Flipping Houses in the Bay Area - An Experience.

This log details our experience in owning and subsequently selling our first home in the Bay Area. In the mid-nineties, it was our lot to move almost every other year, seeking proximity to work places. The earliest we toyed with the idea of purchasing a home was in 1997. Around then, a number of our classmates had bought new homes as a befitting self-gift upon receiving their Green Card. We were then renting in the Marina Bay area of Richmond and then, in that neighborhood, brand spanking new two-level, single-family homes in the 1500 square foot range were available for under $200,000. We refrained from buying for a few reasons:
  1. The sales pitch that the homes were meant for professional couples who did not intend to have kids did not bear well with us,
  2. Flipping houses as a strategy was foreign to us, and
  3. We were in a precarious situation immigration-wise, for our green card application got delayed due to no fault of ours.

These homes doubled in value before our eyes within the next three years. In hindsight, the right approach would have been to ignore the sales person’s foolish words and to grab the bull by its horns – going by the prevailing pay-scales at the time, these homes were truly affordable (Bay Area was starting to boom and income was keeping in par). Interest rates were in the mid 7’s, high by today’s standard; even so, the monthly payments would have been comparable to renting a similar-sized home in the neighborhood. These homes ultimately hit their highest point in the $800K range in the early 2007 peak of the bubble period. The price has since settled in the mid 400’s. Flipping houses was a very profitable strategy during this period.

The following year we considered a move to Marin County (one of the most coveted locations in the Bay Area) in the North Bay, as one of our work places had shifted to Novato. Novato was an up-and-coming business community getting a face-lift after having been a farming community. Older single-level homes in the 1400 square foot range were available in the high 300’s in San Rafael while newer and bigger homes were on hand for around the same price further North. Fliers touted a new community in the former Hamilton Air Force base just South of Novato with homes in the high-300 to low 400 price range – the plan called for building over thousand homes in phases. These homes also doubled in value in the bubble peak experienced in late-2006. They have since nudged down in the mid-600’s price range. Flipping houses in this area would also have been profitable although not as lucrative as in Richmond - ironically, Novato is considered a much better area - so much for the 'Location, Location, Location' adage...

Finally when our green cards arrived in mid-2000, we were edgy about having missed the boat – house prices all over the Bay Area had doubled at the minimum as we watched, in a matter of few years. Our house-hunt also got bogged down a little bit by the arrival of our two kids. The economic lull following the horrifying events of 9/11/2001 perked our interest in house hunting – though house prices barely budged, the general consensus was that it was a window of opportunity.We were still in Richmond but now commuting to Emeryville and Alameda. On our part, we were only eager to pounce at our “chance” at the new development that was coming up in Alameda (Marina Cove on Buena Vista) – we signed for a 4-bedroom 2100 sq ft house for around $525K in late 2001. The house was ready within a year and we moved in, in high spirits at having finally fulfilled the American Dream.

Flipping houses was in full-swing at that point – our next-door neighbor placed his house on the market as soon as it was handed over and realized a profit of $100K – his fourth turnaround – more surprising was the fact that he considered himself a latecomer to the party. His expectation was around $100K on every turnaround on new construction! Flipping houses as a strategy did not enter our mind still - the anticipation was to live in the new house for quite some time as Alameda public schools were considered “good” - little did we know how much the rating varied for individual public elementary schools, depending on the exact location of the house within Alameda. The rating ran the entire gamut from below average to top-notch. Edison, Amelia Earhart and Bay Farm were the sought after public elementary schools in the area. Unfortunately, the school allotted to our neighborhood was Haight Elementary which was dismal at best.

Home appreciation in this new Alameda neighborhood was hitting $10K per month on the average during our time of ownership (early 2003 to mid 2004) and that uptick continued unabated as the bubble developed. We were unsure about our long-term plans at Marina Cove, as realistically our only option was to send our kids for private schooling, which did not pan out as we had hoped. Ultimately, flipping houses became our strategy as well, as we decided to sell on learning that one of our immediate neighbors was trigger happy – domestic violence was the order of the day there. The incredible appreciation alleviated the sell decision – we figured it would be easy to sell our house in such a hot market.

The house stayed in the market for around a month and the experience was a lesson in life. We were limited as our agent (a family friend) was a novice, not local to Alameda and the house was priced too high. Nevertheless we sold it at around 5% below our original asking price - that sat well with us for the return of close to 40% was incredible (excluding closing costs & commissions which added up to about 8%) in two years of ownership.

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Last Updated: 03/2012.

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