Failed flip in Laguna Niguel?

*In case you haven't already, be sure to read this testimony by NYU's Nouriel Roubini on "The Current U.S. Recession and the Risks of a Systemic Financial Crisis." Scary stuff.*

It would certainly appear that this is a sputtering flip based on the sales data, photos and home features, and if so, the unfortunate timing of this endeavor could not have been worse. The asking price has already been reduced by $324,900 and yet the property still is on the market.

24171 La Hermosa, 92677
Asking price: $575,000
Asking price/ sq ft: $353
Income requirement: $143,750
Purchase price: $750,000
Purchase date: 11/13/06
Size: 4 beds, 2 baths, 1,628 sq ft (built in 1966)
MLS: S503764 (178 days on Redfin)
ZipRealty price tracker: Price Reduced: 09/17/07 -- $899,900 to $839,900
Price Reduced: 09/25/07 -- $839,900 to $829,900
Price Reduced: 10/18/07 -- $829,900 to $799,900
Price Reduced: 11/13/07 -- $799,900 to $650,000
Price Reduced: 12/21/07 -- $650,000 to $599,900
Price Reduced: 02/25/08 -- $599,900 to $575,000
2006 property tax: $2,210
Type: Single Family Residence
Stories: One Level
Lot size: 8,640 sq ft
From listing: this property has been completely remodeled. granite counter top in the kitchen with a serving bar. office area or eating area opens to the backyard. beautiful tile flooring throughout. newly painted, cozy fire place in the family room with french doors opening to the back yard. newly painted interior, crown molding throughout. new cabinetry in the kitchen. both bathrooms have been redone with new flooring and fixtures. move in condition very light and bright. close to the freeway, shops, park and restaurants.

Notice Zillow's reported purchase price of $750,000. Also notice the focus areas of the upgrades: The kitchen (new cabinets, new granite counters?) and bathrooms (re-done flooring and fixtures), fresh not-just-white paint, nice-looking tile flooring and an attention to detail in terms of curb appeal.

Then, look at the original asking price: $899,900. Assuming a sale at that price and subtracting 6% in sales costs, the profit would be $95,906 before rehab costs. Again, assuming that this is a failed flip, there seems to have been plenty of room to make all the upgrades in this house and still come out with a nice profit. The only problem was the asking price proved to be far too high for the market.

What's clouding the is-it-or-isn't-it-a-flip issue is the fact that the property was first listed for sale in September 2007 - a full nine months after Zillow says the property was purchased by the current owner. Normally, that type of timeline is too long for a flip (time is money!), so it leads us to believe there might be an alternate explanation: Perhaps the owner bought the place and upgraded it intending to stay, but then was forced to leave...they just happened to make the types of upgrades typical of a flip, and also decided to price their house into the stratosphere.

Of course, it's also possible that this is indeed a flip that was financed in an all-cash deal, so time was not quite as much of the essence. The truth is any outsider's guess.

If the latest price reduction does the trick and the property sells for the full asking price, the loss would be $209,500, including 6% sales costs. Notice, though, that that amount doesn't include all the renovations and upgrades, so the actual loss is most certainly more.