I recently watched The Learning Channel’s (TLC) new reality show, “Property Ladder.” It was about “flippers” — speculators who buy “undervalued” real estate, fix it up and sell fast at inflated prices. The goal: make big bucks in a short period of time.
The debut episode, taped last fall in Santa Monica, featured a 28-year-old real-estate broker’s first “flip.” His property was a 1970s era, multi-level, two-bedroom, 2-1/2 bath condominium in Ocean Park —a stone’s throw from Lincoln Boulevard and rent-by-the-hour motels — he recently acquired for $588,000.
He would “contemporize” the kitchen and two bathrooms, redo the fireplace and refinish ceilings and wood floors — all for $20,000. Although inexperienced, to save labor costs, he’d complete the work in six weeks with help from family and friends. He’d then unload the condo for $650,000 and make a cool $40,000 profit.
As it turned out, the work took more than 16 weeks and cost $31,000 plus an extra mortgage payment or two. A new interior wall was built dividing a large single bedroom into two small bedrooms — resulting in a three-bedroom condo worth $60,000 more than a two-bedroom condo.
The refurbished condo went on the market at a low-ball $650,000 to generate intense buyer interest. Although characterized as a “bait and switch” by one real estate agent at the open house, our flipper got his offers — 17 in all with many well above the asking price. The best offer was $705,000. Sold! Ca-Ching! Our “hero” made a fast $81,500.
I don’t have a problem with anyone making honest money — even a lot of fast money. After all, isn’t that what the American system is all about?
But, I started thinking. Aren’t we facing a housing crisis in part because more and more speculators are coming in, scooping up moderately priced properties, remodeling cheaply and then turning them quickly at inflated prices only those in the highest incomes can afford?
The more I thought about it, the more angry I became. “Flipping” affects apartment buildings and single-family homes, too. Already, only a very small percentage of people can afford to buy in Santa Monica.
Maybe this is something that our City Council and affordable housing advocates should research. How about a special capital gains tax on short-term property speculators to put the brakes on all the profiteering on scarce housing?
You can’t blame speculators for taking advantage of suckers so desperate to own that they get lured into a feeding frenzy and overpay. Because a previous sleaze-ball owner used incompetent labor and cheap materials to tart up an “old lady,” many of these “contemporary designer dream homes” develop peeling paint, leaky plumbing and sagging floors.
Oh well. Consider this. In the mid-cities area, building codes allow a 45-feet height for new construction. Older nine-to 11-unit apartments are being gobbled up by speculators who evict tenants and go out of the rental business. With codes permitting five or six condos and sale prices close to $1 million each, a very good profit can be had.
Downzoning would take the high profit potential out of these developments. It’s another way to protect middle-and low-income housing and the eight, nine or 10 families who are forced out of the community every time a profiteer has an itch to speculate on an older apartment building. And it’s a way to maintain the community’s diversity.
Back to “Property Ladder.” In checking around, I couldn’t find a building permit (required when walls are added, fireplaces are renovated and plumbing and electrical work is done) or inspection reports for the condo featured on the show. And, I couldn’t locate a city business license for our broker/flipper, his projects or even for the Colorado Avenue production company that produced “Property Ladder” for TLC. I also learned our flipper now has other flips in the works in Santa Monica and Venice.
I wonder whether buyers know that many of these fast turnaround remodels may have been illegally completed by unlicensed amateurs, apparently without permits or safety inspections? It appears climbing the property ladder can leave a lot of untidy ends. (Bill Bauer is a long-time resident of Santa Monica and a freelance writer.)
Originally published in the Santa Monica Daily Press print edition on June 27, 2005. Read the original PDF.