What's up with these "opportunities?"

User Forum Topic
Submitted by profhoff on May 14, 2017 - 5:25am

Lately, I've noticed more and more of these "opportunities" for sale. Somebody buys a crap shack and then puts it on the market at an impressively inflated price. Same crap shack, maybe gutted, maybe not. But now offered with plans that are maybe already approved, or maybe just working their way through the approval process.

What gives? This one is a great example. Bought last October for $985k. Now listed at $1.695m. As is. Includes plans and approvals.
https://www.redfin.com/CA/Solana-Beach/7...

What does this say about the market? Who would buy this? Why not just buy your own crap shack and cut out the middle man? How are plans and approvals worth this much profit?

I'm wondering why they didn't just build the house? Is the market changing in some important way?

Submitted by sdsurfer on May 15, 2017 - 1:33pm.

I've often thought the same thing. I think it's just more proof that people are lazy. I feel the same way about home staging. Sooo this furniture is here just to show me what the place will look like with furniture even through this is not my furniture?

Submitted by bewildering on May 15, 2017 - 1:38pm.

"Property shall be purchased in its present As-Is condition with architectural plans & approvals."

That is shocking. 700,000 added value in getting architectural plans & approvals?

If you check the old listing you can see how this property is right on top of 3 other neighbors.
http://skyvillagerealty.com/real-estate/...

Submitted by harvey on May 15, 2017 - 5:03pm.

profhoff wrote:
How are plans and approvals worth this much profit?

Maybe the sellers have purchased a friend in the permitting office?

Submitted by profhoff on May 16, 2017 - 6:33am.

Here's another one. Paid $1.2m less than a year ago. Pay these guys around $600k more for the privilege of getting plans that aren't approved yet!
http://www.sdlookup.com/MLS-170024645-12...

Submitted by FlyerInHi on May 16, 2017 - 9:21am.

harvey wrote:
profhoff wrote:
How are plans and approvals worth this much profit?

Maybe the sellers have purchased a friend in the permitting office?

That's a very good statement, Harvey. So incredibly corrupt, those offices.

The market is hot. I sold a place that needed permits and work. So whatever the market will bear.

Submitted by gzz on May 16, 2017 - 11:42am.

If there are variances granted and it is a coastal area needing CCC approval too, a single family home approval, plans and construction permit could be worth $300,000. There are thousands in city fees to get this far.

Of course usually it is just some blueprints and city staff inital approval for these dumb listings. I have never seen one sell. It might be like a renovation that the seller has an emotional need to recoup the cost of.

Submitted by sdsurfer on May 16, 2017 - 12:20pm.

Here's one that looks like it sold:

https://www.redfin.com/CA/Encinitas/178-...

Submitted by gzz on May 16, 2017 - 4:18pm.

Looks like it sold for 1.0 and then 1.3 with about half of that increase due to increase in market prices over a little under 2 years.

Submitted by CA renter on May 19, 2017 - 3:04am.

sdsurfer wrote:
Here's one that looks like it sold:

https://www.redfin.com/CA/Encinitas/178-Range-St-92024/home/4059853

Nope, no bubble here!

[People are crazy!]

Submitted by profhoff on May 24, 2017 - 12:58am.

They are getting more brazen. This one was bought last spring. Buyer did nothing. Now they want hundreds of thousands more for the opportunity. No plans, no permits, n o nothing.

https://www.redfin.com/CA/Encinitas/1011...

Submitted by gzz on May 24, 2017 - 11:56am.

Profhoff, that is a flat 14000sf lot W of the 5. It is overpriced now but the sale price in 2016 was below market.

Submitted by harvey on May 24, 2017 - 2:38pm.

It's an odd phenomenon but certainly not a clear indication of a general San Diego real-estate bubble.

Submitted by Rich Toscano on May 24, 2017 - 5:39pm.

harvey wrote:
It's an odd phenomenon but certainly not a clear indication of a general San Diego real-estate bubble.

Agreed. A "hot market" is not the same as a "bubble." It depends on your definition of bubble, I guess... but via the definition I use and that I think is most commonplace, bubbles are pretty rare events.

The way I think of it is that bubbles have two defining features:

- Extreme overvaluation
- Widespread euphoria and overconfidence (and conversely, a complete lack of concern/dismissiveness towards risk)

In this sense, the mid-2000s was a classic bubble. Valuation reached 3.5 standard deviations above historical median -- just massive overvaluation. And we all remember how frothing-at-the-mouth bullish everyone was. Everyone knew you were a total idiot if you didn't buy a house, dooming all your descendants to a lifetime of penury and servitude to the enlightened home owning class. (The more circumspect acknowledged that housing might just stop going up double digits every year, and might flatten out for a few years... that was about the closest you got to risk awareness).

Totally different now. Valuations are high for sure -- but not at bubble levels. More coming on this soon, but they'd have to rise another 18% in excess of rents/incomes to hit the 2 standard deviation threshold that I've often referenced (with credit to Grantham/GMO). And 40% to hit the bubble peak. And that's without accounting for the mitigating effect of low interest rates, which I do think is a real thing, should the rates stay low in the years to come.

As far as euphoria, I don't see that either. Except maybe from gzz (I kid, I kid ;-). Seriously, there is nothing like the kind of hubris, self-delusion, and FOMO that was on display in the mid-aughts. In fact there is a lot of skepticism... and not just here on pigg.

So I declare this (still) not a bubble. It's a hot market that has gotten pretty overpriced -- that's certainly a fact that all market participants should consider! But it's something different than a bubble. And something a lot less scary, because that overvaluation can be worked off without things going to hell in a handbasket.

Submitted by spdrun on May 24, 2017 - 6:21pm.

The crash was only scary for idiots who didn't engage their brain before signing on the dotted line in 2005 to 2007.

Submitted by Rich Toscano on May 24, 2017 - 7:54pm.

spdrun wrote:
The crash was only scary for idiots who didn't engage their brain before signing on the dotted line in 2005 to 2007.

I guess you didn't hear about that little incident known as the Global Financial Crisis.

Submitted by spdrun on May 24, 2017 - 8:11pm.

I wasn't scared when markets were falling in 2008. I immediately thought "cool beans, buying opportunity."

It wasn't a crisis as much as a correction -- practically speaking, you realize that buyers will jump in eventually. Happens during/after every correction.

Submitted by Rich Toscano on May 24, 2017 - 8:33pm.

spdrun wrote:
I wasn't scared when markets were falling in 2008. I immediately thought "cool beans, buying opportunity."

It wasn't a crisis as much as a correction -- practically speaking, you realize that buyers will jump in eventually. Happens during/after every correction.

So, your argument is that because you weren't "scared," the financial crisis was no big deal? Like, to all the people who lost their jobs and stuff? This is the argument you are making?

Submitted by flu on May 24, 2017 - 8:37pm.

.

Submitted by spdrun on May 24, 2017 - 9:07pm.

They lost their jobs either due to:
(a) globalization or innovation
(b) being in an industry that didn't make economic sense: i.e. building homes out in Desertcrack, NV

The crisis didn't affect jobs that were actually needed.

Submitted by Balboa on May 24, 2017 - 9:54pm.

Until we have universal basic income, jobs are actually needed ... by people who need money.

Submitted by Rich Toscano on May 24, 2017 - 9:56pm.

spdrun wrote:
They lost their jobs either due to:
(a) globalization or innovation
(b) being in an industry that didn't make economic sense: i.e. building homes out in Desertcrack, NV

The crisis didn't affect jobs that were actually needed.

That's basically ridiculous.

Submitted by spdrun on May 24, 2017 - 10:00pm.

Point being the people who lost their jobs during the crash would have lost them anyway. A lot of barely profitable factories closed due to foreign competition and shitty American management, and would have gone into the crapper one way or another.

Or never had them in the first place if there wasn't a bubble (if you're talking about barely skilled navvies putting up hovels in the middle of the desert).

Submitted by harvey on May 24, 2017 - 10:01pm.

spdrun wrote:
actually needed.

There are two possible definitions of "actually needed":

1) Something is needed because someone else is willing to pay for it. This is the definition universally accepted by economists because it is objective and measurable with real-world data. If someone actually pays for something, then that something is needed by definition.

2) Somebody's personal opinion about what someone else needs.

Of course the second one is correct, as long as it's my opinion we're using.

Submitted by spdrun on May 24, 2017 - 10:05pm.

Right.

The problem was that people weren't willing to overpay for poorly built McHovels in the middle of the Nevada desert. Nor for mediocre American goods built with overpaid labor that obstructed cost-saving automation measures.

Some people automate themselves out of a job. Others obstructed themselves out of work.

Submitted by Escoguy on May 24, 2017 - 10:18pm.

Even for those of us who had good stable jobs, the crisis was scary as hell.

Stock market down 54% in less than 17 months.

Even with regular cash flow, I stopped buying stocks.

Yes the recovery has been strong but it wasn't clear it would happen.

A correction in home prices as necessary but the crisis went well beyond that.
Back in '03-'06, I thought perhaps prices would pull back 10-15%, even 20% would seem extreme. But I didn't think we would get to below replacement cost (i.e. free land) and for a while it was almost like that.

Even years later, there were bargains in real estate, but each of those caused real pain for the families who lost their homes even if they bore a significant portion of the blame by being over leveraged.

In the mean time, don't go down the road of USA makes nothing as we prove that wrong every day. There is so much industry in SD County, do some research in the companies like GKN Aerospace, General Atomics, Dexcom, Northrop.

The list is long and very amazing and great people do things here everyday.
My company exports to 40+ countries and yes it's not easy but that's life.

Submitted by spdrun on May 24, 2017 - 10:47pm.

I never said that USA makes nothing. I'm saying that workers at poorly managed companies with abusive unions (like Generic Morons) got burnt. All manufacturing didn't disappear, just that which was inefficient.

As far as pain, no one ever said that you should make a $200,000+ investment without engaging your brain. Stupidity has a price. And next crisis, bet some of the rubes who are buying with 1-3% down are going to be crying again. Such is life when you jump without thinking.

Submitted by harvey on May 25, 2017 - 5:56am.

spdrun wrote:
As far as pain, no one ever said that you should make a $200,000+ investment without engaging your brain. Stupidity has a price. And next crisis, bet some of the rubes who are buying with 1-3% down are going to be crying again. Such is life when you jump without thinking.

People who buy with 1%-3% down are not making a big investment.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.