Nuked on Newport

Buddy, compared to what's in store for you, these first 49 stressful days on the market are going to feel like an AIG-sponsored massage at the St. Regis.

Address: 363 Newport #209, 90814
Asking Price: $190,000
Size: 1 beds, 1 baths, 606 sq. ft. (built in 1972)
$/Sq. Ft.: $314
HOA Fee: $252
Purchase price: $264,000
Purchase date: 9/2004
MLS#: P653088
On Redfin: 49 days
Down Payment: $38,000
Monthly Payment: $1,400
Income Requirement: $47,500
Description: This nice, bright and cozy one bedroom condo is conveniently located in the heart of Belmont Heights. Features laminate flooring, wood shutters in the living room and bedroom. Some upgrades in the bedroom, kitchen and bath. Located in a very well maintained and secured complex. Subterranean parking with storage.

I chose today's property because about six months ago I looked at a condo in this 60-unit building (to rent, duh). My first impression was: This building is kind of like 30 handicap parking spots in front of a roller derby rink: Nice, but a little odd.

It had a goofy, incredibly outdated "nautical" theme throughout the entire property, complete with sea-green trim and white wicker furniture in the lobby. Yeef.



As the current renter escorted me upstairs (she was really cute too. Blonde, about 5'7", very frie--BUT I DIGRESS), I couldn't help but notice how dark the hallways were. Whenever I walked near an occasional, too-widely-spaced light fixture, I caught peeks of the old paint and shoddy, dark carpeting. *Shudder*

Cute Renter must have read my mind because she mentioned the HOA was soon replacing the carpet and repainting the (over-textured) walls.

The interior of the condo was tidy and the fake wood floors were just fine for an apartment (This listing describes 606 square feet at "cozy," but "cramped" is more accurate. But I guess "you can do your dishes from the couch" is probably less effective from a marketing perspective).

Otherwise, the unit was "Lite and Brite" and suited my needs just fine. The building also has a pool (too small for meaningful exercise) and a well-kept underground parking garage with an impressive amount of storage. Overall, I probably should have rented it for $1,150 when I had the chance. Dirt cheap considering the parking situation and clean, mildly-updated interior, and I would have been able to save boucoup bucks while waiting for Long Beach home sellers to put the bong down.

Although I somewhat regret not renting it, you know what I don't regret? Buying one of these tiny units near the peak of the housing bubble.

You know who does? This poor chump.

Instead of making a fortune flipping condos, as TLC and HGTV told him he would, in just four brief years this loanowner watched his dreams of real estate fortunes crash and burn like Travis Barker's jet (too soon?), and will absorb a stunning $85,000 loss.

And that's assuming it sells at current asking price. For you frequent readers, we all know the story with that. About as much chance as Kato Kaelin cleaning up at the '09 Academy Awards.



Remember, a unit just like this (sans plantation shutters) was renting for $1,150 six months ago. I imagine the current economy and mounting job losses are applying significant downward pressure on rents, but let's just assume $1,150 is still the going rate.


The monthly mortgage payment, including principal, interest, insurance, taxes and HOA, hovers around $1,400. Sorry, pal. In these parts that's called "bleeding cash." Why pay more to "own" something that is guaranteed to depreciate further during the next few years?

And it WILL depreciate--much more than nearby properties. The reason? It's a one-bedroom condo, which historically absorb the most punishment during housing downturns. The primary reason for that is the limited buyer pool for these small properties.

Families are out--not enough room for junior. Retired folks looking to downsize from their 2,000 square foot detached home wouldn't be interested in a meager 600 squares. Even a very short, very thin couple buying their first place would shy away from something this cramped. Low income couple perhaps? Nope, too expensive.

So who is this shoebox for exactly? An investor.

And what does an investor want? Say it with me: A RETURN ON HIS OR HER INVESTMENT, NOT A MONTHLY BLOODLETTING.

So, I guess the $190,000 question is, What would be a good price for this place as an investor (seeing as how they'd be about the only people interested in buying this joint)?



If you take the December 2001 sales price of $126,500 and calculate a 4% annual appreciation rate, today this condo would be valued at $166,000.

However, at $166,000--a discount of $24,000--the monthly payment would still exceed equivalent rent by about 100 bones (By the way, I could have started the appreciation timeline at the 2000 price of $87,000, but I didn't want to make the seller cry).

Some could argue that once tax write-offs are factored in this investment is juuuuuust sneaking into cashflow positive territory. I would argue right back that marketing, upkeep, and vacancy costs would wipe out any tax benefit, but for the sake of compromise, let's assume that this boxcar racer meets rent vs. buy equivalency at $166,000 (assuming, of course, the seller is smart enough--and willing--to lop off another 12%).

Still no dice, caballero.

Why?

D-E-P-R-E-C-I-A-T-I-O-N.

Ew, what an icky word.

As previously mentioned, the limited market for such a property virtually guarantees further depreciation. But on top of that, there are no significant kitchen or bathroom upgrades. The realtor must have "forgotten" to include those pertinent photos, but we have no choice but to conclude this is a standard apartment. Which means the next 12 months are going to be brutal.

It's like the current stock market:

"Wow, Gerald! Shares of GM stock cost less than a gallon of gas! I'm going all in!"

"Take it easy, Charlene. Why buy all those shares when GM's balance sheet and bad economic news coming down the pipeline indicate shares will cost less than a tall-boy Budweiser by next week?"

And that is exactly why undesirable properties--even those in somewhat desirable areas--will continue to get crushed. The housing bubble is no longer relegated to a few random blogs or obscure chicken-little economists--this is front page news. And nobody in their right mind wants to be a fool and catch a falling knife.

And as you ponder all of that, I want you to give a great big round of applause to the realtor for figuring out the flash on his camera!




Wait, is there a lamp taking a nap in the middle of that bed?! Told you this building was odd.