Sunday, May 3, 2009

Flip Flopping in Chatham

During the peak of the bubble almost anyone was a successful flipper. House prices were going up so fast that just purchasing the house and a few months added money into the investors pockets. Improvements and updating were paying off for even the most incompetent investors. And those that knew what they were doing made off really well. Money was everywhere and it seemed crazy not to be a part of it.

The unlucky flippers were the ones that jumped in at the end of the bubble - not realizing that they were at the end of the bubble. Paying top dollar for a property and making expensive improvements have not been making people rich - they are just leaving holes in the investor's pockets. Between the slow housing market and buyers not willing to pay for over-priced or unnecessary improvements many flips are now flops. Which brings us to today's featured example.

Here is the property -

The front of the property.

The stainless steel kitchen.

The informal great room.

Here is the property info -

Recently renovated colonial in sought after Wickham Woods. Spacious rooms, wonderful Family and Great rooms, 2 tier decking and level open yard. Great for entertaining.

Property Features

  • Status: Active
  • County: Morris
  • Subdivision: Wickham Woods
  • Year Built: 1971
  • 4 total bedroom(s)
  • 2.5 total bath(s)
  • 2 total full bath(s)
  • 1 total half bath(s)
  • 12 total rooms
  • Style: Colonial
  • Master bedroom
  • Living room
  • Dining room
  • Family room
  • Kitchen
  • Basement
  • Laundry room
  • Bathroom(s) on main floor
  • Master bedroom is 17x13,Includes: Full Bath, Walk-In Closet
  • Living room is 20x13
  • Dining room is 15x13,Formal Dining Room
  • Family room is 20x14
  • Kitchen is 16x14
  • Basement is Finished
  • Hardwood floors
  • Fireplace(s)
  • Fireplace features: Living Room
  • Spa/hot tub(s)
  • 2 car garage
  • Attached parking
  • Parking features: Built-In Garage
  • Heating features: 1 Unit,Gas Water Heater,Gas-Natural
  • Forced air heat
  • Central air conditioning
  • Cooling features: 1 Unit
  • Exterior construction: Vinyl Siding
  • Roofing: Asphalt Shingle, Wood Shingle
  • Pets allowed
  • Lot features: Level Lot, Open Lot
  • Approximately 0.52 acre(s)
  • Lot size is between 1/2 and 1 acre

Here are the financials -

  • The property was purchased in February 2007 for $1,190,000.
  • The original mortgage at time of purchase was for $850,000 with an adjustable/fixed ARM with CitiMortgage.
  • A HELOC was opened February 2009 for $145,000 with PNC Bank.
  • The property is currently for sale with a realtor for $1,175,000.
  • The current year's property taxes are $17,078.21.
The property was purchased just as the bubble was popping. The new owner invested at a most unfortunate time in the cycle. For each day the renovations went on the house's value was declining. A long-term renovation (this appears to have taken over 2 years) that may have paid off well during the boom years now is taking an expensive toll.

We do not know how costly the renovations were but just adding property taxes and the lower purchase price and the realtor pay this investor will lose at least $115,500 off of this investment - plus every penny put in the renovations. And on a property like this one would assume the renovations would have been expensive.

Update - It was just brought to our attention that what shows us as a realtor is a flat-rate listing service - costing about $500 not the 5 or 6 percent realtor fees. This owner is trying to save as much as possible - so the corrected loss will be approximately $45,500 plus renovations.

For those interest in purchasing the property, if they are able to put 20% down and received a 30-year fixed at today's Bankrate rate of 4.92% the monthly payments would be $5000.26. Adding in the property taxes and the monthly payments would be about $6423.44 per month - plus utilities and insurance.

For the other interested in parties that are unable to put even close to 20% down lets look at some other numbers. Using our favorite new calculator that includes the PMI charges and the new rate, a potential new buyer is only able to put down 5% or $58,740. The monthly mortgage payment would be $5937.81, plus a PMI of $725.56, and the taxes of $1423.18 totaling $8086.55. And for a buyer who puts only 3% down - the mortgage would be $6062.82, PMI now $987.78 the taxes stay at $1423.18 for a total monthly payment of $8473.78. Plus utilities and insurance of course.


Anonymous said...

This one will be fun to track. I expect them to take a bloodbath loss. All those so called upgrades will be loss plus some more.
I bet these flippers will never be flipping again after this disaster.

NJHH said...

Thanks for the input! Would love to know what the upgrades were - definitely not off the shelf from Home Depot.

Definitely will have to revisit this one in the future and see the status. Perhaps this weekend we should revisit some previous examples to see what the losses ended up being!