I have two compelling trends to share today, but fist let’s talk about a concrete halfpipe at an investor flip. I’d love to hear your take in the comments.
An investor friend just bought a house in Auburn with a halfpipe in the backyard. I’ll admit the middle school skater kid in me is stoked while the middle-aged man in me wants to relive my glory days… But what should Erin do as a flipper? Should she keep it or rip it out? Is this an asset or a liability?
This is a fun conversation, but there is a serious element here because investors come across interesting things all the time and have to make real-life decisions like this. So put your real estate cap on and let me know what you think in the comments.
Check out Erin’s Instagram (thanks for letting me share).
TWO TRENDS TO WATCH:
1) Condo sales are down 14.1% this year: I mentioned last month that condos haven’t been as popular and here’s a brand new visual to show what I mean. In short, buyers have been more focused on detached homes, which likely stems from wanting more space, privacy, and a larger backyard during the pandemic. Of course in the background low rates are a big factor because they give buyers more purchasing power (and thus shape what they can buy).
2) The cooling 2-4 unit market in Midtown: The single family market has been showing huge price increases in the Sacramento region, but the 2-4 unit market in Midtown isn’t the same temperature. When looking at the graph below do you see a flattening of prices lately? Does this surprise you?
This is something to watch and we have to keep rent control and eviction moratoriums on the suspect list when trying to understand this softer trend. Yet one of the bigger issues is these units have had massive price growth in recent years while rent growth has been slowing lately. Thus at some point when investors crunch the numbers it doesn’t make sense to pay more. For reference there isn’t an oversupply of listings in this market and demand is still strong.
Keep in mind other portions of Sacramento with lower-priced 2-4 units have still been showing an increase. These other areas have rent control too, which helps me think the flattening in Midtown is more related to flirting with a price ceiling.
Anyway, I’m thinking out loud and we need more time to see the trend. By the way, thanks to Brian McMartin and Franco Garcia for having conversations with me this week about this sub-market. I really value hearing what others are seeing out there as I run stats and interpret them.
Big point 1: The market isn’t the same everywhere.
Big point 2: Don’t take the trend in Midtown and project it on other 2-4 unit properties in the region. See point #1.
I hope that was interesting or helpful. Thanks for being here.
Questions: Should the halfpipe stay or go? Why? Any thoughts about the two trends I shared? I’d love to hear your take.
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There is really no way to know without more data, but my gut tells me that the price to remove the halfpipe would exceed the benefit of removing it (particularly if hidden in a back yard behind a fence) and the possibility of having someone actually want ot buy the house because of it. My kids and I would love it too. If I was selling the house, I would get some ideas from a stager to make it blend with the patio using strategically placed potted plants and furniture.
I love the idea of working with a stager. It would be a pretty penny to remove I’m sure. Thanks Gary.
Hi Ryan house flipper here in sac area… Real estate is crazy now in sac …. Anyone says different is wrong I had one priced at 249 4 offers in 1 week highest was 280k. That’s insane .. I’ve never heard that happening since I started in 2013… Also I’m putting one up for sale in Oak park for 349k. And I bet u I’ll get it … Just half to get the place to appraise at that…
Agreed Brian. We are seeing historically low inventory in our 4-county region. It’s astounding that the number of listings has literally been cut in half from last year at the same time. We are at a 15-year low (and at least 20 years in Sac County). Frankly we could be at our lowest level of inventory ever, but I don’t have access to data beyond two decades unfortunately.
The market is slowing though for the season in some regards as we’re seeing sales volume slump slightly as well as pending contracts flatten. I talked about this a month ago here: https://sacramentoappraisalblog.com/2020/10/06/the-aggressive-slowing-housing-market/ But this doesn’t mean the market is slow or dull. I just mention this because it’s important to acknowledge a seasonal slowing even if it’s still a bloodbath out there. I feel for buyers who are having to bring offers above list price.
Some buyers lately have started to focus on listings that have been on the market for 30 days or longer and that’s one way to hopefully find a little bit of success. Of course hopefully the only problem with the property is that it’s overpriced (and then hopefully the seller will listen to a lower offer).
This market reminds me of the competition we had at the very beginning of 2013 when Blackstone was at their peak of purchasing. Though today we have even less inventory than that time period.
Good luck on your listings. It’s wild to hear how far above list you went, and as we know it’s a very common thing to see. What a market we’re in right now.
Please keep me posted with what you are seeing out there. I value any input from the trenches.
Yes I will keep u posted on what develops..
Hi Ryan so an update on the earlier home I commented on. The appraisar was a little tough on giving us anywhere near 280k . It came in around 240ish . But we agreed to stay in it to just close the deal. Also I wanted to forward u a link on my ? in Oak Park that I just flipped it is very nice. It’s a new year 2021 and new sales price for the hottest market in country.
https://www.redfin.com/CA/Sacramento/4032-42nd-St-95820/home/19415158
Right on Brian. I hope this one sells quickly. The market is wonky lately in Sacramento. It’s shocking how low inventory is. I have so many recap visuals to share over the next two weeks about the market in 2020. It’s amazing how things went.
Yes it is. I will keep reading your blog. I appreciate the message back. Happy new year.
Hey Ryan just reply back about that place on 42nd in oak Park came back full value. Such a good thing for sac home values….
That’s great. Congrats Brian.
Great post Ryan! My vote is to keep the halfpipe. A buyer might like it. Even if they are not a skate-boarder, their kids or grand kids might be. With everyone staying at home more these days, it may prove to be more popular to some buyers. Plus, I think it’s cool!?
Thanks Jamie. Good point about grandchildren too. My grandparents would have been even cooler if they had this… 🙂
The way the section of fence got moved it looks like a possible encroachment issue. Worth researching, otherwise, I would keep it. I doubt there is a negative impact on value or marketability. There is no need to disclose what the seller thinks the use is. Let buyers form thier own opinions.
Good eye, Mike. I do wonder what buyers might think it is if they’ve never seen one before.
Step one: Keep the house, and the halfpipe. Step 2: add a pool-do NOT add water. That kid could be the next Tony Hawk, and mom can retire
Haha. Yes, Mark. That is perfect.
I would turn it into a feature by paying a semi-famous local skateboarder $250 to come over, do a couple sessions, take some pictures and tastefully sign their name on the visible back of the ramp. The ramp looks in great shape, but the fence needs a power wash.
I love it. This sounds like a fun open house. Count me in.
Get rid of that half pipe! On the side opposite the fence, there is just a small ledge and what looks like a 3 foot drop to the cement below. Can you spell L*I*A*B*I*L*I*T*Y?
Thanks Kevin. Yeah, liability is something we have to consider. The investor has to think about this as well as the eventual owner. But oh what fun it could be… 🙂
Ryan Here’s my Question. Do you think the reason for the cooling off is a long term trend created by millennial household formations? OR is this a Covid triggered product preference type decline that could rebound once those fears subside?
Hi Michael. I don’t know that there is only one factor here that is affecting prices, so this could relate to lots of things. I like your ideas about household formation and COVID. For me I don’t think it’s just a COVID thing because it looks like flattening started prior to that. Moreover, 2-4 units in other areas are still showing price increases. I just with prices so high in Midtown that there may be less room for upward growth. To be fair I think I need a little more time to understand this, but those are my thoughts for now.
I was just talking with an investor via email who owns quite a few doors in Sacramento. I wanted to share what he said because I think he said it well. “Nice comment on the downtown 2-4 units. Not shocking as most of those deals leave no room for error so what was cash flow break even in a perfect world quickly becomes painful when there is any bump in occupancy/payments. Lots of these units have college kids/hospitality workers too, so with the downtown scene muted with COVID, paying premium rents looks less attractive.”
I think there is some insight there and it also underscores there are a few layers to watch over time. In my mind it just seems there is less room to move up in price in this sub-market. Some of these high-dollar units are trophy properties also more than anything.
For any onlookers, as I said in my post, there is not an oversupply of listings. What I mean is we have just about the same number of listings as recent sales, so there is a sense of balance. There are definitely some properties moving very quickly. There are also properties that are overpriced as if they are remodeled (when they are not).
Hi Ryan,
I believe the medical community would be in favor of keeping both half pipes . . .
Haha. I love it. Thanks Pam.
I think the liability would be too high but then that’s like an insurance agent telling me how rates are for mortgages.
Thanks Jerry. I like your analogy too. Golden.
I’d keep the half pipe and do some cool art on it. Id put lots of potted plants around it too.
I like it Dana. I don’t have a green thumb, so I’d defer to everyone else to make it look amazing. I will say succulents seem to be all the rage these days though. Seems like I see pictures of them on Facebook quite a bit…
Erin should investigate the liability, insurance issue. Is it covered? can she buy added coverage for it? Are they cautions she needs to take like posting signs, fencing it off like a pool? Humans are rock stars at finding ways to injure themselves. So want to minimize.
She’ll check out the cost of removal. Compare cost versus taking safety cautions and insuring. Up front capital expense versus long term recurring expense.
Now, if she is not going to hold it as a rental, but flip it instead, it could be a feature that appeals to a subset of the market that has skateboard curious kids and grandkids. Not that it adds much dollar value, but it could help attract eyeballs to the listing. Not that eyeballs are even necessary in todays frenzied sellers market.
Thank you Jim. Excellent commentary. It goes to show our advice could be different depending on what she is doing with the property. I believe this is a flip. If this was a rental property I probably wouldn’t want it there because it could be a liability. But as a flip I would likely let it slide and the buyer can remove it if they want. Agreed about eyeballs. 🙂
Since the house was a flip, I would probably say something along the lines of “Seller willing to remove Half Pipe at purchaser’s request”. This way she could leave it and potentially save herself the trouble. Also she would be showing her potential buyers that she would remove it if it meant sealing the deal…
I like this. In a market with multiple offers galore, I’m guessing she would not have to remove it. I’ll be curious to see what happens when it comes to the market. I think it’s a great talking point for the house at the least. We’ll see what buyers say…
Keep the half pipe. Power wash it then stain it, so it’s something other then concrete grey, maybe a light brown or tan. Then install a metal railing around the perimeter.
Nice idea Robert. There’s nothing wrong with some color. Then host competitions so there is some income. 🙂
Most of the year we only had one condo sale (January), now most of the listings are under contract. It is the the same for our townhomes too. There has been a feeding frenzy since September 1st for condos and townhouses, whereas the single family homes sales are slowing down. This can be attributed to the fact that we are a tourist based economy and the large majority of condos & townhouses can be used as nightly rentals, with a quick return on investment (also helping pay the mortgage).
Fascinating. Thanks for sharing Robert. It goes to show each market is distinct and there is a rhythm to the season also. Speaking of vacation rentals, I’ve been hearing of lots of Bay Area buyers targeting Tahoe and Truckee lately. I’m anxious to see actual stats on that instead of just headlines (so if anyone has something, speak up). Thanks again.
By the way, this is a telling thread on Reddit that shows how competitive the market is in Sacramento right now. The main question was whether someone has bought a house recently in Sacramento. I find some of the best housing conversations to happen on Reddit and Twitter (that don’t involve the real estate community for the most part). https://www.reddit.com/r/Sacramento/comments/jjaek8/has_anyone_bought_a_house_in_the_last_2_months/