homeowner with the Coolest house in Mahncke Park.