Thursday, August 28, 2008

Location, Location, Laundry?

My mother taught me from a very young age that the three most important aspects of real estate investment are Location, Location, Location. This advice is so pervasive, and logical, that it’s a bonafide cliché.

But what does it really mean?

For one, location means neighborhood. To supplement with another clichéd piece of advice: buy the ugliest house in the best neighborhood. Meaning, you can always fix your property up and enjoy the appreciation that comes along with a desirable area, but it won’t do you much good having the largest, most opulent house if it's in the middle of a ghetto nobody wants to live in.

Secondly, location means proximity. If you buy a house on a busy street you will contend with traffic noise, pollution, and limited parking. Same goes for power lines, freeways, airports, and sewage treatment plants. Pretty common sense, right?

In addition to location, I happen to think there are other equally important aspects to consider, including amenities, layout, size, number of bathrooms, shared walls, etc.

Location and property characteristics are not only crucial to creating and maintaining a healthy quality of life, but they are doubly important when it comes time to sell and you need to appeal to the widest possible range of buyers.

In other words, when buying a small, one-bedroom condo, a large buyer pool of couples with children or empty nesters looking to move into a smaller place will be shut out entirely.

If that one-bedroom is in a shady neighborhood with litter, crime, and bad neighbors, you have further alienated your potential buyers. You need to think this through and not just consider what appeals to you, but also what will appeal to a potential buyer should you lose a job, divorce, or simply feel the need to move up.

However, in a housing bubble, adhering to the Location, Location, Location principle and considering long-term selling points isn’t mandatory because even the most undesirable properties in the worst neighborhoods continue to go up in value.

In a speculative frenzy, even if you can’t stand living in a 710 square foot shack alongside the 710, just hang on to it for a few years and some other sucker will come along and buy your flawed junk for $100,000 more than you paid. After all, in a rapidly appreciating market, common sense goes out the window and everything—-and I mean everything—-becomes a “good investment.”

However, ignoring basic investing principles and buying an undesirable property in a bad location comes back to haunt short-term thinkers the very moment the market turns sour. Now that lending is severely restricted, jobs are being lost, down payments are back, and real estate is perceived as a losing investment, you’re stuck with an overpriced rat’s nest in a terrible ‘hood, adjacent to a liquor store and train tracks.

To quote the investor Warren Buffett, “It’s only when the tide goes out that you learn who’s been swimming naked.”

Real estate wasn't exactly what Mr. Buffett was referring to, but I think it can be applied here.

Today’s property is one of many examples of people who didn’t think long-term and set aside basic investing principles. They became blinded by stories of real estate riches and failed to see that purchasing this property only made sense in a once-in-a-lifetime housing bonanza, but when the tide went out and easy lending dried up, they were naked as a jaybird holding on to an undesirable property for dear life.

Address: 4548 E Broadway, 90803
Asking Price: $325,000
Year Built: 1956
Size: 1 beds, 1 baths, 871 sq. ft.
$/Sq. Ft.: $398
HOA Fine: $82
Purchase price: $260,000
Purchase date: 10/2003
MLS#: P648869
On Redfin: 32 days
Down Payment: $65,000
Monthly Payment: $2,100
Income Requirement: $81,250
Description: IMMACULATE INSIDE. Large Rooms with Hardwood Floors. Very Nice Kitchen with Adjacent Eating Area. Remodeled Kitchen and Bathroom. Lots of Designer Features. Walk to 2nd Street Shops and Restaurants. Plenty of Street Parking.

Now, this buyer got the Location part right in the sense that they bought in a fantastic, highly-desirable neighborhood. But they let that cloud their judgment and didn’t consider the other side of the equation: the selling points. Yes, you should buy the ugliest house on the nicest block, but there are some deal-killers you just can't fix.

The building is DIRECTLY on Broadway, all but guaranteeing traffic noise all day and night. Strike one.

Furthermore, it’s a one-bedroom apartment. You can call it a condo or whatever you want, but a fleeting glance at the building tells your buyer this is most assuredly an apartment. An unsecured, street-accessible entry? Yikes. And although it’s large at 871 square feet, it has no balcony and two shared walls--further projecting the dread of apartment living into your buyers' minds. Strike two.

Worst of all, the Title Case Heavy listing description mentions “Plenty of Street Parking.” That’s because there is NO COVERED OR SECURED PARKING! In a neighborhood teeming with rentals. For $325,000?!! That’s strike three, and the last out of the game.

Worse than a one-bedroom apartment with zero assigned parking, two shared walls, traffic noise, and no balcony, this myopic wonder (over)paid $260,000 in 2003 for a place WITH NO LAUNDRY.


I'm pretty sure an army barracks has more amenities.

And now they expect you, in a rapidly declining market, to pay $2,100 a month for the pleasure of listening to traffic noise at all hours, sitting in the Laundromat every weekend, struggling to find parking every night in jam-packed Belmont Heights, having no balcony or common area to barbeque, and hearing your neighbors argue through paper-thin walls while you worry about the implications of having no secured access to the building?

Lady, are you effing serious?

Other than the great neighborhood, I can’t think of one solitary reason to rent here—let alone BUY this worthless place!

I can’t imagine this thing rents for more than $1300 a month, and I’d be shocked at that considering the laundry and parking situation.

This place, as an investment, is worth no more than $210,000. Sorry. And that's making the incredulous assumption you could find a buyer dumb enough to believe the considerable sacrifices in quality of life are worth residing here AT ANY PRICE. Good luck with that.

As a quick example, this condo down the street with lagoon views has garaged parking, in-unit laundry, a fireplace, a sweet ass balcony, skylight, upgraded bathroom and kitchen, and hardwoods…all for $339,000.

There’s no way even this place, with its great amenities, nestled in its BEYOND prime location near the lagoon, will sell at $339,000 so what on earth is the Bungler of Broadway smoking?

As I’ve said in previous posts, the halcyon days of easy money and “any ol’ property instantly becomes a money-making asset” are OVER.

We have been quickly slapped back to a time when money actually means something again. And looking at the substantial deal-killing negatives the Broadway apartment has to offer, $210,000 sure seems like a lot of money—let alone the $325,000 WTF price this delusional, severely misguided seller is banking on.


  1. Great blogs!

    Why settle for a 1 bedroom when you can buy a 2bd for less ($310k).

    Hopefully things will continue to work their way to or past the fundamentals.

  2. Hey El Bee,
    Another reason the second property you profiled on Colorado won't's a short sale in that complex for less and it's a two bedroom.
    Another reason is that I believe this property only a couple of years ago was looking at the expiration of it's land lease. I can't emphasize enough that someone thinking of buying a condo make sure that they own the land and it's not owned by some schrewd, slimy developer.
    This property was involved in such a dispute, I believe, just a few years ago. The result I don't know of but looking at the dues may be the answer to that dispute, if it was settled.
    Look at the second property on Colorado. It has two sets of dues totalling $685. Shit! are you kidding me? The one that you put up only shows one set of dues. Hmmmmm...did our lovely realtor forget that one?
    Also I have a post that you might find interesting about condo conversions-reversions..a bad trend and with the huge number of condos in LB one we might start to see more of:

  3. Mr. HB RE,

    So funny, I've been meaning to do a profile on the 2 bedroom (unit #305) on Colorado. The purple tint always caught my eye. Plus, their asking price was astronomical when they started.

    Now it's a more reasonable $310,000 but YIKES! That HOA! Forget about it.

    Your condo conversion-reversion post is excellent. I feel like in the real world, some of these apartments would have NEVER been candidates for conversion--but in a housing bubble, any ol POS studio apartment suddenly becomes an "investment."

  4. anonymous,

    Two readers with an eagle eye! That 2 bedroom for less $ is a good catch. And as Mr. HB RE tells us, it's a short sale which will absolutely OBLITERATE the comps.

    But with that exorbitant HOA, the 2 bed has no shot at selling even at a reduced price of $310,000.

    Things will work their way past fundamentals, it's a done deal. I can feel a change in the air just by looking at recent price reductions and a change of tone in listing descriptions. It's going to take a while, but there is no doubt in my mind.

  5. A bit out of the area, but the Press Telegram had an ad in their homes section regarding new homes for sale. Now this goes to your 'Location' subject. These homes are in BELLFLOWER and while they look decent, they are jammed into an incredibly small area in a dicey neighborhood. No yards etc. All for just under 800k.
    I guess this developer didn't get the memo.

  6. Anon,

    Yikes! Is that asking price for real? In this market?? New construction or not, that's pretty bold.

    I haven't seen the inside obviously, but from the pictures the layout looks odd.

    I'm especially fond of the power lines overhead. Location, Location, 'lectrocution?

  7. Have you featured anything in the past on the Aqua highrise condos on Ocean? Aqua has an upcoming sale in September to unload units which have been on the market for years. They have even cut prices. There's also some foreclosures and numerous other units for resale. Feature Aqua, please!!