Thursday, March 25, 2010

Bungling Buffoon Badly Burned by "Bottom" Buying

2662 East 2ND St Unit G2, Long Beach, 90803
Asking Price: $399,000
Beds: 2
Baths: 1.75
Sq. Ft.: 1,292
$/Sq. Ft.: $309
Year Built: 1966
MLS#: P727352
On Redfin: 2 days
HOA: $213
Down Payment: $80,000
Income Requirement: $114,000
Monthly Nut: $2,300
Description: Look no further! You have found one of the nicest and most spacious 2 bedrooms PLUS office currently available in Bluff Park. This END UNIT boasts gleaming hardwood floors, plantation shutters, a formal dining area, a huge remodeled eat-in kitchen with amazing storage and counterspace, a large guest room, updated guest bath with spa-like feel, oversized master bedroom with a dressing area and remodeled bath, french door enclosed sunny office area, and an in unit stackable WASHER/DRYER. Finally, no community laundry!!! The condo also comes with an oversized parking space and additional storage above the space in the garage. One of the nicest and well maintained buildings in Bluff Park or Belmont Heights you will show. Just a pleasure! Pets are allowed and you are just one block to the beach, bike path, Long Beach Museum of Art and fine retail and restaurants. The perfect elegant and stylish neighborhood. This is a standard sale!

The 2008 losers just keep stacking up. Today's seller was yet another sheep who allowed himself to be misled by CNBC hyper-bulls and his commission-hungry realtor that he was "buying at the bottom" in late '08.

And now, predictably, he is being sent to slaughter.

Just a short 19 months ago he foolishly purchased this apartment for $451,000 from a pre-bubble owner who paid a mere $165,500 ("Thanks for the bubble profits, noob!). Considering the original asking price was $469,750, I bet he thought he was pretty slick negotiating a whopping 4% discount.

Sadly, he abruptly discovered that his negotiating skills were about as strong as Corey Haim's willpower (too soon?). Armed with the sudden realization that he grossly overpaid in a rapidly declining market(!) and could never afford such a monstrous payment in the first place, he threw it on the MLS for an ego-deflating $399,000 and is now begging for the market's mercy.

After commissions, that represents a -$75,000 loss. Ouch.

Hey guy, is the smoke bothering you?

You know, from the smoldering crater where your bank account used to be?

The thing is, I quite like this place. I think it's an "updater," a term I first became familiar with by way of Jim the Realtor's site. It's certainly not a "fixer," (by the way, have you noticed that hardly any properties are listed as a "fixer upper" on Redfin anymore? Here is a prime example of someone in "fixer" denial) but it's also not quite "turn-key" and requires $10,000 to $15,000 in lipstick and blush.

For example, the kitchen:


But add some new countertops and mild updating and you'll be set.

And the master bath, while not horrendous, could use some freshening up. You might disagree, but remember this is a property demanding $400,000!

Don't get me wrong, this place is pretty slick. Crown molding, nice floors, two bedrooms plus an office, reasonable square footage, in-unit laundry, only one common wall, decent HOA fee...pretty impressive.

Plus it's in a great neighborhood in close proximity to those killer Long Beach waves.

I'd live here, no doubt.

However, I would never pay this much. Way overpriced for what you get.

But that's just me. I think some buyers will find $309 per square foot reasonable given the location and sold comps. Unfortunately, they, just like our seller, will be catching a falling knife.

Let's look at the fundamentals:

Rent vs. Buy: I seriously doubt it rents for anywhere near $2,300, but I'm open to being proven wrong. But most buyers probably focus on after-tax payments, so let's call this one a wash for the typical (imprudent) buyer.

Local Incomes: The median income in this zip is $82,765, and I would imagine someone looking at these beach-close units would earn above median. Let's say $100,000 per year. At 3.5X income, they would need to make $91,000 to reasonably afford the mortgage (assuming 20% down). However, if you calculate the more conservative figure of House Price/3.5X income, they would need to pull in $114,000 per year. Could be a wash depending on how you calculate the numbers, but a conservative buyer would be stretching too thin to make the monthly nut.

Pre-bubble pricing/fundamental value: Here's where it gets tricky. If you apply a generous 4% per year appreciation to the 1999 sales price (and remove the bubble and ensuing crash), today this apartment would be worth $255,000. Add in a little extra for the few upgrades it does have, how well-maintained it is, and the fact that the '99 price seems low, and at most you're looking at a 2010 value of $300,000 - $310,000.

"El Bee, you're smoking Plymouth Rocks if you think this place is only worth $310,000!"

Well then I guess I'm not the only one because a certain bank is robbing its sister for a taste of that sweet, sweet crack too. In the very same building a lender is trying to offload a larger unit and believes it's only worth $325,000 (FYI that's a $100,000+ discount from the 2004 price!).

How the shit is our featured beggar--ERRR...seller going to compete with that? He's not. And that means this joint won't be a "standard sale" for long.

Assuming the REO isn't a complete turd pile inside (thanks for the photos, dick!), this is horrendously bad news for our overly optimistic seller. If the bank-owned property sells for full asking price (which, frankly, I'm surprised it hasn't already), then that comp guarantees our seller eats a -$150,000 loss instead of the -$75,000 hit he was initially worried about.

How pissed do you suppose the residents are at that dastardly bank?

Anyhow, this dummy listened to the wrong people and thought he could beat the odds. But now he's just going to get beat down. Just like pretty much every other 2008 "bottom buyer" who tries to sell today. If only they had been readers of this blog.

Look, if you ignored my (absolutely correct) prediction that prices would continue to slide and bought during the last two years, I'm not trying to pick on you. There are a million reasons to buy in a declining market and a million more ways to fudge the numbers to justify it. Hell, I'm ready to get on with my life too!

But if you did your homework and paid close to rental parity, got a fixed-rate 30-year mortgage, have a healthy emergency fund, can reasonably afford your payments, and absolutely adore the place you live, then you'll be able to ride this thing out just fine -- and get to live in a house you love in the meantime.

But if you bought way before the bottom like this dude and want to sell in today's environment, just know that you are in neck-deep in shit and have no one to blame but yourself.


  1. Nice analysis. But I'm still stuck on the fact that, in your linked listing to the 'opportunity knocks' fixer there's a photo of the house number (why?) in which the realtor couldn't even be bothered to move the trash out of the way. How lazy are these people?! Fine, just kick it out of the way with your foot. Jeez...

  2. I just left a long ass blog comment that got erased because of some strange error message saying "blog id required".

    Very strange.

    When I tried three times, and then hit "preview" first, for some reason it went through.


  3. Nice post El Bee!

    I'm guessing @ $399k he is trying to undercut the other unit, A3, that is for sale in the same building by $10k.( )

    In my opinion from a investment point of view $300,000 is still to high in this risky market in which rents are going down.

  4. Zeus,

    Check out the tax basis on Unit A3: only $145,434! Holy crap. Talk about an equity seller.

    In a few weeks he's going to have to drop the price (and can obviously afford to do so, unlike our seller in Unit G2) and that spells DOOOOOOOOOOOOOOOOOOOOOOM for our bottom buyer.

    P.S. I'd pay $325,000 for Unit G2 without blinking.

  5. Jason, these days most people don't know the concept of "class". Too "ME" oriented, self-consumed, narcissistic, etc...

    I like the fixer property. It has a nice backyard, and good square footage. The location is ehhhhhhhh so so.

    But I have a big preference for a house with a yard (and no HOA fee).

    Depending on the insides of the place, I think a fair price would be $250 - $300K.

    As for THIS property, I like it as well. Good location and good square footage. Anything from 2nd street in is very good.

    Nice big parking space, and some nice features on the interior.

    Don't know what's up with that bath tub with the shower head built for dogs, or the forest green tiling in the kitchen??? As El Bee put it - "horf"! That is an appropriate clown. Short and brutally blunt.

    Would love to see the balcony and view, but the dumb fuck realtor didn't think that was important to include I guess. Gee, ya think buyers might be interested in what the balcony looks like, and what kind of views there are???

    If this place were a turnkey, I think a fair price would be around $325K.

    Since this needs some upgrading, I think around $300K is a fair price.

    Maybe some of these people though, are living in an alternate reality... one where we're not in the midst of a huge economic crisis, one where the city of Long Beach isn't at record unemployment, one where the real estate market isn't in the midst of a huge downturn, etc...

  6. Jason,

    Hilarious! Upon first glance at that gutter photo, I thought that was a used condom. HORF!