Flipping

I have never been an advocate of buying real estate and flipping it. But day trading stocks and flipping real estate has made money for some. When the market value is increasing, it doesn’t take a rocket scientist to buy something for say $100 and sell it for $125. But markets are fickle and will change quickly. Stocks are pretty easy to sell at some price but when the market turns south for real estate, flippers who are highly leveraged into a mortgage can lose some big bucks quickly.

Flipping in the Golden State dipped to its lowest level in more than three years and in some major regions, profits slipped through the fingers of more than half the flippers. It's a sign speculators are shipping out and investors who want to realize a decent return had better get a grip for the long haul.

During the second quarter this year, 2.4 percent of the existing homes sold statewide had been owned for six months or less, down from 3.5 percent during the second quarter in 2005, according to HomeSmartReports.com, a San Juan Capistrano, CA-based real estate sales, value and risk analyst. That was the lowest level of flipping since the first quarter of 2003, when it was also 2.4 percent. Flipping recently peaked in California during the first quarter of 2005 when 3.8 percent of properties were sold within six months of the purchase.
Statewide, most flippers still made money, a median $44,500. However, including commissions and sales costs, 24.7 percent of the second quarter's flip sales resulted in a loss. The percentage of flippers who lost money was the highest since 25.8 percent during first quarter of 2002. A year ago only 14.4 percent of flipped sales resulted in a loss. Among those who lost money in the second quarter this year, the median loss was $30,100.

With flipping, some of the hardest hit areas were Marin County, just north of San Francisco, where 73.3 percent of flippers lost money and instead of a median profit, there was a median loss, a whopping $86,725 deficit. Likewise 68.4 percent of flippers in the Central Coast town of San Luis Obispo lost money, a median $15,900 loss. In El Dorado County, 70 percent of flippers lost a median $15,850. Also the larger Northern California region as a whole was in the negative flipping category with 52 percent of flippers losing money, a median $3,125.
Some good advice for flippers and day-traders is to look both ways before making a short-term investment.

Labor Day

I worked Labor Day. I spent the first two hours writing my column for the Mountain Democrat. I have a noon deadline every Monday and the newspaper doesn’t care if it falls on a holiday or not, the presses roll every night. I have never seen a rolling press, maybe one night I will stop in and watch them rolling around the building. Then, as I was e-mailing my column to my editor the phone rang. Toby is a loyal reader and needs to sell his house so he and his wife can move to Tucson. That required some work, as did our subsequent meeting at his home in Camino. Then it was back to the office to work on getting two loans closed this week.

Probably lots of small business people worked on Labor Day. According to the U.S. Census data, in our 4-county Sacramento/Capital Region, 20,000 individuals launched their own “mom and pop” businesses between 1999 and 2004. Our region was one of the leaders in entrepreneurial growth in the entire country. Starting ones own business is the last career stop for some. The same Census data reports since 1990 the average time that Americans spend at the same job has been decreasing to about four years. That compares to eight years in the mid-1970s. Before heading into retirement the average American will change jobs at least seven times.

And why not when there are lots of jobs available in California. The state added 192,000 jobs between July of 2005 and July of 2006 and unemployment dropped to 4.8 percent, which was one of the lowest numbers ever, recorded. California’s unemployment rate has routinely run above 8 percent and was 9.9 percent in 1975.

The state Department of Employment projects that California employers will continue to add jobs at a pace of 200,000 a year with trade (including retail), business and professional services accounting for about half of the demand for new workers. The demand for manufacturing will continue to decline (a series of state laws and environmental concerns has driven much manufacturing to other states). Construction has reached a plateau with the decline in new home sales. The EDD says that the fastest growth areas will be computer networks, data technicians, software engineers and home health care. I bet a lot of those people did some work on Monday also.