The Flipping Indicator – New Projects Vs. Flipped Homes

The previous Landed blog posted by Land Advisors’ Los Angeles Urban Infill Team highlighted the value increases placed on flipped homes throughout a variety of Los Angeles neighborhoods.  (Re-read: Flipping Over L.A.: Out With the Old, In With the New)

For this post, we take our analysis a step further and compare how values of flipped single family detached homes correlate with those of newly constructed small lot detached and townhome units.  Conveniently, two public homebuilders have opened up projects in Northeast Los Angeles within the past week:

  • The first is Pulte Home’s project in Eagle Rock called Mosaic.  The project consists of 18 Small Lot Detached Units.
  • The second is D.R. Horton’s project in Echo Park called 36 on Echo.  The project consists of 36 Townhome units.

The first chart below represents average sales prices for flips that occurred in Eagle Rock and Echo Park.

This second chart below illustrates the asking prices at both new projects.

In comparing the two charts, note that the average square feet of the flips in each neighborhood is between the smallest and largest unit size at each new project.  You can see that the average flip pricing on a price/sq. ft. basis in each neighborhood lands squarely within the expected price/sq. ft. revenues at each project.  On a nominal pricing basis, the project in Echo Park exceeds the average flip values in the neighborhood, while the project in Eagle Rock is in the same range as the flipped homes in the area.

Why is this significant?  In our experience, properly projecting revenues on infill projects is a difficult task and has chased away a fair share of possible builders and developers.  By utilizing the correct data and local market indicators, the Urban Infill Team has created a system that helps instill a sense of comfort on project pricing for planned infill developments.

Land Advisors’ Urban Infill Team was involved in the acquisition of both of the above referenced projects, and our projected pricing was very similar to the values illustrated above.  If you are interested in discussing valuation, acquisitions or dispositions in the Urban Los Angeles market please contact…

Source:  Chris Gomez-Ortigoza, Marketing Consultant, (626) 376-9840 ext. 14; Richard Byrd, Senior Marketing Consultant, (626) 376-9840 ext. 13; and Tim Barden, Marketing Consultant, (949) 852-8288 ext. 30

Flipping Over L.A.: Out With the Old, In With the New

On March 10th, the Los Angeles Times printed an article by Alejandro Lazo titled, “Investors Flip over Highland Park Homes.”  This article details how investors are purchasing physically and/or financially distressed homes in Highland Park at severely discounted values, and renovating both the interior and exteriors of the homes.  Once the homes are upgraded, the investors put them back onto the market, where they are quickly snatched up by young hipsters and urbanites, yielding great returns for the investors. 

While Lazo’s article does a good job of summarizing the L.A. flip story, his article only begins to illustrate the dramatic home flip activity in the denser, urban areas of Los Angeles. 

In the last 24 months, the Land Advisors Organization Urban Infill Team (Richard Byrd, Tim Barden and Chris Gomez-Ortigoza) has utilized a proprietary method to create a “Flip Analysis” in areas including Hollywood, Silver Lake, Mid-City, Echo Park, Eagle Rock and Pasadena.  In completing each Flip Analysis, the Team is able to draw conclusions and provide concrete information regarding the values that new home buyers place on turnkey homes in a specific neighborhood.  Providing the Flip Analysis creates a level of comfort for builders and developers assessing values, as it illustrates the tremendous demand each flip creates.  More importantly, it shows land buyers the range of values they can expect for a new development in neighborhoods that have little to no recently built, comparable projects. 

The chart below illustrates average values associated with a handful of “Flip Analyses” that we have run during 2011-2012.

The data above represents only averages associated with flips in each neighborhood.  The value increase for individual flips varies with the amount of work done on the home.  Homes with minimal improvements, such as new sod and paint may command a 10-20% increase in value.  Completely gutted and remodeled homes regularly command 50-100% increases in value and more than double in value in some instances. 

As a final snapshot of the Los Angeles infill market, a recent flip analysis illustrated that approximately 18% of flipped homes in Eagle Rock sold for 3% or more above their flipped asking price.  With multiple offers for each property, the turnkey home values are being bid up above asking prices and are creating higher values that positively affect the entire neighborhood.  In today’s market, this is a great sign of what is to come and shows the demand for both new and turnkey homes is alive and well in Los Angeles. 

If you are interested in hearing more about the L.A. Flip Analyses, please contact Land Advisors’ L.A. Urban Infill Team.

Source: Chris Gomez-Ortigoza, Marketing Consultant, (626) 376-9840 ext. 14; Richard Byrd, Senior Marketing Consultant, (626) 376-9840 ext. 13; and Tim Barden, Marketing Consultant, (949) 852-8288 ext. 30

PFAR MLS was used to source all resale information.

Central Valley Housing Market on the Mend?

Home sales are typically slow everywhere in December but some markets in the Central Valley showed signs of life at the end of 2011. According to Affiliated Appraisers, the median sale price for existing single family homes in the Bakersfield area was $132,000 in December 2011, up 9.6% over December 2010. The supply of active listings of homes for sale dropped 9.3%.  Foreclosures continue to significantly weigh on the market as bank-owned property accounted for roughly a third of the homes sold in 2011.

Investors for single family homes, who buy property to rent to tenants, are returning to the Central Valley, and made up roughly a third of home sales in 2011.  Some successful investors were able to “flip” property for a profit.  Affiliated Appraisers reported that 23 homes were “flipped” in the Bakersfield area since April 23 of 2011. 

Home prices have fallen a whopping 56% from the peak in June 2006 (current median home price is $131,500).  As long as banks do not flood the market with distressed product, home prices should remain somewhat stable in the coming months.

As a consequence to uncertainty in traditional financial investments like stocks and bonds, Central Valley investors have now turned to existing multi-family buildings. As banks continue to work through their single family detached REO inventory, this seems like a logical place to deploy capital. Occupancy rates are hovering around 90% for even for C and D level properties.  The Bakersfield area market had over 160 multi-family residential sales transactions in 2011.   However, it still makes little sense to develop new multi-family land at this point, as direct costs and fees are prohibitive.

Source: Jason Hepp, Senior Marketing Consultant, (661) 702-9080 ext. 14