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2631 Atlas

Today I took a drive up to Sacramento to check in on a new little project. 2631 Atlas.

2631_atlas
Well, this is California, so the beat-up house you see was actually acquired for the price of about $200,000. Yes, the stories you hear are true. It’s insane. But guess what’s more insane? You can still buy a high-priced fixer-upper and sell it for an even higher price. Which means, rather than being scared off by the insane California prices, you can embrace them and make more money than those comfortably paying $50,000 for a beater-upper and making a whopping $5,000 in the fix-&-flip.

It’s all numbers. If you’re doing your math correctly, you walk away from any potential deal that doesn’t offer a comfortable 10% return on your investment, i.e., the purchase price. If you’re leveraged, i.e., take a loan on the property, then your cash-on-cash return will be significantly higher. It could be upwards of 100%, provided you can qualify for the loan. The numbers here are that it was a probate property put under contract by a friend of mine, not for the asking price of $235,000, but for $190,000. I then paid him $9,000 for the contract. Comparable sales for similar houses selling in the neighborhood that are in good shape are around $265,000. It will take around $20,000 to make the house pretty. Do the math. Depending on how the spring market takes off in Sacramento, I’ll do anywhere from $20,000 (10% return) to $40,000 if everything goes wonderfully.

My brother, Dave, is handling the rehab details. I won’t generally touch general contractors. First off, you pay 20% of the total of the subs right on the top, as a given, but in my experience, they hide stuff and they don’t manage a project as your own project manager would. We’re going direct to all the trades.

I’ll post some before and afters once we get it done and back on the market. Should be about a month or two. Since the extra work the windows will require just wiped out my landscaping budget, we’ve got to get it on the market while the grass is still green.

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More

14 Comments

  1. Billy Beck on January 25, 2006 at 20:08

    You have got to be fucking kidding me.

    You know something?

    Everybody who lives in that goddamned place deserves whatever they get.

    Like: more than people who live in The Vampire State.

    Wow.

  2. Xian on January 26, 2006 at 00:19

    Pretty pricey..lol….Not buying house yet..lol

  3. Kyle Bennett on January 26, 2006 at 09:06

    *Sigh!* To some people, life is just a bubble, always on the verge of bursting…

  4. Rich on January 26, 2006 at 09:20

    Well, Billy, this reminds me of something that's been pounded into me over and over in business, particularly in my options trading: "the market is never wrong." Kind of the business equivalent of "everyone gets to go to hell in their own go-cart."

    I could spend any amount of time wondering why this CA R/E market is as it is, and it's not going to pay me a dime. In 1999, Bea found a house in Willow Glen (nice neighborhood) in San Jose that was beat up. I was worried about buying it at $290K. We ultimately put $125K of improvements, and of course, countless hours of my time. Six years later, last October, we sold it for $840K. Go figure.

    But you too are familiar with crazy markets, i.e., those eBay guitars you blog about. I'll never in my life figure that one. Who knows why people do what they do?

    Anyway, this probably looks way worse than it is. The neighborhood is nice. Lots of freshly rehabbed houses. Up and coming neighborhood always equals a good investment, particularly if you buy way under market, as I did.

    Wait til you see the before and after, inside and out.

  5. Rich on January 26, 2006 at 09:23

    Mike:

    Ok… so what happens when the real estate market bubble bursts? — and the house under contract for $195,000 is now only valued at, say, $95,000?

    Well, let's see. It would reduce the hundreds of thousands of dollars of profit I have made in real estate by $100K. My overall cash on cash gains for all properties would still be well over 300%.

    Read that again, because there's about a dozen very important messages contained between the lines.

  6. Billy Beck on January 26, 2006 at 09:55

    You're right about that go-cart bit, Rich.

    I'm glad you thought of that.

    I have never understood why the '57-'59 Les Paul Standard 'Bursts command the market as they do, while the Customs from the same period languish. To me, there is no choice.

    I just don't get it.

  7. Billy Beck on January 26, 2006 at 11:08

    I should point out that I do not take a dim view of your action in the market, Rich. This is only sane.

    The thing that I don't understand is the state of that market right now.

  8. Rich on January 26, 2006 at 11:17

    I should point out that I do not take a dim view of your action in the market…

    I know.

  9. Mike on January 26, 2006 at 07:29

    Ok… so what happens when the real estate market bubble bursts? — and the house under contract for $195,000 is now only valued at, say, $95,000?

  10. Garren on January 26, 2006 at 14:33

    If you manage to get that house fixed up nicely I might have to buy it after selling an enormous amount of my scented soy candles

  11. cube on January 26, 2006 at 09:03

    I thought prices were high in Florida. They are nowhere near as insane as in California.

  12. Greg Swann on January 26, 2006 at 09:47

    This is from email to a newspaper reporter here in Phoenix, regarding this essay:

    Incidentally, a bigfoot investor guru called me today to thank me for the essay you're writing about, but he chided me for not pointing out the cash-on-cash benefits investors have realized in the Valley over the last 18 months. One of my own investors put 5% down on a house in Avondale that actually has doubled in value since he bought it. With closing costs, he was perhaps $10,000 out of pocket. His cash-on-cash return, so far, is 1,300% in 16 months.

    Yes, that was a period of anomalous appreciation, and that was why I showed how things can work over the next 8 years using much lower rates of appreciation and factoring in all real-life costs. I would be more than happy to show you and all of "the state's top economists" how this works.Poverty is nature's tax on stupidity and timidity.

    Shine on, Richard. You're an inspiration!

  13. kickstand on January 26, 2006 at 11:59

    $200,000 for a house. That's great. In NYC Studio's in crappy neighborhoods are going for 1/2 mill.

  14. Lute Nikoley on January 26, 2006 at 15:11

    You think 195K is high. Check prices in Santa Clara County, where the median price of a house is something like 710K. A year and a half ago I sold our townhouse for 450K. Believe it or not that Sac. house for 195K would go for about 4ooK + in Santa Clara County.

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