Money Trouble on Priceton? *Update 1*

We previously featured 1128 Princeton #3 (new listing link) back in April when it was listed as a short sale. Rather than re-post everything, see the comments from the previous post for the details of why this is a short sale (abuse of easy mortgage lending) and for info on the rape that took place at the complex. We will not be talking about safety or crime on this thread so please let it be.

Anyways, here is the old info:

Previous Purchase: 10/26/99 - $595,000

Listing History: 9/27/07 - $1,069,900
Reduced: 10/16/07 - to $1,029,000
April 08 listed as short sale - $989,000

And now here is our update:

Relisted History: 7/6/08 - $1,060,000

This is still being marketed as a short sale, yet for some reason the price has now risen from where it was last offered! Problem is, things have gotten dramatically worse in the world since just earlier this year. This seller is clearly dreaming and absolutely delusional.

What I think may be happening is that the lender(s) may have suggested that they would accept a short sale offer of $1M (I think I remember something about this in the previous description). So here, the seller is relisting with this price tag so that there is enough to pay the commission as well as satisfy the lenders and make the sale go through. But this isn't how markets work. The market decides what the property is worth, not you and your desperate lenders. If it didn't sell at $989K earlier this year, it isn't going to sell for $1.06M now. This incredible act of delusion is giving me no choice but to place this seller ON NOTICE.

For those interested in this unit, I would suggest waiting until this seller gets real (think $100K+ price cut) or else just wait until it is a foreclosure listing -- because there is no way this thing sells for more than $1M and I highly doubt it gets anything in the $900K+ range.

Fishing For a Fool

Address: 628 24th Street - 90402

Details: 5 bed/6.5 bath 5,248 sq ft house, 8,700 sq ft lot, 2002 construction

Description: Enter this stunning mediterranean built in 2002 w/5bd, 6.5ba thru gated courtyard. Prime north of montana location. Boasts step-down lr w/fp. Cook's kitchen w/wine fridge, granite counters, viking range, sub-zero & breakfast area. Spacious fr w/french doors opens to patio & grassy backyard. Perfect for entertaining. Basement w/great maid's or playroom. Exquisite master suite w/sitting room & walk-in. Features hwd floors, recessed lighting & custom details thruout. Open tuesday 7/22/08, 11-2 pm.

Previous Purchase: 9/9/05 - $4,200,000

Listing History: 7/21/08 - $4,295,000

Here we have a nice, high end house not too different from the previous one we just featured. This house should be priced lower pretty much for the same reasons why the last one should be priced lower...And this one is 5-6 year older (read: much more "used"). There is no question in my mind that this should be at least a full on rollback if/when it sells. Good luck.

Shadow Inventory Emerges

Address: 230 21st Place - 90402

Details: 6 bed/6.5 bath 5,033 sq ft house, 9,000 sq ft lot, 2007 constructed spec house

Description: This dramatic custom home has a versatile floor plan. There are wide plank hardwood floors throughout most of the house.. The kitchen great room is filled with light and opens onto a private patio area and yard. There is even a separate space behind the garage. Upstairs there are two additional bedroom suites besides the master suite. In the oversized master suite there is a generous closet and storage area as well as all the comforts in the master bath.

This is an example of a spec house that didn't sell back in 2007. We first featured it as part of our "North of Montana Pricing War" back in September 2007. We then heard from lap2 that it finally withdrew from the market after being leased out at $16,500/month on 9/10/07. Here is the old and new listing history:

Old Listing History: March/April 2007 - $4,650,000
Reduced: 5/4/07 - to $4,380,000

New Listing History: 7/18/08 - $4,380,000

At this stage in the game I think we are going to be seeing more sellers coming out of the woodwork who previously withdrew their properties in hopes of better markets down the line. It should be obvious that the market is not suffering a temporary setback. The era of deleveraging has begun. I would expect that many "temporary" landlords are really getting sick and tired of the slow bleed of negative cash flow. Its time to rip the band aid off in one fell swoop.

Secondly, I think that any potential buyer (who is doing their homework) should be flabbergasted at the delusion of this seller's asking price here. IF YOU COULDN'T GET YOUR PRICE IN MID 2007, WHAT MAKES YOU THINK YOU WILL GET IT NOW??!! (Think about this for a second -- we are now in the post Bear Stearns, post Indymac world where you will need 30% down for your super jumbo mortgage which itself will carry a much higher rate than a year ago.)

Lastly, I would like to highlight the sales prices for our two other spec houses which were featured alongside this one when we first featured it. 239 14th sold for $3.742M back in December 2007 (but remember it is inferior to this house so a discount should apply). 333 14th which is a little more similar just sold at the beginning of this month for $3.975M.

Basically these are the arguments I would use if I were to be bidding on this house right now. And yes, my bid would be below $4M. If this seller was serious, they would have priced at about $4.1 - $4.2M. They could have then argued that the premium over the fresh comp at 333 14th is justified due to the larger lot. They could also then show that they are in touch with the fact that the market has come down since they last had it listed a year ago. I of course would then argue that this house isn't actually new anymore since someone else lived in it these past 10.5 months so a further discount should be applicable since we are now dealing with used goods.

Rent Control Short Sale

Address: 1048 9th Street #9 - 90403

Details: 2 bed/1.75 bath 1,068 sq ft condo, $185/month HOA, $1,227/month RENT CONTROLLED

Description: Reduced $85,000 location, location, location. Spacious 2 bd & 1.75 ba on top floor. Lots of natural light. Balcony. Medallion heating (all electric). Walking distance to beach, montana ave and 3 st promenade. Torca conversion. Buyer to inherit rent control tenant. Rent is $1227 month. Tenant may not be evicted for owner occupancy. Low hoa. Short sale. 24 hr notice needed to see. Please do not disturb tenant. Invest in santa monica now while affordable.

Previous Purchase: 8/16/04 - $399,909 (90% financed)

Cash Out Re-fi: 6/1/05 - $500,000

Listing History: 5/29/08 - $500,000
Reduced: 07/02/08 - to $415,000

Your yearly income is $14,725 here. Then we need to back out expenses. HOA and property taxes come to $6,785/year. That leaves you with $7,940 in income before even looking at financing costs, opportunity costs, management costs, extra insurance, repairs, water, trash, etc...That is a sweet 2.3% cap rate which fades deep into the negative (i.e. fat negative cash flow) when looking at your likely all-in costs.

You could also make the argument that this old, ugly condo is nothing more than an apartment in this 1969 building which would be overpriced even if it didn't have the rent controlled restrictions attached to it. But maybe that would be adding insult to injury here.

Now let's talk about our owner. He appears to be another out of town "investor" who is getting burned twice over by our city's rent control restrictions as well as a falling market. Also note that our owner here did a massive cash out $500K re-fi less than a year after the purchase. I did a quick Google search for his name and found a press release from a while back stating that Countrywide Insurance Group was hiring him as a senior VP as of one of its units. Not 100% sure that this is the same guy, but the name is pretty unique so I would bet it is more likely than not that it is him. Not too surprising.

Oh, and in case you are wondering what type of behavior our wonderful rent control laws sometimes elicit when the going gets tough, check this out: Landlord pays record settlement in tenant harassment case

This blog has no "official position" on the whole rent control issue but it would be interesting to hear what our readers think about rent control here in Santa Monica.

I Want a Refund...And Some Profit *Update 2*

We first featured 517 14th in late May. We then featured it again in our first update when we put the seller "on notice" for reducing by an insulting 1.6%. Finally, after being on notice for about 5 weeks, our seller is starting to get closer to reality.

Previous Purchase: 9/2/05 - $2,005,000

Listing History: 5/1/08 - $2,388,000
Reduced: 06/11/08 - to $2,349,000
Reduced: 07/19/08 - to $2,250,000

I have been trying to stay away from featuring so much 90402 lately as I am somewhat bored with the debate. But if you want to get into it, this would be the thread to do so.

Aloha Loss *Update 1*

Another quick update. This one a rollback. 2002 4th Street #212 was last featured in November. It finally sold, and here is the update.

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

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

Sold: 6/18/08 - $454,000

Remember, this was a case where our "investor" here was listed as living in Hawaii. ALOHA!

Dude, I Got Undercut By That Guy Above Me *Update 1*

Quick update here. 1222 Princeton had two units for sale competing with each other back when we featured it in November. Unit #2 got undercut by #11...but our update today comes as we have found out that #2 sold. No word on #11.

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

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

Sold: 3/14/08 - $400,000

Cecil Gale (the third)

Address: 1060 Harvard - 90403

Details: 2 bed/1.5 bath 1,388 sq ft house, 7,900 sq ft lot, redone

Description: Spectacular, highly remodeled & restored 1936 Cecil Gale Spanish gem. Beautiful architecture w/ front courtyard. Huge private grassy backyard, plenty of room for addition. Large 2 car garage, plus extra parking. Fabulous new kitchen, new appliances, custom cabinetry, new bathrooms, new HVAC, new roof, updated plumbing & electrical. Franklin School.

Previous Purchase: 7/18/06 - $1,430,000

Listing History: 6/5/08 - $1,799,000
Reduced: 7/17/08 - $1,699,000

Here is the third Cecil Gale house that we have been mentioning lately. See our last few posts for more info on 865 Harvard which recently sold as well as 2722 Washington which we featured yesterday.

I won't get into all the specific details here, but I will paste one of my previous comments.

865 Harvard was by far the best of the bunch and sold on 7/11/08 for $1.725M. If you see the last post on it, I argued why 1060 Harvard was thus overpriced at its current asking price of $1.799 because it was clearly inferior to 865. I argued (and some here agreed) that roughly a $100K cut was in order. While that cut hasn't happened yet, I will reiterate that it is needed.

Looks like we got our cut (do current sellers read this blog or what?). Now the question is, will it be enough? My guess is "no" because after touring both this house and 865 Harvard, I thought that there should be a gap of at least $50K between them. One positive to note is that this house is now "the nice" Cecil Gale and in a better location - whereas before it was inferior.

Cecil Gale All Over The Place

Address: 2722 Washington Ave - 90403

Details: 2 bed/1 bath 1,483 sq ft house, 6,627 sq ft lot -- "Remodel plans available"

Description: Charming cecil gale spanish casa w/coved ceilings, plaster moldings, arched doorways, hrdwd flrs oozing w/ one-of-a-kind details. 2+1 house feels spacious - enjoy coved living room, dining room, breakfast nook, o'keefe merritt kitchen + relax in the shade of the veranda. Yards have tile/brick walkways + grass. Bonus room attached to garage off alley. Remodel - plans for expansion available. Close to whole foods, douglas park+franklin school. Priced to sell now!!! Call la1 for appt. No sign.

Previous Purchase: 3/13/07 - $1,400,000

Listing History: 7/15/08 - $1,549,000

Old, Cecil Gale Spanish houses seem to be all the rage these days...actually it is likely just a coincidence that this is the third Cecil Gale to be on the market in the past few months. The other two were 865 Harvard (which recently sold per our last post here), and the still active 1060 Harvard which we talked about in the same previous 865 post.

I will of course tell you that I think 2722 Washington is overpriced. Why you might ask? Let's go over why it is inferior to both of the Harvard houses and then you can argue whether it needs a larger discount or not (if you think its overpriced, it needs a larger discount).

I think Harvard wins a few points for location because it is a slightly quieter street. Washington is just a touch busier due to fewer stop signs and the traffic circle at 26th. The lot sizes for both of the Harvard houses is 7,900 sq ft. That means we are almost 1,300 sq ft smaller here. Both of the Harvard houses are heavily fixed up -- although not expanded. Both Harvard houses also were completely landscaped and had large backyards covered with grass. This house has a bunch of old brick in the backyard and needs a pretty decent amount of work to be up to the Harvard street standards.

865 Harvard was by far the best of the bunch and sold on 7/11/08 for $1.725M. If you see the last post on it, I argued why 1060 Harvard was thus overpriced at its current asking price of $1.799 because it was clearly inferior to 865. I argued (and some here agreed) that roughly a $100K cut was in order. While that cut hasn't happened yet, I will reiterate that it is needed. So if 1060 Harvard gets lucky and someone buys for $1.7M, the question becomes, should 2722 Washington "only" be $150K cheaper. I think it is inferior enough to 1060 Harvard to warrant a larger gap.

...Or we could just save ourselves the time and make the argument that houses like this (no improvements) should be early 2007 rollbacks FOR SURE at some point. So anything north of $1.4M is a rip, but we might see someone still pay up a little above $1.4 because the denial still runs deep in 90403...But at this point, I would not be that embarrassed to put in a $1.4 bid...so maybe even that isn't low enough (if you believe this blog's slogan).

If the sellers here are motivated, I think this thing could sell in the mid to high $1.4s. Maybe. Vote on it (upper right corner of blog).

EDIT - Poll Results Below
$1.5 - $1.55 --- 4%
$1.45 - $1.5 --- 27%
$1.4 - $1.45 ---11%
Less than $1.4 --- 37%
Won't Sell ---18%

100% Financed, Investment Property Short Sale *Update 2*

We first featured 2045 4th Street #107B in November when it was on the market as a short sale. It was owned by an investor and was tenant occupied while on the market. We did our first update in January when a foreclosure in the same building came online as direct competition.

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

Listing History: 10/23/07 - $459,000
Reduced: 12/29/07 - to $425,000

Notice of Trustee's Sale Filed: 4/16/08 (Notice says that property will be auction in Pomona on 5/5/08)

Sold:6/4/08 - $425,000

This is a decline of 15.2% and I think this unit will likely continue to fall for a while longer. The question is, did this sell at the auction for $425K or did the auction get postponed due to an accepted offer of $425K via short sale?

Our Northern Neighbor *Update 1*

We previously featured this Palisades home (13735 W Sunset Blvd - 90272) back in April.

Looks like this flipper got the rollback disease and lost some hefty coin in the process.

Previous Purchase: 4/26/06 - $3,950,000

Listing History: 1/29/07 - $5,295,000
Reduced: 04/18/07 - to $4,790,000
Reduced: 07/26/07 - to $4,595,000
Reduced: 11/30/07 - to $4,400,000
Reduced: 01/04/08 - to $4,250,000
Reduced: ?? - to $3,995,000

Sold: 7/15/08 - $3,490,000

Remember, from the original post we loved the first line of the description: "Price firm. Back on market; buyer did not qualify for loan." I guess the price wasn't so firm.

Even The Pros Were Speculating In 90405 *Update 1*

We previously featured 2511 25th Street about 3 months ago and we conducted a poll to see what readers thought it would sell for.

This was my comment summarizing the poll results last time: Most (60%) people think this thing will sell for below $1.3M and some (25%) think it will sell in the $1.3M - $1.4M range

It looks like many people here were a bit too bearish with respect to where places are still selling right now. I certainly agree that this place will decline in value for the next few years, but it checked all the boxes and was well done by a professional who does quality work so it got sold quickly and for a pretty large sum of money.

Previous Purchase: 7/11/07 - $1,000,000

Listing History: 3/31/08 - $1,599,000
Reduced: 04/19/08 - to $1,499,000

Sold: 6/24/08 - $1,490,000

6th Street 1 Bedroom Condo Battle *Update 1*

Just wrapping up some more sales on previously featured properties. I am slowly making my way through all of the older properties which we have previously featured and I will try to feature more over the coming weeks. I want to get all the late 2007 sales out of the way ASAP because things have changed so much since then that those data points have less and less relevance as time goes on.

Also, I changed the layout and colors a bit. Call it the "post Indymac" look. Might tinker with it a bit more but hopefully you all ("y'all" for the out of state migrants) like it like this.

We last featured 908 6th Street as part of our 1 bedroom condo battle. This unit was referred to as "THE CHALLENGER".

Previous Purchase: 6/21/02 - $269,000

Listing History: 9/24/07 - $439,000
Reduced: 10/20/07 - to $422,500

Sold: 12/28/07 - $402,000

Still lots of downside to come.

Another Flipper, Another Likely Loss...And More Delusional Pricing **Update 2**

865 Harvard was first featured on this blog here. Our first update came when we found out that the seller wasn't actually the one who did the upgrades (i.e. he likely wasn't spending much aside from carrying costs).

Many thanks to a reader for e-mailing the final selling price.

Previous Purchase: 8/29/06 - $1,760,000

Listing History: 1/16/08 - $1,995,000
Reduced: Date unknown - $1,850,000

Sold: 7/11/08 - $1,725,000

This was a case of little to no value added by the current seller because all the upgrades were done by the guy before him. That makes this a good example of an apples to apples situation.

$35K loss on property + $37K property taxes + $220K holding cost + $100K selling commission and other transaction fees = a loss of over $385K

The other thing we have to now think about is the fact that a similar house on the same street (one block south) is still on the market. 1060 Harvard is asking $1,799,000. I toured both of these houses and there was no question that 865 Harvard was superior. That means that as a result of this sale, 1060 Harvard needs to come down by at least $100K to think about selling right now.

I still think there is a LOT more downside to come here. Gotta give 865 Harvard a little respect for seeing the light, reducing the price, and finally accepting an offer well below listing. Things look absolutely abysmal right now on so many fronts (IMB, FRE, FNM, worldwide bear markets, etc, etc...see calculated risk for coverage) -- 1060 Harvard needs to get serious real quickly.

EDIT -- I am hearing that this unit was actually rented for a good chunk of time. This would bring the loss down quite a bit so that we might be looking at something closer to $300K or so.

A Newly Minted "Insider" Learns About Market Cycles *Update 1*

We previously featured 937 5th Street #10 back in December 2007 when we saw yet another example of a real estate agent bailing from the market (and taking a loss in the process). This is a 2 bed/1.5 bath condo (looks like an apartment conversion)...but it does have "granite" and "marble" surfaces!! (these are big red flags; especially in a crummy old building like this).

Our update today comes because the unit has just been relisted as a short sale.

Previous Purchase: 10/17/05 - $637,000 (90% financed?)

Old Listing History: 11/7/07 - $599,000

New Listing History: 7/8/08 - $499,000

As we stated last time, it looks like this person may have put 10% down (or else there is another mortgage here that I am not seeing). Given the substantial hit that a short sale would entail for the lender, and given how infrequent short sales have been going through, our prediction here is that this unit has a good shot at going into foreclosure at some point. Also, this is not yet a good deal. Values were in the mid $300s in 2002. I would expect a unit like this has a good chance to get to the $300s at some point once again.

Finally, to see the massive 6 figure losses some others in this building with comparable units are sitting on, check this out:

Unit 5: 9/2/05 - $643,000
6/4/04 - $509,000 (this means #10 is already at an early 2004 rollback level)

Unit 6: 5/16/06 - $645,000
11/22/02 - $350,000

Unit 9: 6/1/06 - $616,000

Also note that Unit 10's previous purchase before its last was 8/9/02 - $345,000

I predict at least 1 unit in this building will go into foreclosure at some point during this down cycle.

Another Agent/Owner 2-Year Loss *Update 1*

2441 14th was previously featured here. It ended up selling higher than I would have anticipated, but this sale took place a long time ago...think pre-Bear Stearns. The world is a vastly different place today -- although this is still a loss when looking at transaction costs and some holding costs.

Also, can someone shed some light on the financing picture as well as what is going on here with the new buyers. I am seeing that it is a married couple along with what appears to be an unrelated person who all bought the place together as joint tenants.

Previous Purchase: 6/24/05 - $850,000

Listing Price: 9/27/07 - $899,000

Sold: 11/6/07 - $903,000

$1 Million = 2 bedrooms in a 1964 building?? *UPDATE 1*

Waaaaaayyyy back in September 2007 we featured 852 21st Street #D. It was a 2 bed/1.75 bath condo with a nice outdoor patio.

Previous Purchase: 3/30/06 -$940,000

Listing History: 7/12/07 - $1,059,000

Sold: 3/14/08 - $940,000

The sellers here got very fortunate and escaped with only holding and transaction losses. The buyers here are certainly way too early. I personally toured this unit and while the location is good and the unit was nice, this is a lot of money for an old building and only 2 bedrooms. The patio was very nice though. This also goes to show that if you are out there bidding on anything right now, you should have absolutely no shame in lowballing by large amounts. If you aren't somewhat embarrassed by your offer, then it isn't low enough.

I will be doing more update posts as I have decided to go through all of the old posts here and publish updates when I get time.

New Blog In Town

Got an e-mail recently and found out that there is a new blog that has just come online which will be covering the "west of Lincoln" area from the 10 freeway down to Marina Del Rey.

Here is a link to the blog: WestofLincoln

Open Post

Here is a photo from San Diego. Sort of similar to the signs I have been seeing near many Los Angeles freeway exits that say something like "Avoid Foreclosure". Maybe this is the same company? Also saw another large sign on the side of the road saying "CASH 4 GOLD". Interesting times...

Anyways, there will be no new posts until next week. So for now, feel free to use this post as a place to discuss whatever you want. Please be respectful of each other and keep it civilized.

To start it off, I know some people want to talk about "the 90402"... Go for it! I would also be interested in hearing opinions from our readers on how long this decline will take to play out and when you are planning on seriously looking to purchase.

Renting a Foreclosure

In the comments thread of our last post, we found the following comment posted:

"I know this is off topic but I thought that the readers would find it pretty funny. I leased a 2br 2b condo in 90403 June 2007. Our landlord came to us January 2008 and said that he didn't really own the condo any more because it was in foreclosure. It has been in ownership limbo for 6 months. We stopped paying rent and have been living for free since January. The HOA in our building put a letter on our door requesting that we start paying the HOA dues or they would put a lien on our property. If there is anyone who could provide some advice I would appreciate it."

I think this is an interesting situation and one which merits its own post.

The first thing that I thought of was to go over to Piggington.com (a fantastic San Diego based real estate website with good online forums) where this subject has been discussed many times. Just go to the upper right corner and use the search field and use something like "landlord in foreclosure". Many well educated real estate folks over there have hashed out situations like this before.

So readers, what would you do in this situation? Personally, I would thank my lucky stars that I got free rent for the past 6 months and try to find a new place immediately. I would imagine that worrying about the deposit is a moot point because it likely is equal to one months rent; while in the mean time you already got 6 months for that price!

I would not pay any HOA fees even if I were to try and stay for a while longer. It is the owner's responsibility and not yours.

The somewhat shady thing to do here would be to try and stay for as long as possible and not pay any rent while waiting to eventually get kicked out by the bank. The owner who defaulted has no remedy to come at you for future rent (although I imagine they might be able to try and get some of the back rent you didn't pay?). If it took the bank another 6 months to get everything in order you could live rent free for quite a while...again, not recommending this but just saying it is an option.

This is another example of why I think we are in for much more pain to come. It takes months if not over a year to go from the time of default to the time of foreclosure listing. Many of the Alt-A loans are just starting to default now.

As a last minute addition I would also recommend people check out OC Renter's blog for this interesting situation/debate on whether to walk away from a very underwater condo when you have the ability to pay.