Betting The House - Los Angeles magazine
 

Betting The House

What slump? House flipper Steve Jones’s stylish little starter homes are hot commodities

11/1/2010

The 700-square-foot cottage is notched into a hillside that looks onto Mount Washington. Awaiting stucco, one side of the building is wrapped in chicken wire, the teetering foundation has been propped up, and there are holes in the wall for new windows. “It’s hard to take a small space and make it work,” says Steve Jones, who bought the house weeks before. “I like to say ‘small is the new big.’? ” Not that he has any intention of living here. Jones flips houses for a living, and he’s managed to thrive during the darkest days of L.A.’s real estate slump.

Jones was a vice president of visual arts at the surfwear company Quiksilver when he got into flipping five years ago. That’s when he cofounded the real estate development firm Better Shelter, which specializes in creating stylish, turnkey starter homes. His business partner Peter Zehnder focuses on Orange County (the Westside area in Costa Mesa is a favorite), while Jones concentrates on Northeast L.A. neighborhoods such as Atwater, Highland Park, and Mount Washington.

Many of the homes Better Shelter buys have been foreclosed, and most suffer from what might be called “extremely deferred maintenance”: ancient plumbing, crumbling foundations, graffiti, even wiring and pipes that have been ripped out by thieves. A 1920s bungalow might cost Jones $200,000 to $300,000. But once he’s done renovating, a process that could take three or four months and cost as much as $80,000, he can turn the property around for $500,000 or more. Business has been so good that the pair recently added a partner, Charlie Miller, to help with their L.A. operations.

At 50, Jones is a lean six feet two, with salt-and-pepper hair; he could pass for David Byrne’s younger brother. Jones does much of the designing himself—a skill he honed during his years overseeing the design of Roxy, DC, and Quiksilver stores. With each property, he visualizes his future buyer. Is it a single male video game developer who won’t mind the vertiginous staircase and solitude of, say, the 950-square-foot cabin hideaway Better Shelter picked up in Glassell Park? Will adding another bedroom with French doors to a midcentury cottage in Highland Park appeal to a creative couple planning to start a family? It’s an approach Jones picked up at Quik-silver. “I learned how to build a brand there. We always had to consider who the customer is,” he says.

He likes to leave the home’s historical bones intact, injecting them with a tidy, casual sophistication. Jones will add butcher-block countertops and cabinets with old-fashioned nickel pulls to a kitchen but dress the whole with a modern spareness. Gleaming white subway tiles and black soapstone might go into the bathroom, while wide-slat espresso-colored floors play off the spotless coat of white paint on the walls. Outside, Jones will enclose the new landscaping with a fence of horizontal knotty pine planks or create a grass driveway with latticelike cement pavers.

Then he stages the house with classic furniture and knickknacks he’s gathered on flea market forays—a collection of sculptural busts, framed medical textbook ephemera, old carafes, tattered novels. For good measure he’ll sprinkle in allusions to his love of surfing: coastal landscapes, maybe a vintage Gucci surfboard resting artfully in the living room or a fish-embossed needlework pillow on the bed. The look is catalog-perfect yet quirky enough to seem authentic. Once it’s listed, the property will almost invariably receive multiple bids above the list price.

Better Shelter’s homes appeal to a certain latte-drinking, Obama-voting, Prius-driving segment of the home-buying market—one that isn’t necessarily inclined to hassle with doing the work or finding the contractors themselves. “Flipping is not that different from advertising,” says Barbara Bestor, an architect based in Silver Lake and the author of Bohemian Modern. “Jones’s customer reads Dwell, not Cottage Living. He is able to tap into his demographic.”

Leah Buono and her husband, Michael Barnett, moved into their Better Shelter home in Glassell Park in March. Both are in their thirties, and both work in film. First-time buyers, they couldn’t afford much in Silver Lake or Los Feliz, and they weren’t interested in wrestling with a fixer-upper. “We were honest with ourselves. We don’t know anything about building or contractors,” Buono says. “Steve’s design aesthetic spoke to us. We could walk in the door, move in, and start living.” A two-bedroom, two-bath Craftsman bungalow with water-saving Xeriscaping and a guest studio in the back, it was actually the third Better Shelter property they’d bid on last year. They lost out on the other two as counteroffers climbed. In this case, Jones had bought the home in June 2009 for $190,000 and spent six months renovating before listing it at $399,000. When Buono and Barnett closed the deal, the bidding had reached $420,000.

*****

Only half a decade ago, L.A. had more than its share of people buying homes, then selling them months, or weeks, later for a quick profit. Making money was easy as L.A.’s real estate market rode a tide of exuberant investing and lowered lending standards. “You could have an IQ of 65 and still make money in that market,” says Jeff Lewis, star of Bravo’s reality-TV series Flipping Out, recalling the glory days of the housing bubble. The crash and the credit tightening that came with it changed all that, of course. But Lewis, who focuses on neighborhoods such as Hancock Park and West Hollywood, thinks the market has turned a corner. “I wouldn’t consider flipping in the last two years because I was worried how low home prices would go,” he says. “Now I’m optimistic. There’s an increase in people looking at properties and pulling the trigger.”

Though overall home sales in Los Angeles County have declined 14 percent in the past year, according to the real estate research firm MDA DataQuick, median home prices have slowly risen in areas such as Culver City (28 percent), Beverly Hills (22 percent), and Glendale (13 percent). In Northeast L.A., where sale prices have gone up almost 6 percent, Better Shelter homes sell for roughly 30 percent above the average. In several cases, the company has shattered price-per-square-foot records in that part of the city.

Jones made his first real estate investment in Los Angeles in 2001. He was living in the oceanfront apartment building he owned in Laguna Beach, renting out the other units to supplement his income from Quiksilver. One morning, when he was staying at the Standard hotel in West Hollywood for a work event, Jones went for a jog and happened upon a rundown property that was for sale. It had four garden apartments with a 1920s storybook cottage in the rear. The shabby charm of the place caught his eye, just as the city was beginning to as well. “I feel more at home in L.A. than I do in Orange County,” says Jones, who was born and raised in Laguna.

There would be a two-year renovation before Jones filled the front units with renters and moved into the guest house. Taxidermied birds, mountain lions, and a glass display Jones affectionately refers to as his “fox in a box” line the walls and shelves, mixing with vintage stained glass in the windows. “I like to describe it as ‘Hansel and Gretel on acid,’ ” he says as he pads around the second floor in bare feet, jeans, and a plaid shirt.

Jones became a full-time developer and left Quiksilver in 2007, a couple of years after launching Better Shelter with Zehnder. A mutual friend had introduced them, and they found they shared an interest in surfing, design, and architecture. For their first project they converted a tract of 1950s bungalows in Costa Mesa into modernist condos, stocking them with architectural salvage. Jones’s West Hollywood renovation provided the aesthetic blueprint. The two wanted to serve fans of the skate and surfer culture they grew up around. “We noticed there really wasn’t anything in Orange County that spoke to that demo,” says Zehnder.

Business was going well enough until they took a $1.2 million loss on a condo conversion in Costa Mesa two years ago. “Development requires wild optimism,” says Jones. “Even with the best intentions and careful planning, there are external factors you can’t control.” He regrouped to refine a strategy that would make the most of the bust by zeroing in on Northeast L.A., with its swaths of compact early-20th-century cottages. “I like things that have a patina and layers of age,” Jones says. “The houses in that area have that.” They were a good deal, too. Predominantly working-class Latino, the region has public schools that tend to have low test scores, and crime is somewhat higher (the Avenues street gang has been active in Glassell Park since the 1940s). Those factors would help contain prices in any economy, but the areas were also hit hard by subprime lenders, leaving a trail of foreclosed and bank-owned homes in their wake.

Many would sit vacant for months before Jones scooped them up. The properties were ideal for the first-time buyers who’d been waiting out the market. They were within easy reach of the freeways, downtown, and major studios like Warner Bros. and Universal. What’s more, they were near hipper, pricier precincts—Silver Lake, Los Feliz, Eagle Rock—which made them attractive to the arty, aspirational buyers Jones had in mind. That most of his clients are upwardly mobile whites isn’t lost on Jones, but he bristles at the suggestion that he’s going to gentrify the area. “I appreciate the cultural diversity of these neighborhoods,” he says. “I’m not looking to build McMansions. I’m in it for the long haul.”

Amid the rubble of the real estate market, Better Shelter planted a for sale sign in front of its first L.A. home, a two-bedroom, two-bath bungalow in Silver Lake, in December 2008. Jones had acquired the house (advertised as a teardown) for $160,000. “The previous owner had died there. The property smelled of cats. No one wanted it, but we saw the inherent charm,” he says. Listed at $399,000, the house went for $550,000 several months later. Since then the company has sold 13 homes in L.A. and has another 15 in various stages of renovation.

Rob Hanson, a real estate agent with Keller Williams Larchmont, considers Better Shelter’s turf “the best flip market in L.A. right now. There’s a dearth of ‘done’ properties. When one comes on the market, it sells immediately.” He’s seen a similar renaissance in Southwest L.A., as flippers move more aggressively into neighborhoods such as Leimert Park, West Adams, and Windsor Hills, which also have a high concentration of foreclosed homes.

So now Jones finds himself working harder in the area he has helped resuscitate—not just to get to properties before his competitors but to make his homes more distinctive. “Before, I was cranking them out. Now each one has a more individual stamp,” he says. Jones is paying more for them, too: That Mount Washington home he’s fixing up cost $285,000. Despite its current state, he expects to have the home on the market in three weeks. The list price: $420,000.          

Photograph by Joseph Lianes

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