90405 - Townhouse Rollbacks **Update 2: OUR VERY FIRST 2004 ROLLBACK!!!!!**

Link to listing

Today's property was one one of two previously featured townhouses here

Address: 607 Ocean Park - 90405

First, we will recap and start from the beginning:

1. 607 Ocean Park is a 1,495 sq ft, 3 bed/2 bath townhouse
2. This townhouse was purchased on 1/6/05 for $1,000,000
3. 100% financing was used with both loans from "Impac Lending Group"
4. Townhouse was put on the market around 6/22/07 for $1,099,000

Now for the update:

5. No sale was made, and the foreclosure went through on 10/3/07 with Deutsche Bank Trust 2006-Opt3 becoming the new owner for $832,150
6. Property was listed on 11/21/07 for $950,000

Description: Bank owned foreclosure!! Stunning architectural townhouse! 6 blocks to ocean. Beautifully redone. Oak hardwood floors, large balconies, recessed lighting. Too much to mention. Must read privae remarks.

This appears to be our first legitimate 2004 rollback. This is a high end unit near the beach and it is a townhouse...not a crappy apartment conversion on the border of town.

And how about the lender that issued the 100% financing for this unit? Looks to be out of business or at least significantly disrupted.
Impac Mortgage Press Release
The implode-o-meter has more info as well

Again, we agree with BlackRock's CEO when he recently talked about how you don't find a bottom until there are liquidations. The flood of foreclosures will be the main mechanism which will bring prices down...in this case to 2004 levels.

Lastly, could the real estate agent at least do a spell check on the description before posting? "Must read privae remarks"

Have a nice weekend

Another Listing on 4th...Another Short Sale

Link to listing

Previous 4th Street Posts:
2045 4th #107B
2002 4th #212

Address: 2233 4th Street #1 - 90405

Details: 1 bed/1 bath condo, 697 sq ft, $216/Month HOA

Description: Bright and spacious unit with ocean breezes. Private balcony. Great location close to area beaches and main st. Building has new premium roof installed in 06'. Call listing office for showings. Sale is subject to existing lender approval due to "short sale" status. Unit is tenant occupied.

Previous Purchase: 7/29/03 - $340,000 (100% financing)

Listing History: 6/30/07 - $429,000

The first thing you might be wondering is "how can this be a short sale if they are asking more than they paid"? Well, we see that we have 100% financing so we had 0% equity from day one. The first mortgage appears to be a variable rate and could certainly be an option ARM with some built up negative amortization. Or, this owner could have taken a HELOC at some point in the last few years...it is hard to know but if anyone has access to loan info please feel free to help.

Secondly, we have another brilliant "investor" here. The owner is listed as having an address in Venice and we also see the description as saying "tenant occupied". I wonder what the negative cash flow is...

But please don't worry about the Santa Monica housing market. Everything close to the water will always be desirable and will be immune no matter what. Nothing to see here...move along.

Sunset Park - Another Airport Flip...Even CLOSER To The Jets ** Update 1 **

This property was featured here about 2 months ago

Address: 2224 Navy Street - 90405

This flip was purchased on 7/31/06 for $700,000. It was subsequently "Totally redone with hardwood flooring throughout the house, new kitchen with granite counter top, viking appliances, recessed lighting, new bathroom, paint".

After getting spruced up, it was listed on 6/5/07 for $1,250,000 and then cut to $1,150,000 on 7/31/07. It currently is sitting at 174 days on market.

**We have now found this property listed on Craigslist as available for rent at $3,950/month.

Lets see how much it would cost to "own" this property at its current asking price of $1,150,000:

Interest Only/Opp Cost (6.5%, no PMI): $6,229/month

Property Tax: $1,054/month

Water, Trash, Insurance, Repairs: $500/month (estimate)
_____________________________

Total: $7,783/month...just for reference, the total including expenses for a 30 year fixed rate amortizing mortgage would be $8,823/month

So once again, we see that it currently costs about half as much to rent as it does to own. The ownership costs should generally always be higher than rental equivalent costs but we think that a 2 to 1 margin is wider than it should be and that this gap will close over time via marginally higher rents and significantly lower prices.

Lastly, we are seeing more and more cases of investors who can't sell their properties turning to the rental market. We believe this is contributing to a "phantom inventory" situation (OC Renter term) where instead of pent up demand, we may actually have a case of pent up supply. We are finding many cases of people who hope the market will come back in the next year or so. BlackRock's CEO recently talked about mortgage market conditions and said: "The bottom has not been achieved yet". "There have been no liquidations."...we believe this is key to watch for in both the mortgage market and the local housing market.

Finding The "Investment Value"

Link to listing

Address: 837 10th #7 - 90403

Details: 2 bed/1.75 bath condo, 1,036 sq ft, $357/month HOA

Description: Subject to lease until jan.'09 at $3500/mo. Great for 1031 investor upleg. Beautiful remodeled 2bd 1.75ba upper unit just 1/2 block from montana. Remodeled in late '04/early '05, with exquisite bamboo floors, shutters, gourmet kitchen, updated baths and custom cabinetry. Stainless steel appliances, granite countertops, stone floors in baths. Walk-in master closet. Stack washer/dryer in unit. Quiet 10 unit bldg has subter. Parking, 2 extra storage areas for this unit & eq ins.

Previous Purchase: 1/28/05 - $660,000

Listing History: 10/5/07 - $775,000
Reduced: 10/25/07 - to $749,000

First off, lets look at pricing. This condo appears to have been upgraded right before the current owner purchased it. If the current owner didn't put any money into it and didn't do any further upgrades, then it would appear they are too high with their current asking price.

Second, we are told that the unit will be leased until 1/09 at $3,500/month. So anyone who buys this at this point is by definition an investor. Lets run the numbers.

Gross Rent: $42,000/year

Taxes: 1.1% x $749K = $8,239

HOA Dues: $4,284

Trash, Water, Repairs (estimate): $150/month = $1,800

Vacancy/Frictional Costs: $0 until Jan. 09

NET RENT: $27,677

This gives us a cap rate of 3.7% and a gross rent multiplier of 214. With what seems to be a pretty high monthly rent already (yes, we think $3,500 is a lot for this place) and a pretty low cap rate, we don't see this place flying off the market at its current asking price.

Also note that there could be additional expenses that the owner would have that we have not budgeted for. Some of these may include: professional property management services, additional insurance, further repairs, special assessments from the HOA, etc. Vacancy costs can be big as well but won't come into play until at least 2009.

If you think we are wrong and want to tell us why this makes sense from an investors point of view or if you think you know the price level which would attract interest, please go ahead and let us know.

Aloha Loss

Link to listing

Address: 2002 4th Street #212 - 90405

Details: 1 bed/1 bath condo, 678 sq ft, $216/month HOA

Description: The ultimate in california style living. This beautifully redone santa monica beach condo has hardwood floors throughout. Very bright with east/west exposure, smooth ceilings, built ins, good floor plan & low hod with earthquake insurance.

Previous Purchase: 12/13/05 - $490,000

Listing History: 10/11/07 - $495,000
Reduced: 11/7/07 - to $479,000

Just two posts ago we featured the attempted short sale of 2045 4th Street #107B. Well, we found today's property to be just across the street. From what we can see it appears that this time we have a 20% down payment. And of course, this is another investor situation...except this time, our investor is listed as living in HAWAII!! Aloha 2005 rollback.

Hawaii...beach close SM...real estate...it all goes up all the time, right?

Dude, I Got Undercut By That Guy Above Me

Link to listing (unit #2)
Link to listing (unit #11)

Address: 1222 Princeton # 2 AND #11 - 90404

Details: Both are 635 sq ft, 1 bed/1 bath condos with HOA dues of $195/month

Previous Purchase #2: 8/26/03 - $280,000 (10% down, fixed rate)

Previous Purchase #11: 11/5/04 - $350,000 (5% down, variable rate Mozillo special)

Unit #2 Listing History: 8/23/07 - $449,000

Unit #11 Listing History: 9/24/07 - $429,000
Reduced: 10/10/07 - to $419,000
Reduced: 11/14/07 - to $415,000

Here we have another example of competition within a condo complex. Unit #2 listed first and then a month later unit #11 listed for $20K less. Unit #11's description says "Seller relocating. Will entertain all offers".

Again we can clearly see that we are not back to 2004 pricing yet but it doesn't seem unlikely that unit #11 will end up selling for somewhere in the high $300's if it can get a bid at all. We aren't that far away.

Prices are falling quickly in entry level condos, but if we take a step back it seems there is a lot of room still to go. We have to remember that these "condos" are nothing more than converted apartments (that is the case here). With just over 600 sq ft, and assuming a sales price of around $400K, we are looking at a cost of $630/sq ft.

Further, under traditional lending standards, you would need $80,000 just for your down payment and an income of around $75,000 (fully amortizing at 33% DTI) with no other debt just to afford this place. Taxes and HOA fees are another $560/month which means to keep a 33% debt to income (DTI), you need to be making about $95,000 per year and have ZERO other debt. How many young, entry level buyers have this much cash, this size income, no other debt and solid credit? Remember, before this bubble, similar units in this building were selling at the low $200K level in late 2001 and mid 2002. We don't know if we will get back to those levels but it seems we have a ways to go from the mid/low $400K level.

100% Financed, Investment Property Short Sale

Link to listing

Address: 2045 4th Street #107B

Description: Excellent beach area location. Upgraded unit with stainless steel appliances, tile counter tops, hardwood floors in living room. Balcony/patio opens to courtyard area. Complex has heated pool and spa. Well maintained property. Sale is subject to existing lender approval due to "short sale" status. Unit is tenant occupied. Call listing office for showing instructions.

Details: 1/1 Condo, 630 sq ft, $310/month HOA dues

Previous Sale: 10/20/05 - $501,000 (100% financed)

Listing History: 10/23/07 - $459,000

This is a classic example of just about everything wrong with the real estate market today. Lets see why.

1. $0 down, 100% financing (1st mortgage is adjustable rate and 2nd is fixed)

2. Don't actually live in it...rent it out at negative cash flow

3. After you buy your "investment property", go buy a 4 bedroom house for yourself in 90405 on 2/23/06 for $1,111,500. I will withhold the address as a courtesy to these speculators...but if you have access to loan data, I would like to see the financing for it. E-mail me for the address.

4. When things don't go your way and you realized you bought your "investment" at the peak of the bubble (not to mention your $1M+ house), let the bank eat the loss with a short sale. Its not like you have anything invested anyways ($0 down).

In cases like these, it is hard to figure out who was more irresponsible. The lender gave out the $0 down loans which was stupid. The person thought buying and renting it out was a good idea; which of course was also stupid.

Maybe the bank should do a little homework and see that these people bought their own house which they appear to be living in just 4 months after closing on this "investment". If they can keep making payments on a $1M+ house, surely they should be able to take on whatever losses arise from this situation, right?

Lastly, an identical unit (#308B) in this building sold on 4/5/05 for $457,000. That means we are already looking at an early 2005 rollback before any price cuts. I think we will see 2004 rollbacks soon...this is such a train wreck.

"Insider Owned" and 100% Financed

Link to listing

Address: 1918 11th #E - 90404

Details: Listed as a 3 bed/1.5 bath condo, 979 sq ft...Zillow, County Assessor, and Property Shark show it as 1 bed/1.5 bath.

Description: ***big price reduction***bring offers now!!!***bright+airy condo in heart of santa monica, updated w/ stunning hardwood floors+berber carpet in bdrms+gorgeous crown mouldings thruout. Storage, newer appliances, priv. Master bath. Near beach, main st., promenade, santa monica college+high school, hwy1+10fwy. Small, quiet, secured building. Seller is a mortgage broker. You won't find a 3bdrm this nice for this price in santa monica

Previous Purchase: 12/30/05 - $515,000 (100% financed)

Listing History: 8/1/07 - $615,000
Price Increased: 10/02/07 - to $625,000
Price Reduced: 10/31/07 - to $615,000
Price Reduced: 11/08/07 - to $590,000

Allsouledout alerted us to this property which is currently owned by a mortgage broker. This is a theme we are running with here because we believe that lots of speculation done by industry "insiders" helped inflate properties. In this case, the property appears to be 100% financed with 2 adjustable rate mortgages. Its all about leverage, right?

It is hard to tell what is going on with the bedroom situation. All the sources (except for the listing) that I can find show it as a 1 bedroom. The listing is claiming 3. I would imagine it has one master with some type of den or office room that could also be considered a bedroom. If anyone has seen this unit, speak up.

Lastly, it is odd that this person is pricing significantly higher than what they bought it for in late 2005. We have rolled back past late 05 values on many other properties...so we think more price cuts might be needed to sell this. If they can get more than what they bought it for, it would make sense for them to wait until the end of the year to close the transaction so they can get the gain tax free.

Again, another example of a $0 down, adjustable rate mortgage, "insider" owned property. And jerking us around with a "price increase"...what were they thinking?

90402 - North of Montana pricing war - **Update 1**

This house was previously featured here.

Link to listing
Link to property website

Address: 239 14th - 90402

Listing History: 5/29/07 - $4,495,000
Reduced: 7/27/07 - to $4,325,000
Reduced: 9/1/07 - to $3,998,000

This property is a high end spec house on 14th which we originally featured as part of a trio of spec homes. It was recently removed from the MLS as it appeared to be in escrow. I just found it listed again so it looks like it did not sell. At least they didn't play the "re-list" game as it is showing a total of 166 days on market.

Our trio of specs also included 230 21st place and 333 14th. We don't know what happened to 230 21st place but we are pretty sure it did not sell. It was also for available for lease so maybe it currently has a tenant in it. Anyone know? 333 14th is still for sale and has cut its price twice and is currently asking $4.6 million. It has been on the market for 135 days.

There is some additional competition in this price range as several new specs have come on market recently as well as a handful of high end "used" homes. There are a bunch on Georgina...its like that whole street is for sale.

New Photo And Listing Date ** Update 1 **

Address: 311 Ocean # 104 - 90402

Previously featured here

Previous Purchase: 5/31/07 - $1,627,500

Listing History: 6/9/07 - $1,799,000
A relist and 4 price cuts later and we are now at
Reduced: 11/8/07 - to $1,495,000

But don't worry...90402 is a "dream" and a destination where prices can't possibly fall. The rich won't allow a nice 3/2 condo with an ocean view to suffer...

Another day, another data point confirming our thesis.

$100K Comp Killer ** Update 1 **

Address: 1315 Franklin #C - 90404

This property was the very first to be featured on this blog. We FINALLY have an update to provide.

Link to listing

If you remember from last time, this 2/1 condo was bought back at auction by the lender on 8/2/07 for $528,548 and subsequently listed for $520,000. The 2005 buyer appears to have originally purchased with $0 down and must have had some extra HELOCs or something to run the total loan amount up above $500K prior to foreclosure. The unit has no kitchen (must have been ripped out) and the description states that it will likely be difficult to obtain financing so any buyer will need an unusually large down payment.

Here is the sales history for this unit:

08/02/2007 $528,548 (Foreclosure auction)
10/20/2005 $400,000 ($0 down purchase)

Listing History: 8/14/07 - $520,000
Reduced 11/6/07 - to $494,000

After 84 days the bank finally got the message and has now cut the price. Unfortunately, it would appear that the market has deteriorated so quickly that this unit has lost more than $26K over the past 3 months. Further, we have seen numerous mid/late 2005 rollbacks on units like this. That would put the value at less than $400K before even taking into account a missing kitchen or financing issues here. So we now have the lender taking an additional loss because they bought the place at auction for $528K and are now trying to get just $494K...

Oh and here are some recent sales IN THE SAME BUILDING:

Unit B (same specs)
Sold 05/22/2007: $630,000

Unit D (same specs)
Sold 11/28/2006: $630,000

Unit F (0 bedroom...just a studio)
Sold 04/30/2007: $585,000

That is an unrealized loss for these identical units of $136K, or 22% in less than 6 months. And of course, this is before the additional $100K reduction it would take to get this place back to its late 2005 value. Examples like this make 50% losses seem quite possible. Frightening.

Ultra High End Relist...Now $1.7 Million Cheaper

Link to listing

Address: 506 Palisades Ave - 90402

Description: The architecture & design is blended w/an inspirational mix of cutting edge technology & tuscan authenticity. The creation is a magical resort filled w/elegance & luxury. Chef's kitchen, family room & fdr all open out to bkyrd w/saltwater pool/spa. Master w/open beamed ceiling and bath w/heated floor, state-of-the-art theatre, bar & lounge area, office/library, interior courtyard. Seamless indoor/outdoor flow, amazing ingredients, exceptional quality, 2006 built, close to montana & ocean ave.

Previous Listing: Sometime earlier this year (Westside Bubble featured it in May) - $7,950,000

Current Listing: 11/1/07 - $6,295,000

It looks like this lot was originally purchased on 7/31/03 for $1,475,000. New construction appears to have been finished in 2006. The house is a pimped out (movie theater and all) 6,300 sq ft which rests on a lot that appears to be a half lot due to its size of 8,575 sq ft. Other lots on this street are twice as big.

At the SM Distress Monitor, we think it is unlikely that there will be ANY segment of housing that will fully weather the storm over the next few years. We have heard talk of the super high end segment being able to hold up because buyers are just so loaded with buckets of cash and don't care. We disagree and think that we will see many more examples of properties like this struggling to sell for top dollar.

More Speculators Leaving The Market...And Taking Losses Along The Way

Link to listing

Address: 2724 6th - 90405

Details: Fixer/tear down on a 4,000 sq ft lot

Previous Purchase: 6/20/06 - $1,089,000

Listing History: 2/19/07 - $1,125,000
Reduced: 04/18/07 - to $1,075,000
Reduced: 07/07/07 - to $999,000

Holding Costs: $6,900/month or $115,000 to date

Transaction Costs: $50,000

Total Loss: $255,000

The status of this property is currently "looking for backup". Assuming they get their current asking price of $999K, they stand to lose over $250K. Losses like these should remind people just how important it is to understand what phase the real estate cycle is in.

Maybe I am missing something here but even at this reduced price, paying $1 million for a 4,000 sq ft lot seems crazy. Property Shark shows the zoning as SMR3 so that could explain it. Maybe a multi-unit potential here?

Another Agent Owned Flop - Oops, SM Isn't "Different" Enough To Prevent This Loss

Link to listing

Address: 924 5th #10 - 90403

Details: 3 bed/2 bath condo - 1,254 sq ft

Listing Description: Amazing remodeled penthouse in the most sought after santa monica location. Combined interior and patio space is over 2,300 sq ft. Breath taking santa monica mountain views from this perfectly placed patio. Wonderful flow through-out this indoor / outdoor property. This is a entertainers home extraordinare. Fantastic ocean breezes. Custom detail through-out. One of a kind property. 2-car garage plus 2 off street parking spaces.

Previous Purchase: 3/8/07 - $1,054,000

Listing History: 10/12/07 - $1,149,000
Reduced: 11/3/07 - to $1,075,000

First off, lets give credit where it is due and commend this seller for seeing the light and dropping the price quickly and by a sizable amount.

Ok, now the rest of the story...This owner is a real estate agent and a representative from her firm is the listing agent. This owner/agent bought in the spring of this year thinking that maybe the market was coming back and that a profit could be made via flipping a high end townhouse.

Or maybe they thought a Google employee, wealthy Jewish family, foreigner, etc would save the day (hat tip to comments on Westside Bubble for these ideas)

That is what all the agents were telling themselves and their clients, right? Well, the market didn't come back...in fact, it got much worse.

The loss here is going to be substantial because it appears money was spent to remodel or upgrade and the carrying costs on this thing come in at around $7,000/month. Throw in another 2.5% or so to the buyer's agent and maybe some more price cuts and we are easily looking at a six figure loss.

This looks like a pretty nice unit and it is close to the beach. Some readers of this blog have requested that we feature these types of high end, close to the water town houses because they may be interested in purchasing units like these. This one is for you.

Once again, we are seeing the real estate cycle in action. A couple of years ago, this would have been a no-brainer and a nice profit would have been made. Just as a rising tide (up cycle) lifts all boats, when the tide goes out (down cycle) we see who has been swimming naked. Indeed, SM is not "different".

$1,000/Sq Ft , One Bedroom Flip...Will A Greater Fool Appear??

Link to listing

Address: 911 21st #A - 90403

Listing Description: There is nothing that hasn't been done to this unit. Bedrooms are tandom and open floor plan. One used as an office with custom built-ins. Breakfast nook, mahogany stained hardwood floors thruout, caesar stone counters, glass door cabinets, ss appliances, farm style sink, stone tile in bathrm floors,walls, shower, with bamboo accent, designer ceiling fans, custom closets, tankless water heater, single car enclosed garage, updated electrical/plumbing, large private patio completely landscaped.

When seeking a commission of over $40K, could we at least do a spell check before posting the description..."tandom" and "thruout"...

Previous Purchase: 10/10/06 - $599,000

Listing History: 8/10/07 - $749,000
Reduced: 9/28/07 - to $719,000

Square Feet: 714 = asking price of $1,007/sq ft

The first thing to note is that the listing is claiming this condo to be a two bedroom unit. But Zillow and Property Shark show it as a one bedroom. The listing is claiming that the "office" is the second bedroom, but in reality it is too small and not separated so I don't know how it could really act as a second bedroom. The whole unit only has 714 sq ft so size is an issue here (check out all that space in the bedroom and kitchen...you could barely get out of bed and couldn't fit two people in the kitchen, hooray). Yes, we have been to an open house here...

Anyways, this flipper took the dive for $600K in October of last year and looks to have upgraded a lot of things in the unit. With over $80K in holding costs and transaction fees alone, once we include the costs of the upgrades this seems like a tough situation to make a profit in.

Oh, and then there is the issue of actually finding a buyer who is willing to pay over $1,000 per square foot for a crammed 1 (or maybe 2 if you really squeeze) bedroom unit. If this thing doesn't epitomize the housing bubble in Santa Monica then I don't know what does!

Have a nice weekend.

High End Townhouse = Early 2005 Rollback ** UPDATE 1 **

We featured this listing just a few posts ago

It was purchased in early 2005 for $949,000

After 112 days on market, we are getting a "first of the month" price cut. I have seen quite a few after searching through zip realty.

Reduced: 09/26/07 - $989,000 to $969,000
Reduced: 10/10/07 - to $945,000
Reduced: 11/01/07 - to $929,000

Are sellers waking up? This is only a $16K price cut so it doesn't do much but it still looks like the trend remains strong. We are now getting close to a 2004 rollback in this situation. If you were a seller in this environment, how would you go about pricing? How long should you wait in between price cuts and how big should they be in order to get the best bid?