Sunday, July 6, 2008

Going Down(town) in Flames

Address: 1100 E. 3rd Street, 90802
Asking Price: $499,000
Year Refurbished: 2005
Size: 1 beds, 3 baths, 1818 sq. ft.
$/Sq. Ft.: $274
HOA Fine: $350/month
Purchase price: $799,000 (oofa.)
Purchase date: 9/2006
MLS#: G101212
On Redfin: 261 days
Down Payment: $74,850 @ 15%
Monthly Payment: $3,500
Income Requirement: $124,750
Description: FABULOUS LOFT AT THE BEACH!! Premier penthouse loft with enormous roof deck, breathtaking views, at the beautifully restored (2005) Ebell Lofts, just 3 blocks to the sand and 2 blocks to the trendy East Village area of Downtown Long Beach. Beautiful glossy concrete floors, high end kitchen with granite counter tops and stainless steel appliances, 1 full and 2 half baths, a balcony + roof top deck with city skyline and harbor views! Truly amazing! Must be seen to be believed!!!

Let’s cut right to the heart of the matter: If this loft sells for asking price, the loss to the owner will be $330,000. Even the Sultan of Brunei would wince in pain knowing he lost more than 40% on his investment in less than two years.

Keep in mind, they’ve been trying to offload this flip for (nearly) one of those years!

Heck, with a bathroom like this I can sort of see why:

Are those cabinets from Target?

However, it has 2 garage spots, plenty of bathrooms, oodles of square footage, really cool looking building, lots of amenities…and no shot in holy hell of selling at this price.

I mean, just look at the pricing action in the race to the bottom:

10/19/07: $869,000 (A valiant attempt at a flip for profit right after the credit crunch hit)

12/8/07: $799,000 (Bam! A money-losing price just 13 months after purchase)

4/1/08: $699,999 (After four months lingering on the market, desperation sets in and the seller is willing to eat a $140,000 loss)

4/18/08: $624,900 (Just weeks later our flipper starts to break a sweat and lops off $75,000. I remember realtors calling a bottom in April. Huh. It’s a good thing real estate “professionals” have lost nearly all credibility, otherwise some fool might have cost himself an extra 75k if he bought on 4/17)

5/12/08: $575,000 (Yawn)

6/13/08: $499,000 (Here we are today and still no dice)

Based on the pattern of price reductions, can I make a prediction for 7/13/08?


Based on the lack of interest despite price reductions, can I make a prediction for 12/13/08?


Given those drastic price reductions and the further cuts guaranteed in the future, we arrive at the all-too-familiar dilemma of how to value properties.

Who do you rely on? Realtors? They’ve already proven they have no idea what’s going on. I mean, just look at the listing agent. They actually believed $860,000 was a price that would lure buyers.

Appraisers? The ones that aren’t currently hiding in fear of a subpoena related to the WaMu collusion scandal must rely on comps. Not much is selling so that’s become much more difficult. They have this place pegged at $527,100 on the low end and $683,975 at the high end. Hell, we passed those prices MONTHS AGO.

Past sales? This building was redone in 2005, so that’s out. Plus, look how many times they've lowered the price with no buyers.

I'll say it again: The ONLY way to determine the value of any investment is to run calculations based on fundamentals. That's it.

And what do those rent vs. buy fundamentals tell us?

Based on nearby rents of similarly sized lofts, this gloomy gus would not even begin to make financial sense until the price reached $299,000.

Which do you think will happen first? That 60-plus% total price reduction or this flipper walking away?


  1. 3 pretty large blocks to the sand. Do you think that the tar beach is legal? Doesn't appear to be a surface appropriate for walking has been added to the roof. I wonder if that is even exclusive space, or they are just camping on the community roof that they are not really supposed to access.

    so similar lofts are renting for $1/sf in the area?

    i guess a DINK couple could buy it for $250k or so and make out ok.


  2. Excellent points made El Bee, keep up the good work!

  3. FreedomCM,

    Ha! I never thought of it like that: $1/square foot.

    Here is a nearby rental (I know someone with one of these lofts and they are pretty sweet):

    Not a perfect comp, but the fact remains that as long as properties like this are available for rent for AT LEAST $1,000 cheaper per month than owning a similar unit, our time spent on the sidelines keeps getting extended.

  4. I just read this entry, in November, and was curious to see what happened:

    Maybe you've updated elsewhere, but if not, you'll be happy to know that your prediction came true-it's now bank-owned. Unfortunately, they didn't get the memo about pricing...

  5. I just read this entry in November '08 and thought you might be interested in an update:

    Your prediction about "Bank Owned REO" is correct, but they didn't get the memo about pricing...